How SDN and NFV lead to prosperity and increased productivity

In July 2010 Matt Ridley did this wonderful TED talk which explains it all:


About 5 minutes into the presentation, he paraphrases an example first given by David Ricardo in 1817. Translated to software components and associated activities, individuals and organizations can benefit from cooperation and trade even if one company is better in all areas in absolute KPI terms, due to the comparative advantage.

For example: if a developer A takes 1 week to build a database back-end and then 2 weeks to build a web GUI for it, and a second, slower developer B takes 4 weeks and 3 weeks respectively, both can benefit by working together; the first developer can specialize in the database and the second in building the GUI. Even if we assume that parallel work is not possible and the database must be finished before work on the GUI can get started, by working together both developers can save time: for both projects, A spends 1+1=2 weeks on the databases, and B spends 3+3=6 weeks on both GUIs; both have saved a week of work, and can do more projects per year: increased productivity.

Of course, once developer A has done a couple of databases he/she gets better at it, develops or acquires some tools and scripts to speed up the process and may then only require 3 days for a new project ( and likewise for the GUI specialist ). This fundamental process of specialization or division of labour forms the basis for economic growth and prosperity.

So how does this relate to Software Defined Networking(SDN) and Network Functions Virtualization (NFV)? Most routers today are built as a combination of software and hardware; the software is provided by the same vendor that also produces the hardware. There is cooperation and trade with other vendors for the hardware and software parts ( e.g. using Broadcom chipsets, a derivative of some Linux distribution as operating system, etc. ) but the final product is closed - it can only be upgraded through the processes and designs of the original vendor. And because a typical router has an economic lifetime of about 5-7 years, an investment in a particular router locks an organization to the abilities and roadmap evolution of the associated vendor for a fairly long period, relative to the speed of innovation in telecom and the Internet.

SDN and NFV (the distinction varies depending on whom you talk to) decouple software from hardware, and allow those components to be supplied by different, specialized (eco-systems of) vendors. They enable a redistribution and de-composition of previously co-located integrated functions (software modules), leading to a further refined division of labour - not only in terms of who programs the software, but also who installs it, maintains it, hosts it, etc. etc. In other words, they fundamentally change the traditional value chain. And - under normal market conditions - this model will prevail over the traditional model, because of the more advanced division of labour and the associated gains in productivity. It represents the next stage of evolution.