For many years, software-defined wide-area networking (SD-WAN) was thought of as a niche market for a bunch of startups.
That's no longer the case. Now the market for SD-WAN, which uses network virtualization to leverage, manage and secure Internet broadband to build more robust networks for enterprise applications, is taking off and has the potential to reach billions of dollars in enterprise networking services, including ancillary products such as cloud security.
Feedback from both the enterprise and service-provider end-user community indicates there is solid demand for SD-WAN technology, which can reduce both the capital expense (capex) and operating expense (opex) of deploying and managing enterprise networks. Futuriom's new SD-WAN Growth Report details the size of the market for SD-WAN tools, platforms and NaaS market, which are expected to hit $1 billion in revenue by 2019, with the potential for $2.5 billion by 2021, with CAGR of 35% through 2021.
Major networking players such as Cisco and VMware, smelling the potential growth opportunities, have made significant acquisitions to get into this market in the past year (Cisco paid $610 million for Viptela and VMware bought VeloCloud for $450 million.) There's going to be more, as interest heats up. In the meantime, a handful of private SD-WAN startups appear to be closing in on $100 million in revenue.
Many companies have been strategically late to this market. Networking players such as Nokia, Ericsson and Juniper seem to me to lack comprehensive SD-WAN strategies. And most service providers are simply reselling startup platforms as they grapple with the impact that SD-WAN will have on their lucrative MPLS and private-line businesses.
It all makes for a fantastic strategic chess board for a potential $20 billion total addressable market.
Inside the market
After collecting and analyzing numbers from dozens of sources in the industry, Futuriom is comfortable in projecting faster growth in this market than was previously forecast last year (2017).
The sweet-spot of growth rate in SD-WAN is happening now, and in surveying end users and vendors, it's clear that things are accelerating, with the greatest growth rates of up to 100% into 2018 and 2019 as startups grow a relatively low revenue base. There are several reasons for this revenue growth spurt which include:
- MPLS and bandwidth fatigue: Enterprise are struggling with keeping up with bandwidth demand while keeping costs low.
- Cloud acceleration: The move to the cloud is forcing enterprises to look at new WAN architectures and go directly to enterprise cloud applications.
- Technology maturity: Many of the startups in this market have now had years to tweak and perfect their technology to match the needs of real-world customers.
Enterprise IT drivers
While the shift in enterprise bandwidth to cloud needs is one of the overarching drivers toward a new SD-WAN architecture, this is reinforced by many broader trends in IT.
These trends include:
- Bandwidth demand and cost escalation: Data shows more enterprise demand for broadband and networking connectivity circuits for 100 Mbit/s and above, with gigabit Ethernet coming online. Cloud and Internet communications applications are stimulating this demand. Enterprises find MPLS and private circuits expensive, so they are looking at SD-WAN solutions that can leverage secure Internet connections to lower the costs of managing bandwidth.
- Cloud-centric enterprise: Many enterprise end users are going directly to the cloud, often by the Internet, to access their applications. However, legacy WAN architectures are often designed to backhaul traffic to a corporate data center, which incurs unnecessary overhead. New SD-WAN software and hardware architectures can use the Internet to create an express route to cloud applications, including security, interoperability with open cloud standards and platforms, and applications visibility and quality of service.
- Network mobility and globalization: CIOs and IT managers are seeking more flexibility in connecting branches with a software-driven model that can get branches and offices up and running quickly, with the need for complicated network configurations. SD-WAN approaches offer the capability to drive configurations from the cloud, speeding up orchestration of branch office equipment to connect branches more quickly and at a lower cost.
- Need for IT speed and agility: The new demands of the enterprise, where applications and network needs are constantly changing, place new demands on flexible networks that can adapt to business needs. SD-WAN approaches offer an ability to manage and plan network needs with software-based design and configuration that can be changed and managed centrally.
With this wide range of IT and network trends driving applications to the cloud, it's no surprise that network professionals are looking for their cloud solution to set up, manage and optimize corporate networks.
It's clear that SD-WAN is now seen as the enterprise networking architecture of the future, which is why this market will reach billions of dollars.
For those who thought it was a niche: I'm sorry, you were wrong.
— Scott Raynovich, Founder and Principal Analyst, Futuriom