Riding The SD-WAN Rocket Ship
As a commercial pilot in his free time, QOS Networks CEO Frank Cittadino knows well the kick you get from the rapid rise of a plane taking off into the stratosphere.
It's the same kind of feeling he gets piloting the 10-year-old solution provider to off-the-charts sales growth by helping customers take advantage of ground-breaking SD-WAN technology solutions.
This year, Cittadino is projecting SD-WAN sales to skyrocket a mind-boggling 700 percent at Irvine, Calif.-based QOS Networks, which is implementing 500 to 1,000 SD-WAN installations a month, up from just 100 sites a month a few years ago.
That rocket-like growth is being driven by what Cittadino calls a technology that has $50 billion-plus carrier and network behemoths pivoting quickly to play in a market that is literally tearing apart the old world of monolithic MPLS networks and routers.
"SD-WAN is completely changing the way businesses operate," said Cittadino. "We're automating the network function, removing the complexity of expensive engineers, connecting to anywhere in the world -- to any data center that can take a VPN tunnel with a click of a button. So ­flexibility is gained. Pricing goes way down. It turns from a capital expense to an operating expense and allows virtualized technologies to drive the performance."
One example: a national fitness center that took advantage of the VMware VeloCloud solution from QOS Networks to avoid MPLS implementation and reconfiguration costs that would have exceeded $430,000 compared with a VeloCloud SD-WAN solution priced at just $75,000. That customer is saving $20,000 per month in networking costs alone, said Cittadino.
"They needed a lower-cost, lighter-footprint solution that would be able to connect them to the cloud," said Cittadino. "They needed to drive hosted phones and cloud workloads nationally, but not have a heavy footprint because these are low-volume stores. We were able to come in with one device and deliver Wi-Fi, switching, routing capabilities, and connect them to the cloud directly."
Research firm IDC estimates that worldwide SD-WAN infrastructure and services revenue will grow 70 percent annually, reaching more than $8 billion in 2021. Research ‑firm Gartner, meanwhile, said that by the end of 2019, 30 percent of enterprises will have deployed SD-WAN technology in their branches, up from less than 1 percent in 2015. Vendors generated $444 million in revenue from SD-WAN appliances and management software sales in 2017, up nearly 400 percent compared with 2016, according to data from research firm IHS Markit.
Solution providers are calling SD-WAN the biggest driver of sales since VMware took the market by storm, teaming with partners on the server virtualization boom that reshaped the technology landscape in the mid-2000s.
"Regardless of the layer of the network, SD-WAN is top of mind," said Robert Auci, vice president of global channel marketing at Cradlepoint, a Boise, Idaho, routing provider that early this year pivoted to an SD-WAN-based strategy. "It's not just for the edge. It's pervasive all the way down to the other layers of the network. Layer zero, layer one. The very bones of the network are being controlled via SD-WAN."
Cradlepoint is one of a pack of legacy technology providers, including Aerohive, Juniper Networks and Riverbed Technology, that are racing to provide SD-WAN offerings with partners. That's on top of the offerings from pure-play SD-WAN providers like Aryaka, Silver Peak and Talari.
The most visible moves, of course, have come from Cisco Systems and VMware. Cisco made its blockbuster acquisition of SD-WAN highfl­ier Viptela last August, representing its push into more complex enterprise environments, as the company already offered Cisco Meraki for the branch office. VMware, meanwhile, bought SD-WAN powerhouse VeloCloud last December. Also in the mix is Aruba, a Hewlett Packard Enterprise company, which plans to launch an SD-WAN offering later this year.
Dell Technologies founder and CEO Michael Dell told CRN that the acquisition of VeloCloud was a move to make the infrastructure giant No. 1 in the fast-growing market.
"If you think about all these multi-location businesses, [SD-WAN] is going to be a big growth area," Dell said.
The move into the market by these legacy networking market leaders is just one more sign that it is prime time for SD-WAN.
Calgary, Alberta-based Long View Systems is saving one of its national retail customers nearly $500,000 in annual costs after deploying Cisco's Meraki SD-WAN offering, cutting the customer's IT expenses by roughly 60 percent. The savings stem from less-costly MPLS network circuits and a reduction in the number of personnel required to manage the infrastructure, according to Michael Thomaschewski, chief technology officer at Long View.
"Everybody is looking to drive cost out of their business. Where service providers were once their only option, now they're not," said Thomaschewski. "SD-WAN allows you to template how you push that WAN architecture out to different locations. It allowed us to not only centralize the management but standardize the configurations and deploy them remotely with zero touch... It's really going to disrupt those carrier providers that are out there today offering MPLSes and dedicated circuits."
To combat that disruption, telecom carriers also are scrambling to provide SD-WAN. AT&T formed SD-WAN partnerships in 2017 with vendors including VeloCloud and now offers its SD-WAN service in over 150 countries. Verizon similarly partnered with SD-WAN vendors Versa Networks and Viptela last year as demand for managed SD-WAN services skyrockets.
Clash Of The Titans
Even with the market-shaking moves by telecom carriers, the biggest game-changers are the deals inked by VMware and Cisco. The moves have put the two industry titans on an SD-WAN collision course, forcing their respective partners to navigate a minefield of confl­icting channel incentives and account control battles.
"It's hard," said a high-level executive at a national solution provider that works with Cisco and VMware, who asked not to be named. "It takes seasoned reps, people that really understand how to navigate that. There are a lot of accounts where we sell both, and it's not easy."
Cisco is by far the national solution provider's largest vendor, but VMware is its fastest-growing, and it expects to nearly double its VMware business this year, the executive said. On top of that, VMware is preparing to aggressively push partners to sell the VeloCloud solution, he said.
"They're going to make a big incentive to sell VeloCloud. [VMware reps] weren't paid to do it before. Last year, they didn't have a chance to integrate it into their comp plans. It's going to be a big ramp-up on people wanting to sell it on the VMware side."
Adding Viptela and VeloCloud to the mix has raised the ante, he said.
"There are accounts that are VMware, and accounts that are Cisco, too -- places where they don't overlap. We'll be selling both, but not in the same account. We'll pick a strategy depending on what the customer is standardized on, what vendor relationships they have. We'll sell more Viptela because we do more with Cisco, and that's going to come along for the ride. But we hope to grow our VMware business significantly, and VeloCloud is going to come along for the ride, too."
The executive said he expects to see more customer "bake-offs" between Cisco and VMware, which likely will cause issues for partners and customers. While it's relatively easy to differentiate Cisco's Application Centric Infrastructure software-defined networking offering from VMware's NSX network virtualization platform, doing the same for their respective Viptela and VeloCloud offerings is not so cut-and-dried.
Already, the two vendors are moving to position themselves. Cisco will phase out the Viptela name in favor of "Cisco SD-WAN" and make the technology an integral part of its intent-based networking strategy. VeloCloud will be closely tied to VMware's NSX platform.
Sanjay Uppal, vice president and general manager of VMware's VeloCloud business and former CEO of VeloCloud, said router vendors are being forced to adapt to SD-WAN because the technology threatens their legacy business.
"Router vendors and anyone selling complicated custom hardware that goes on the premises of an enterprise have got to be concerned because the revenue stream they have right now is threatened," Uppal said. "Anyone doing complicated, customer hardware for wide-area network services, those are the ones that are going to be threatened. Any router vendor would be looking at this saying, 'Wait a minute, if I deploy SD-WAN, a lot of my custom hardware business is going to get threatened.' But they cannot afford to not do it, so they're caught in the usual innovator's dilemma, which is the more they push SD-WAN, the more they're going to impact their legacy business. As far as VMware is concerned, we have no such issue. There is no confl­ict there. I call it 'con­flict-free go-to-market.'"
Dave West, head of worldwide sales for Cisco's enterprise networking business, counters that it's going to be dif‑cult for other vendors to compete with the power and comprehensiveness of Cisco's SD-WAN/intent-based networking strategy.
"Cisco's Meraki is a simplified branch SD-WAN offering, while Viptela is intended for complex enterprise accounts."
Several hundred customers have signed up for Cisco SD-WAN since the Viptela acquisition last August, West said. Generally, West said, the customer savings are "signi‑cant."
"As we build and deliver the next-generation software and orchestration model, we give customers choice," West said. "'I want to virtualize.' Great. 'I want to use Cisco routers.' Great. 'I want to experiment in some other areas.' Great. I think they're going to see us as the open platform for their backbone, for their orchestration and also for their edge.
"Eventually you're going to move from the campus, and you're going to have workloads in the cloud and you need to connect to the cloud and branches," West said. "All of that stuff is going to happen over the WAN. We're taking all of the work we're doing around segmentation, and policy automation and bringing it together and more tightly integrated from end user all the way to wherever the apps sit."
West said he's aware of competitors' arguments that SD-WAN represents a grave threat to Cisco's router business but said there's "more upside than downside. If I was on the other side, I'd be doing the same thing. When you look at what customers are going to want and you pull it from data center all the way to client and the edge, we're in a good position right now. They'll continue to take potshots at us. I love good competition and I wish them the greatest success."
Great success, meanwhile, is exactly what VMware is seeing with VeloCloud. The company already has a stable of 2,000 enterprise customers using VeloCloud who are seeing on average three times the savings by using VeloCloud versus a traditional MPLS solution. One reason for the VeloCloud momentum, said Uppal, is the software company is not distracted by a legacy hardware business.
Routers may not immediately fall victim to SD-WAN, Uppal said, but routers are the most prevalent piece of hardware at the network edge and will certainly be taken out once customers are comfortable with SD-WAN.
"The WAN is the lifeblood, and people want to make sure everything is perfect before they take the router out," Uppal said. "We're totally fi‑ne with that. We can coexist with the router, and over a period of time as the IT department becomes more comfortable with SD-WAN and VeloCloud, then we take the router out.
The Competition Heats Up
Intensifying the competition between the industry giants, Dell EMC in March launched the Virtual Edge Platform -- x86-based, universal virtual networking customer premise equipment that executives say can be sold to enterprises adopting SD-WAN, and as a clear alternative to buying more expensive, proprietary Cisco routers.
Robert Keblusek, CTO of Sentinel Technologies, a Downers Grove, Ill.-based solution provider, said products like VeloCloud and Viptela "really bring an enterprise-class SD-WAN product into a VMware and Cisco."
"That really will help customers become more comfortable in adopting something new. The amount of R&D and the amount of support that's behind those opens a huge number of opportunities for us as an integrator and as a managed service provider," said Keblusek.
The need for greater business agility, security, hybrid cloud computing and Software as a Service is killing off the old way of monolithic networks.
"This is more than a disruption, it's an evolution," Keblusek said. "Everybody has to now look in this direction. It has absolutely forced Cisco and others to redefine their strategy going forward."
Other vendors are also following suit. WAN optimization stalwart Riverbed has quickly doubled down on becoming an SD-WAN force by acquiring two companies, Ocedo and Xirrus, in less than 15 months. Windstream, for its part, launched its SD-WAN offering in 2017, which now boasts more than 500 customers. And sales from Citrix Systems' NetScaler SD-WAN offering is enabling the company to post healthy networking growth.
Bridget Bisnette, vice president of global partner strategy and sales at Riverbed, said the company's SD-WAN evolution puts it in a position to guide customers through what is becoming a crowded market.
Riverbed recently added support for AWS Direct Connect and Microsoft Azure ExpressRoute to its SteelConnect SD-WAN offering. SteelConnect also allows customers to deploy and manage SD-WAN and Wi-Fi from a single cloud-based console and can use LTE wireless uplinks to increase network reach and connectivity.
"We're having a lot of discussions, and we're trying to help cut through the marketing clutter and help customers figure out what it means and take the next step," Bisnette said. "It's kind of like the early days of cloud. It's a different way of acquiring technology, and app performance, app response -- we can grow into that and tie these things together."
SD-WAN specialist CloudGenix grew sales a whopping 300 percent in 2017 with even higher revenue growth expected this year. CloudGenix CEO Kumar Ramachandran said unlike the virtualization boom that transformed the data center in the mid-2000s, SD-WAN is disrupting remote and branch of‑ces, which are becoming more important for businesses.
"If you're a bank, the bank branch is where you're meeting your customer. The retail store is where you're meeting customers. Especially as the data center transforms to the cloud, as an enterprise your whole focus is ensuring that all these places of doing business have an infrastructure model that's in line and in tune with the cloud," said Ramachandran. "I fully think this is the biggest transformation since virtualization in the data center. This is a massive transformation."
Talari, for its part, was one of the first companies with an SD-WAN offering, and 10 years in, the company is booking dramatic new customer account growth of 175 percent quarter over quarter. In late 2017, the company hired a new CEO, Dell Technologies veteran Patrick Sweeney, and said that it would push all of its sales through the channel.
George Just, vice president of worldwide sales for Talari, said the growing list of SD-WAN vendors could sow the seed of confl­ict for solution providers.
"If I was competing in the SD-WAN space and was a Viptela partner, and now they've become available to every single Cisco partner, I just got a whole
bunch of new competition selling the same thing I had," Just said. "If anything, it provides us an advantage because we're independent. It's still a pure SD-WAN play. It remains to be seen what VeloCloud's product is going to look like within VMware. Do I have to be a VMware customer? Do I have to change my infrastructure to a VMware infrastructure? Same with Viptela."
Solution providers are investing heavily to capture skyrocketing SD-WAN sales growth. Sentinel Technologies has tripled investment in personnel on its advisory services team in a variety of areas including security, data center and collaboration, to help drive more SD-WAN sales in 2018.
Encore Technology Group, a Greenville, S.C.-based solution provider, said it's doubling down on SD-WAN to build a tighter relationship with customers by enabling a better long-term management plan.
The channel can only do some tune-ups, and basic management and maintenance with MLPS, said Michael Knight, president and CTO of Encore. "There isn't a lot of money there," said Knight. "That's not true for SD-WAN."
Solution providers are generating revenue through a variety of ways from product resale and installation, to managed services and SD-WAN as-a-service.
Encore is providing its own SD-WAN as-a-service that captured the attention of one of Encore's fastgrowing customers, Creggar Company. The wholesale distributor for the plumbing, HVAC and electrical industries owns dozens of sites in the U.S. and is rapidly expanding -- adding four to six new sites per year with the majority of them currently leveraging MPLS. A five-year cost analysis comparing Cisco Meraki to the standard service provider resulted in the SD-WAN solution being 33 percent less expensive. Encore sold the customer Cisco Meraki with ‑five years of baked-in support.
"The key outcomes were complete network visibility and control, central policy management, and the ability for them to quickly tune up new locations themselves without additional tune-up fees or any type of labor cost involved in that," said Knight.
Security is also driving SD-WAN deals. The technology unifies secure interconnectivity around policy and orchestration with customers benefiting from encryption across their entire network and internet.
Solution providers pointed at the recent worldwide Meltdown and Spectre security vulnerabilities, which created a tremendous amount of workload and customer support from the channel. Solution providers said having to patch every single router or network solution deployed around the world was a huge and costly problem that can be prevented or quickly solved by SD-WAN.
"SD-WAN can help us rapidly respond to events like Meltdown and Spectre by putting out rules or policy on the network end to end that either helps prevent an attack or allows you to simply push out an update," said Sentinel's Keblusek. "There's a real need, driven by security and network intelligence, for these technologies," he said.
The key to success in the fast-growing SD-WAN market, solution providers say, is carefully evaluating customer business objectives around applications, software-de‑ned networking and the cloud. They say every solution provider needs to be armed with an SD-WAN offering to be successful.
"Every deal should have some type of SD-WAN component to it," said QOS' Cittadino. "The growth curve of SD-WAN in 2016 was an early adopter year. 2017 was the maturing year. In 2018, we're going to see the explosion."