Virtualization's Next Big Leap Will Make a Big Difference for Tech Stocks

Virtualization and cloud computing have generated plenty of buzz because of their potential to reshape the economics of information and technology. Most of that potential is still “cooped up” in the VLAN, driving impressive gains in server management, yet within strict confines.

The promise of VMotion across VLANs or even across facilities and national borders in pursuit of momentary advantage (electricity, taxes, geo-specific traffic demands, utilization, etc) has yet to be fulfilled, but it is at the core of the virtualization and cloud promise. It significantly reduces the energy and costs required for IT service delivery by decoupling applications and services from dedicated hardware and facilities.

Yet the deployment of VMotion has been slow and perhaps disappointing: the network isn’t ready to deliver on the promise.

VoIP - Déjà vu All over Again

This gap between new system and existing network takes us back to the imperfect, wobbly emergence of VoIP. Those early high-profile deployments, where enterprises placed substantial bets on the payoffs of packetized voice were rudely reminded that VoIP meant voice packets traversing essentially unprepared networks.

Note this InformationWeek headline from 2004: “Dow Hires IBM To Take VoIP Project Over From EDS”

“Dow hired EDS to build such a network more than three years ago but booted EDS from the job recently after the contractor conceded it couldn't implement the deal for the agreed upon price, according to analysts familiar with the situation. Dow originally tapped EDS under a seven-year, $1.4 billion deal announced in December 2000.”

- Paul McDougall, InformationWeek, August 3, 2004

As a result, VoIP became an inadvertent driver for new enterprise network gear because it required equipment upgrades.

The Network Industry Will Benefit from Virtualization

The rise of virtualization and the cloud buzz is following a similar pattern as VoIP: Enterprises are virtualizing production data centers while the buzz is almost wholly preoccupied with the payoff of system automation. Like the VoIP early days, the network is rarely part of the initial consideration, hence the VLAN tactical ROI effect. There are savings, yet not at the level of what could be utilized when VMotion is unleashed within a multi-site, elastic cloud of data centers.

Industry contacts claim that virtualization for the most part is still being deployed within the confines of VLANs (containers that group VMs by security, performance, access policies), which could be more properly called virtualization-lite.

The Virtualization Players Will Benefit from VMotion

So we’re in early days, and companies like VMware (VMW), Microsoft (MSFT) and Citrix (CTXS) could see substantial increases when VMotion is fully unleashed, and servers can move easily to their most optimum hardware while preserving location-independent security, access and delivery/performance/availability policies.

Manual Restraints for Mobile Servers

The VMotion promise today, however, is still restrained by network shortcomings. Those shortcomings erode the case for virtualization and cloud by requiring excessive manual labor, scripting and configuration in the network itself, the core enabler (ironically) of enterprise supply chain automation.

Static networks and manual management practices are problematic for dynamic applications and endpoints. More movement means more costs driven by more manual adjustments.

So today we watch the past repeat itself yet again, forcing enterprises and vendors (who want to unlock the potential of virtualization and cloud) to address the network effects of virtualization and design new capabilities that unleash the business case for VMotion. VoIP eventually became a standard, after network issues were addressed.

As Cisco (CSCO), VMware, Microsoft, Amazon (AMZN) and Google (GOOG) parry with announcements and awards, innovations that enable higher flexibility (or elasticity) by embracing automation within the network (Infrastructure 2.0) will force the replacement of static networks, a patchwork of various management overlay solutions and manual tools (like IPAM spreadsheets) that were the hallmarks of infrastructure 1.0.

This is one of the primary benefits that virtualization and cloud bring to the networking industry, including Cisco, Juniper (JNPR), Brocade (BRCD) and F5 Networks (FFIV), plus those solutions that automate core network services (IP address management, DNS, DHCP, etc) and allow for frictionless movement.

Higher capacity switches combined with a cloud OS that allows for the potential of full VMotion will win over VLAN-limited motion.

Disclosure: Long VMW, SVVS, AMZN