SD-WAN rides digitization back to high growth — Raynovich

M&A and consolidation in the SD-WAN market is likely to continue and enter its last stage. (Getty Images)
Scott Raynovich

It's been fun to watch the software-defined wide-area networking (SD-WAN) market evolve over a decade. As my research firm Futuriom has tracked SD-WAN, it has grown into a multi-billion-dollar market for virtualized networking services, ranging from everything from application performance control to advanced security services.

The SD-WAN market is now ready to enter into its next phase of growth as it overlaps and extends into new markets, including cloud security and the movement known as Secure Access Service Edge (SASE), as well as cloud networking for multi-cloud and hybrid cloud services. This leaves room for SD-WAN to expand as a platform to provide just about any virtualized network service that can be accessed in the cloud.

After reviewing our survey results for the year, speaking to a community of more than a dozen SD-WAN vendors and interviewing dozens of end users, Futuriom has concluded that the SD-WAN market has re-accelerated from its brief pandemic pause in the 1H of 2020 and is on track to fulfill our long-term projection of a compound annual growth rate (CAGR) of 34% in bundled hardware and software SD-WAN services. Futuriom expects the SD-WAN market to reach $2.6 billion in 2021, $3.5 billion by 2022 and $4.6 billion by 2023. The continued growth will be spurred by demand for more agile, high-performance, and secure connections to cloud applications, says our new report.

The Pandemic Pause

If you were you caught off guard by the surge in demand for cloud services last year, you were not alone. The networking market paused in the first half of 2020 as physical challenges to access caused by the pandemic limited sales and installation opportunities. After it became clear that the pandemic and lockdowns would accelerate digitization and work from anywhere (WFA) investment, however, growth in all manner of cloud-based IT services surged, and SD-WAN was among those services bouncing back in the second half of 2020 and the first half of 2021, according to our interviews.

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SD-WAN growth came roaring back as companies sought to accelerate digital transformation, remote work and cybersecurity strategies. SD-WAN, which enables cloud based management and orchestration of networking services, is a key enabler of digital transformation. Our research shows the perceived customer benefits of SD-WAN continue to be improved security, better management/agility, bandwidth optimization/cost savings and faster cloud applications performance.

These benefits were emphasized in our 2021 SD-WAN Managed Services report released earlier in the year. Interviews and analysis for our 2021 SD-WAN Growth report, released today, indicate they continue to be strong trends. Here are some of the conclusions we have gathered from our ongoing research work:

  • SD-WAN and cloud security services are converging. As SD-WAN vendors continue to add security services to fit a broader cloud-based cybersecurity market known as SASE, the markets will gradually merge over time as SD-WAN capabilities expand.
  • The WFA and Work from Home (WFH) trend will continue to give the SD-WAN market a boost. SD-WAN integrates virtual private networking (VPN) functionality for both remote workers and enterprise branches, which is a key feature demand.
  • M&A and consolidation in the SD-WAN market is likely to continue and enter its last stage. Aryaka, Cato Networks and Versa Networks are all strong candidates for M&A or IPO. Smaller companies such as Bigleaf or FatPipe may need to make a move soon. With many major SD-WAN deals having already taken place, they could miss the M&A window. The musical chairs are dwindling!

Smart Acquisition Plays

It's interesting what the trends will mean for the remaining SD-WAN startup community, which has entered the late stages of consolidation. HPE's acquisition of Silver Peak last year may have represented one of the last large SD-WAN deals. Now all of the major networking and diversified technology companies are well positioned for both SD-WAN and SASE growth.

For example, Cisco and VMware are profiting from their early respective acquisitions of Viptela and VeloCloud in 2017. In fact, VMware has steadily expanded the role of VeloCloud technology — which is now called VMware SASE — to become its go-to solution for enterprise edge and SASE services. As part of VMware SASE, for example, VMware recently launched VMware Cloud Web Security, a cloud-hosted service that better protects users and infrastructure accessing SaaS and internet applications.

HPE, is likewise making its 2020 acquisition of SD-WAN leader Silver Peak an anchor to its edge enterprise story, which it now calls Aruba EdgeConnect. In just one example of the many integrations that are occurring to drive better security into the network, HPE has integrated Aruba EdgeConnect SD-WAN (acquired via Silver Peak) with Aruba’s ClearPass Policy Manager.

Juniper is using the SASE trend to migrate its portfolio of security and networking management products to a cloud-based service called Security Director Cloud. And Citrix is using its SD-WAN products to network its secure work products such as Workspace and integrate with major cloud providers such as Azure. 

Many other early SD-WAN market leaders have also expanded their SASE stories, including network-as-a service (NaaS) suppliers Aryaka Networks, which recently acquired Secucloud. Traditional network security vendors such as Fortinet and Palo Alto have made sure they're in the game too by integrating SD-WAN technology with their security products to produce SASE offerings.

"The pandemic in a way has accelerated this trend called SASE,” Aryaka Chief Marketing Officer Shashi Kiran recently told Futuriom in an interview. “In 2020, people thought it was years out. Now we hear people saying they need to move right now to a cloud-first approach from the network side, as well as security.”

All of this sets up for some interesting growth going forward, as a large group of networking players go after these multi-billion-dollar markets. It looks like there will be plenty of action to go around, as corporations and organizations worldwide move to SD-WAN as a flexible platform for managing cloud-based network connectivity. 

R. Scott Raynovich is the founder and chief analyst of Futuriom. For two decades, he has been covering a wide range of technology as an editor, analyst, and publisher. Most recently, he was VP of research at SDxCentral.com, which acquired his previous technology website, Rayno Report, in 2015. Prior to that, he was the editor in chief of Light Reading, where he worked for nine years. Raynovich has also served as investment editor at Red Herring, where he started the New York bureau and helped build the original Redherring.com website. He has won several industry awards, including an Editor & Publisher award for Best Business Blog, and his analysis has been featured by prominent media outlets including NPR, CNBC, The Wall Street Journal, and the San Jose Mercury News. He can be reached at [email protected]; follow him @rayno.

Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceTelecom staff. They do not represent the opinions of FierceTelecom.