What Is Network Virtualization?

Network virtualization – a method of combining available resources in a network to create multiple isolated virtual networks that share the same underlying physical hardware – has gained traction in recent years as more businesses seek to optimize their IT infrastructure, reduce costs, and improve operational efficiency. In fact, businesses typically observe a 50% improvement in operational efficiency after implementing virtualization.1

The need for network virtualization has become increasingly apparent with the adoption of cloud computing and other modern technologies, as it allows organizations to quickly spin up new virtual networks, segment traffic, and allocate resources without the need for extensive hardware upgrades or manual configurations. In this blog, we'll explore how network virtualization works and why it's important for businesses to help you determine whether you should leverage this technology for your organization.

How Does Network Virtualization Work?

Network virtualization abstracts network services from the underlying physical infrastructure. A network hypervisor creates an abstraction layer that hosts the virtual networks. This layer provides a simplified representation of the nodes and links that make up the virtual networks, while the hypervisor controls the resources, bandwidth, and capacity for each logical network.

The primary components of network virtualization typically include:

  • A network hypervisor
  • Controller software
  • Host protocols like Virtual Extensible LAN (VXLAN)
  • Virtual switching and routing
  • Virtual network adapters
  • Management tools

A virtual network adapter allows virtual machines or containers to connect to the virtual networks created by the hypervisor, providing the networking capability for virtual workloads. Elements within the virtual network can communicate with each other and with nodes on separate virtual networks using encapsulated host protocols, virtual switches, and virtual routers.

Why Is Network Virtualization Important for Businesses?

Traditionally, enterprises have relied on hardware-dependent physical networks, which often lacked the flexibility and scalability needed to keep up with technological advancements and changing business requirements.

As enterprises sought more control over their networks, they began applying virtualization principles to their data centers, wide area networks (WANs), and local area networks (LANs). By introducing techniques like abstraction, microsegmentation, and programmability, businesses could more easily scale their networks, add centralized controls, and apply specific security policies to different workloads and traffic types.

Network virtualization tools abstract IT physical infrastructure elements, such as compute, network, and storage, away from physical hardware and pool them together. This pooled resource model enables organizations to deploy resources automatically where they're needed most, based on changing demands and business needs.


Types of Network Virtualization

The different types of network virtualization – internal network virtualization and external network virtualization – address specific use cases. Here's a guide to understanding these two types:

Internal Network Virtualization

Internal network virtualization operates within a single server or host, emulating a physical network. This approach involves configuring a server with software containers or virtual machines (VMs) to create isolated networking environments. By leveraging virtualization technologies like containers or VMs, organizations can partition a physical server into multiple isolated virtual networks. Internal virtualization is typically used to improve server efficiency, consolidate workloads, and optimize resource allocation within a single physical host.

External Network Virtualization

External network virtualization combines systems physically attached to the same local area network into separate virtual LANs (VLANs) or divides separate LANs into the same VLAN. Service providers typically use this type of virtualization to improve network efficiency and manage large networks more effectively. External virtualization allows for the logical partitioning of physical network infrastructure, enabling better resource utilization and granular control over network traffic.

What Is Network Virtualization Security?

Network virtualization security is an important aspect of implementing a virtual network. By replacing multiple physical networks with virtualized networks, organizations can enforce granular security policies and access controls to minimize risks like data breaches or cyber attacks.

Network virtualization security typically involves intrusion detection and prevention systems, virtual firewalls, and other security appliances deployed within the virtual network architecture. Additionally, network virtualization platforms often incorporate features like microsegmentation, which enables the creation of highly secure and isolated virtual networks for sensitive applications or data.

What Are the Benefits of Network Virtualization?

Network virtualization offers several benefits for businesses, including:

Operational Efficiency

Network virtualization simplifies network management and administration by centralizing control and enabling automated provisioning and configuration of virtual networks, reducing manual effort and potential errors. With centralized management and automation capabilities, network administrators can streamline various tasks, such as provisioning new virtual networks, applying security policies, and scaling resources. This increased operational efficiency leads to improved productivity and reduced risk of human errors, ultimately enhancing the overall IT operations of an organization.

Faster Application Delivery

Around 66% of companies have reported increased agility due to virtualization,1 as the ability to rapidly deploy virtual networks and allocate resources on demand accelerates the delivery of new applications and services. A virtual network can be provisioned quickly as it eliminates the need for physical hardware procurement and configuration, allowing organizations to respond swiftly to changing business requirements or market demands. Greater agility often translates into a competitive advantage, as businesses can introduce new offerings and capitalize on emerging opportunities more efficiently.


Better Network Security

Network virtualization enables microsegmentation, which reduces the risk of data breaches by creating highly secure and isolated virtual networks for sensitive applications or data. By logically segmenting the network into secure virtual environments, businesses can implement granular access controls, enforce strict security policies, and limit the potential impact of security incidents. This level of isolation and security is crucial for organizations handling sensitive data or operating in highly regulated industries.

Cost Savings

Since network virtualization consolidates multiple virtual networks onto a shared physical infrastructure, organizations can reduce their hardware footprint and associated costs, such as power consumption, cooling, and maintenance. Virtualization also enables more efficient utilization of existing network resources, eliminating the need for physical hardware for every segment or application. This consolidation often translates into significant cost savings for businesses, with one report finding that a simplified network infrastructure can reduce the cost of labor by $3.3 million on average.2

Easy Network Provisioning and Configuration

Network virtualization eliminates the need for manual configuration of dedicated hardware devices across the entire network, resulting in reduced network provisioning time. With software-defined networking and automated provisioning tools, network administrators can rapidly spin up new virtual networks, adjust configurations, and allocate resources as needed without the tedious and error-prone manual processes associated with physical networks.

What Network Virtualization Challenges Can Businesses Face?

Despite the numerous benefits of network virtualization, businesses may face several challenges when transitioning from traditional hardware-based networks to a virtual infrastructure. These challenges can include:

  • Virtual Sprawl: Organizations may experience virtual sprawl as it becomes easier to create virtual networks, resulting in excess resource consumption and network complexity.
  • Architecture Changes: Migrating from physical networks to virtual networking requires careful planning and consideration of resource consumption, resilience, and security implications.
  • Knowledge Silos: Traditional IT teams are often siloed, requiring increased collaboration and cross-training to effectively manage and operate network virtualization technologies.
  • Skills Gaps: Network virtualization may necessitate new skills and knowledge for IT staff, potentially creating a learning curve and training requirements.
  • Network Visibility: Traditional monitoring tools may lose visibility into each abstracted virtual layer, necessitating the adoption of specialized network visibility tools.



Examples of Network Virtualization

Early examples of network virtualization include VLANs and Virtual Private Networks (VPNs), which enable the segmentation and isolation of network traffic. These technologies laid the foundation for more advanced forms of virtualization like software-defined networking (SDN), which has been widely adopted in data centers. SDN enables centralized control and programmability of virtual networks, allowing organizations to dynamically provision and manage virtual networks within their data center infrastructure.

Software-defined WAN (SD-WAN) has revolutionized WAN virtualization by enabling organizations to abstract and optimize WAN connections across multiple locations. SD-WAN solutions leverage virtualization technologies to create secure, high-performance virtual network overlays over existing WAN infrastructure for better application performance and policy enforcement. Similarly, software-defined LAN (SD-LAN) applies SDN principles to enable granular management and policy enforcement for network devices and traffic in local area network environments.

Carriers and service providers have embraced Network Functions Virtualization (NFV) architecture, which allows them to deliver network services as virtual network functions (VNFs) on commodity hardware. This approach enables greater flexibility and scalability in delivering services to customers, reducing reliance on proprietary hardware appliances.

With the advent of 5G networks, network slicing has emerged as a powerful application of virtualization. This technology divides 5G networks into multiple virtual networks, each with its own features and security requirements. Cloud computing and edge computing platforms also leverage network virtualization to offer efficient and flexible alternatives for hosting and delivering virtualized network services closer to where they are consumed. These technologies enable organizations to spread their applications and workloads across a distributed infrastructure while maintaining seamless connectivity and resource allocation.


Ready to Leverage Network Virtualization?

As businesses embrace emerging technologies, the need for network virtualization will only continue to grow. Leveraging network virtualization software can help organizations gain greater agility, scalability, and efficient resource utilization – but finding the right solution to streamline and optimize your IT infrastructure can be difficult without guidance.

If you're looking to streamline your enterprise network operations, TailWind can help. Our complete NOCaaS solution is designed to help multi-location businesses lower costs, simplify processes, and reduce time to implementation. We'll alleviate your network challenges by becoming an extension of your IT department so you can focus on key aspects of your business instead. Reach out to TailWind today to learn more about how we can optimize your enterprise IT.


  1. https://learn.g2.com/virtualization-statistics
  2. https://www.vmware.com/content/dam/digitalmarketing/vmware/en/pdf/5745-VMW-DICE-ECONOMICS-OF-VIRTUAL-NETWORKING.pdf