Managed services are a double-edged sword. On one side the complexity of the IT environment creates demand for a third-party service provider that has the expertise needed to manage the IT environment. On the other side, the cost of acquiring all the expertise required to succeed as a managed service provider (MSP) can be cost prohibitive.

One of the primary reasons for this has a lot to do with all the appliances that are required deliver various network functions. Most network today consist of routers and switches that are surrounded by appliances such as load balancers, firewalls and wide area network (WAN) optimization appliances.

But with the rise of Network Functions Virtualization (NFV) the economics of managing IT environments is about to fundamentally change for the better. An NFV is a piece of software that replaces all those dedicated pieces of hardware with a software component that can run on either a standard server or commercial-grade silicon.

For example, Kemp Technologies just announced an implementation of an application delivery controller (ADC) in the form of an NFV software component. ADCs, also known as load balancers, are one of the primary appliances that next generation networks will run almost completely in software.

Instead of having to manually provision an appliance and then provide support for its ongoing maintenance, the emergence of NFVs will make provisioning network services about as simple as provisioning any other application. In addition to lowering the cost of networking, an NFV means that IT organizations won’t have to pay to power a hundred or more different physical appliances.

Different types of NFVs can also be provisioned in combination with one another to provide more advanced network services that go well beyond the capabilities of a single appliance.

We’ve already witnessed the rise of virtual appliances. NFVs simply take that concept to the next logical conclusion. With massive computing capacity now available in the form of multicore processors, the need to rely on an appliance to augment the capabilities of a router or a switch simply goes away.

The impact this will have on the networking industry remains to be seen. On the one hand, entire companies may find their products made redundant by NFVs. On the other hand NFVs could very well launch a new era of innovation because the cost of creating an NFV should be a lot less than building a physical appliance. Obviously, all those NFVs would have be managed by some form of software-defined networking (SDN).

Naturally, it’s going to take a few years for all this transformation to work itself out. But as things progress from here there are those that think NFVs in combination with open software-defined networks (SDNs) may very well be a $20 billion market.

Mike Vizard is a top IT journalist with 30 years experience covering enterprise IT. He has served as editor in chief for CRN and InfoWorld.