One thing that you will sometimes hear about network virtualization is that it is like the cloud in supporting elasticity, scalability and efficient IT operations. But this kind of statement needs to be completely parsed to be accurate. In other words, executives and business leaders need to know exactly what these two strategies - network virtualization and cloud computing service acquisitions - offer.

You may also hear that network virtualization is a "building block" toward the cloud. That can be accurate in some ways, but to understand the difference between network virtualization and cloud services, you have to go back to the days before either of these existed.

Network Virtualization

Before network virtualization, there was hardware. Mainframe computers became PC workstations. The server emerged as a fundamental hardware piece that would funnel data through all sorts of networks and out onto the "Information Superhighway." (Remember when it was called that?)

Basically, with network virtualization, engineers discovered that they could make individual hardware pieces into logical pieces, rather than physical pieces, of a network. They started to experiment with doing this, for example, by taking one physical hard drive and partitioning it into multiple drives. Each drive would have its own identity and role within an IT system. You had the development of strategies like redundant array of independent disks (RAID), where data could be duplicated across these logical drives. At the same time, you had the virtualization of physical servers, which basically allows one server to play the role of multiple servers.

All of this does allow a company to streamline its IT architecture and make it more efficient. However, all of this is done internally, with hardware that the company already owns and operates.

Cloud Computing

Enter the cloud.

Just a few years ago, more of us began to hear about the idea of cloud computing. Cloud computing came about in conjunction with the idea of "software as a service," wherein a company provides clients, not with a box of installable software, but with access to that software over the Web.

For example, instead of buying Microsoft Office and loading it onto your computers, you can now buy a subscription to Microsoft Office online. The company allows you Internet access that will enable the same software services that they used to sell out of the box.

It wasn't long before people realized that software wasn't the only thing that you could offer clients over the Web. Cloud computing services started to offer different kinds of network capabilities, along with data backup and remote data management, all through the global Internet. (Learn more about the cloud's potential in 5 Ways Cloud Technology Will Change the IT Landscape.)

The Benefits of Network Virtualization

Another way to think about network virtualization is that IT engineers are getting more out of physical hardware products, in much the same way that chefs break down an entire chicken, pig's head or side of beef to get usable products out of each separate physical component.

In the words of this helpful guide from Rackspace, with virtualization, you're "still in the infrastructure business." You're just controlling your own hardware infrastructure in a more sophisticated way. The same Rackspace guide also aptly refers to virtualization as "client/server done right." The term "client/server" applies to all of those little operations where some workstation somewhere makes a demand on a network server, and the server delivers information. Again, with virtualization, one physical hardware server can be developed to function as more than one network agent, with obvious benefits for the owners. (Learn more in Virtualization: A Move Toward Efficiency.)

The Benefits of Cloud Computing

Another key here is that there are significant cloud benefits that virtualization supports.
The idea with the cloud is that companies are absolving themselves completely of a lot of responsibility for hardware upkeep.

Cloud isn't about what you have, it's about what you subscribe to. Companies will often use public cloud services to simply stand in for expansions to their internal networks. Instead of buying another server to handle network traffic, they will buy server capability from a vendor, whose servers might be anywhere in the world. The activities of the server are, again, delivered over the Web.

The success of cloud computing models have spawned such things as platform as a service (PaaS), infrastructure as a service (IaaS) and even managed communications as a service (MCaaS). As the brainiest of vendors keep discovering ways to help companies outsource through the cloud, companies keep adding more remote functionality, and buying less and less physical hardware and software. The obvious benefit here is scalability – you buy the subscription for as long as you need it. One simple example is a retailer gearing up for a holiday season. Need more labor? You often just get some temps in for a month or so. Need more computer power? Just call your cloud vendor and order some network capability, which you can cancel as soon as you don't need it anymore.

Another simple way to think about virtualization versus the cloud is that virtualization is in some ways analogous to that rush toward efficiency that you saw in the late 20th century labor market – how to get people to show up on time, and how to get the most productivity out of each one. The cloud, on the other hand, is a lot like the offshoring and flat-earth outsourcing that's been going on for 15 years and confounding a lot of people with its potential for leaking capital out of communities and leaving people jobless.

Unlike its corollary in the labor market, cloud computing hasn't spawned the same kinds of controversies. Instead, companies have started to argue about public versus private cloud networks and the options that clients have for each one.

In the end, both network virtualization and cloud computing are being pursued by a growing number of companies. Each one has its own advantages, and the two are somewhat interlinked. Some cloud capabilities rely on network virtualization to work properly. But confusing the two terms is often a recipe for disaster. For business leaders who don't read up on IT constantly, there is the risk of failing to understand vendor models or the best practices for procurement that can help companies save money and upgrade its IT systems for the 21st century.