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Next Stop for Versa Networks – Europe

The SD-WAN specialist has a healthy bed of customers and partners but has yet to make a significant impact in Europe. It's looking to change that.

March 19, 2019

8 Min Read
Next Stop for Versa Networks – Europe

With growing revenues and a few big-name customers under its belt, SD-WAN specialist Versa Networks is looking across the Atlantic to Europe's network operator community to fuel its next growth phase.

But the five-year-old, San Jose, Calif.-based company, founded by former Juniper execs and headed up by Kelly Ahuja, formerly senior vice president (SVP) of Cisco's Service Provider Business, will have its work cut out to penetrate Europe's major telcos and promote Versa to SD-WAN's top tier of vendors.

After a few hectic early years of bullish talk and frenzied M&A activity, the SD-WAN technology market is settling into a groove, with a few dominant players, a rump of second-tier but competitive suppliers and some laggards.

Versa Networks is currently in that second tier, as the chart below shows, but it does have a good platform on which to build. It boasts 85 communication service provider (CSP) customers, 800 enterprise users and, according to the IHS chart, an annualized revenue run rate of about US$50 million and rising.

Figure 1: Worldwide SD-WAN Revenue by Vendor Source: IHS Markit Source: IHS Markit

And in a world where cutting the cord between software and hardware is a feature of which to be proud, Versa's products are platform-independent, cloud-native software stacks, can run on any hardware platform and have in-built security and "autoscaling" functionality, all of which suggests that Versa is geared up for the multi-cloud, multi-site requirements of CSPs and enterprises and, in theory, already prepped for any edge computing-based deployments. It has also been doing a significant amount of development work with Amazon Web Services and Microsoft Azure. Versa's software-oriented R&D makes it a very appropriate partner for the public cloud players, who could, if the economics look good, wipe the floor with CSPs in the SD-WAN market, over time. That's definitely a development to watch.

But the bulk of Versa's success to date has been in the US, with CenturyLink, Comcast Business, Zayo and prime customer reference Verizon among the success stories. And while there have been some international wins -- Japan's KDDI and Singtel, for example -- significant activity in Europe has been limited to Virgin Media Business (part of Liberty Global group) in the UK and Colt. "We don't have any of the major [national] telcos in Europe," admits Versa's worldwide head of marketing, Atchison Frazer, during a recent conversation with Light Reading in London.

It's not that the company isn't adding new customers in the region: For example, Versa just announced that progressive UK altnet Zen Internet is to offer SD-WAN services with the help of Versa partner Axians, a European systems integrator.

But deals such as that are not going to move the needle for Versa. Where it's hoping to make headway in the near term is by becoming the second supplier to CSPs as they expand their SD-WAN offerings and revisit their feature requirements. "Most large operators have one or more solutions already deployed, legacy solutions… and it's not uncommon that they want to add [new suppliers]," states Frazer. True and that works two ways, of course: CenturyLink, for example, started its SD-WAN service offering using Versa and added Cisco as its second supplier late last year.

And the market is growing, too, as more and more enterprises seek SD-WAN services to stitch their IT empires together with an alternative to MPLS connectivity, especially for branch sites. Deal sizes are getting very interesting too: Orange Business Services (OBS), for example, just announced a five-year, $25 million SD-WAN deal with engineering consultancy Aurecon. OBS has a multi-vendor SD-WAN strategy, but it looks like it will be adding Juniper to its roster of suppliers to add to Cisco/Viptela (its main current partner) and Riverbed. (See Orange Business Services Lands $25M SD-WAN, Security Deal and Juniper in Running for SD-WAN Deal With Orange.)

And like many SD-WAN evangelists, Frazer is keen to stick the knife into MPLS and write its obituary. "MPLS is on its last legs," he proclaims. Is it though? Not really. "MPLS as the sole access technology is no longer sufficient," he adds as a qualifier, before agreeing that a combination of MPLS-based access services plus SD-WAN, with the latter dominating branch office connectivity, is the likely scenario in the coming years.

Will there be some churn away from MPLS? Likely so. But it is still a market worth tens of billions of dollars per year, so the CSPs do still have an opportunity to carry on milking that cash cow for some time. But at some point, especially as enterprises adopt multicloud services and wean themselves off multiple physical boxes delivering individual functions (routing, WAN optimization, firewall), the MPLS market will flatten out and the SD-WAN market will continue to grow. Market size expectations vary, but IDC, for example, expects the market for SD-WAN infrastructure to grow at more than 40% CAGR from 2017 to 2022 to reach $4.5 billion.

Meanwhile, other SD-WAN vendors will not be standing still and any vendor that pauses for a breath will likely find some business opportunities slipping from their grasp.

And while Versa has what seems like a solid, modern approach to its product strategy (software only), that might take a while to really catch fire, notes Heavy Reading analyst Sterling Perrin.

"Versa, from the beginning, has been focused on the forward-looking vision of SD-WAN as software-only and implemented as part of a universal CPE. This has been a bit of a double-edged sword -- operators agree that uCPE is the end-game for SD-WAN, but the industry is taking longer to get there then initially expected. A big challenge with uCPE is that the initial costs are higher than taking a standalone appliance approach. This applies to all vendors, not just Versa… operators need to buy into a longer-term vision when going this route."

But Versa's flexibility has been recognized by the companies that will want to supply the supporting hardware platforms that will underpin Versa's software, notes Heavy Reading analyst at large Simon Stanley, who looked at the SD-WAN company in his report published last year on uCPE. "Most of the hardware vendors are partnering with Versa, more than any other SD-WAN vendor. The solution is very flexible, running on bare metal, KVM, VMware or containers, and will support third party virtual network functions," notes Stanley.

It's not just the uCPE approach that might split the market -- its integrated security might also not be to every end user's liking, notes Heavy Reading's Perrin. "Versa also seeks to differentiate with its own bundled security, as security is absolutely critical to any SD-WAN build. Still, this is also a double-edged sword. Some customers will want bundled security from their supplier/operator. Others will seek their own for best-of-breed or familiarity reasons. We've found the market is very evenly split on this issue right now."

And then there's the survival aspect. Being a pure-play SD-WAN vendor might give Versa "100% focus on a single market, but we have seen other promising SD-WAN startups bought up by big vendors -- Cisco buying Viptela and VMware acquiring VeloCloud for example. Longer term, the market will favor big, established vendors, but SD-WAN is still in an early stage and Versa still has room to grow and differentiate."

And maybe Versa will be the next target for an M&A move? Talk of M&A doesn't last too long with the Versa team, whether as a target or as an acquirer. Ahuja has noted previously that the company is focused on building its business, is doing OK on its own, and doesn't need any further funding beyond the $43 million it raised in two rounds from the likes of Sequoia Capital, Mayfield Fund and Verizon Ventures.

In the meantime, the Versa team is focused on breaking into more Tier 1 accounts and making itself stronger in Europe and Asia and driving additional revenues, which will only grow as the CSPs sign up enterprise users. Perhaps not surprisingly, given the momentum of the market in general, Frazer says business continues to boom. "We've booked our biggest ever quarter before February ended," boasts the marketing man.

It's hard to imagine there aren't major technology companies out there not looking at Versa as a potential bolt-on – the list of SD-WAN vendors is missing a few major names, including Ericsson and IBM. And Arista is not yet in the game. Some European Tier CSP customers and ongoing revenues growth could ramp up interest in Versa.

For more on Versa, see:

— Ray Le Maistre, Editor-in-Chief, Light Reading

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