Cisco recently took out its pocket book to purchase Viptela, a software-based SD-WAN provider, giving the routing giant much needed cloud-based software functionality at a time when it is trying to realign its strategy around software and services.
While Cisco did not reveal the amount it paid for Viptela, the acquisition is notable for the fact that it gives Cisco a set of management, orchestration and overlay technologies to ease service provider and enterprise SD-WAN deployment and management.
Viptela’s cloud-first approach aligns with Cisco's Digital Network Architecture (DNA) transition to software-driven, automated networks. The company also brings a roster of enterprise channel partners like Verizon, which sells Viptela products as part of its SD-WAN offering.
Since Viptela’s solution is software and cloud-based, Cisco can use the platform to possibly boost its recurring services and security revenues. While Cisco won’t release its third quarter fiscal year earnings until next week, the vendor reported in its fiscal second quarter 2017 51% year-over-year growth in its product deferred revenue related to recurring software and subscriptions.
The deal could be the first sign of much-needed consolidation of the crowded standalone SD-WAN market. Service providers and enterprises want the performance and security requirements of the WAN edge.
“The SD-WAN market is highly fragmented with several pure-play vendors who are very new to the WAN solutions market,” said Roopa Honnachari, industry director of business communication services and cloud computing services for Frost & Sullivan, in an interview with FierceTelecom. “Hence, despite SD-WAN solutions being extremely appealing, enterprises have been cautious about procuring solutions from pure-play vendors due to concerns regarding the vendors’ stability and long-term viability in the market.”
Software pivot
Cisco’s acquisition of Viptela could be seen as one opportunity to use its market power to not only defend its turf as a powerful vendor, but also gain a deeper foothold in the software-based network play its service provider customers like AT&T and Verizon are demanding from their vendor partners.
AT&T, which has set a goal to have 80% of its network on software by 2020, told investors during its first quarter earnings call that SD-WAN is a good fit for its small to medium-sized business (SMB) customers.
Besides appealing to telcos and enterprises, the vendor could also take advantage of cable’s growing presence in the business market. While none of the major cable MSOs have announced SD-WAN products, they have an SMB customer base and a large broadband footprint that could be easily leveraged to deliver this service.
Chuck Robbins, CEO of Cisco, intimated this shift during its fourth quarter and fiscal year 2016 earnings call, a likely response to its large carrier customers like AT&T and Verizon.
“We believe we will transition more of our revenues to a software and subscription based model and accelerate our shift across our portfolio,” Robbins said.
Viptela might just be one of a number of SD-WAN acquisition targets for Cisco. It has a stake in VeloCloud, a key competitor to Viptela which counts AT&T, Sprint and Windstream as key customers.
“Cisco is also an early investor in VeloCloud, Viptela’s most prominent SD-WAN rival,” said Stephan Beckert, VP of strategy for TeleGeography, in an interview with FierceTelecom. “Consequently, this would seem to give Cisco the inside track if VeloCloud were ever put up for sale.”
A bundled approach
Unlike the traditional WAN vendors, Cisco has also taken a different approach to SD-WAN.
Instead of offering a point product, the vendor offers its enterprise and service provider customers a suite of solutions that it bundles under its Intelligent WAN (iWAN) category. It can now add Viptela to that service set.
“While this means users have to deploy additional applications to build a solution, it also gives them the flexibility to use existing routers, and to build a feature-rich solution in a phased manner,” Honnachari said. “In short, Cisco iWAN is a better fit to managed SD-WAN market that Cisco can capture via the service provider channel.”
Other vendors remain skeptical about Cisco’s approach. Silver Peak said Cisco’s approach will actually cause confusion for enterprises and service providers.
“Cisco customers are facing an expanded catalog of compromises as the ISR, various flavors of iWAN, Meraki and now Viptela are thrown into the marketecture blender again,” said John Vincenzo, SVP of Silver Peak, in a blog post. “The bottom line—it’s hard to address the lack of a cohesive technology platform by continually adding incremental piece parts.”
Upon completing the Viptela deal, Cisco should position how the assets fit into iWAN portfolio. While Cisco’s bundled strategy may seem muddled to competitors, the vendor is taking the necessary steps to not be left behind as more of its core customers migrate to software. – Sean | @FierceTelecom