The global network functions virtualization (NFV) market, including NFV hardware, software and services, is set to explode between now and 2020, according to a new report.

Between 2015 and 2020, IHS Markit says the service provider NFV market will grow at a compound annual growth rate (CAGR) of 42 percent — from $2.7 billion to $15.5 billion. The report tracks what service providers spend on NFV hardware and software to deliver software-based services to customers via consumer virtual customer premises equipment (vCPE) and enterprise vCPE.

NFV represents the shift in the telecom industry from a hardware focus to a software focus, with operators making much larger investments in software than in server, storage and switch hardware, said Michael Howard, IHS Markit’s senior research director, carrier networks.

“NFV software will comprise 80 percent of the $15.5 billion total in 2020 — or around $4 out of every $5 spent on NFV,” he said.

In 2020, only 11 percent of NFV revenue will be attributable to new software and services. Some 16 percent will come from network functions virtualization infrastructure (NFVI) – servers, storage, switches – acquired in place of purpose-built network hardware such as routers, deep packet inspection (DPI) products and firewalls. The remaining 73 percent will originate from existing market segments, primarily virtual network functions (VNFs).{ad}

The main value of NFV is in its applications, or VNFs, Howard said.

“The service provider NFV market is larger than the software-defined networking (SDN) market throughout our forecast horizon of 2020, due to the pre-existing and ongoing VNF market,” he said. “We expect strong growth in NFV markets in 2020 and beyond, driven by service providers’ desire for service agility and operational efficiency.”

Last summer, Masergy Communications launched its Virtual f(n) platform to give resellers an opportunity to embrace the cloud and virtualization, as well as new business and revenue models.

“What’s happening is the flexibility allows more customer deployment in maybe areas that they wouldn’t think of deploying the hardware solution, but they still want that type of function to work there, which is maybe the router or the firewall, or WAN encryption,” said Paul Ruelas, Masergy’s director of product management. “So it opens up the ability to say ‘OK, a customer has a need, but maybe they were hesitant in the past to deploy that need with a hardware solution due to having to have folks trained on staff, hire technical persons.’ This gives them the managed solution that allows them to …

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… turn on that function that enables their business, but they don’t have to then train their folks up on all of the technology and maybe waste the time to deployment while their folks are getting up to speed.”

The growing number of apps is the reason NFV software will comprise the vast majority of NFV spending, he said.

“Last year we launched a V router product, a nice, robust router, and since then we’ve launched a virtual firewall, virtual WAN encryption, and we’re just launching now a virtual session border controller (SBC),” Ruelas said. “There [are] so many more apps that are coming out and that are available to customers.”

Like any new technology, there’s always suspicion of how does it impacts the customer experience, he said.

“This allows folks to focus on their core business,” Ruelas said. “If they’re a finance corporation or a manufacturer, they really don’t want to waste their cycles in trying to figure out the technology piece.”