We at AvidThink publish a monthly newsletter and our most recent edition in July received positive feedback on one of the points we made. I had highlighted the recently-released SD-WAN Infrastructure Forecast from our friends at IDC — we have a lot of respect for the work they do in sizing markets and depend on them for many of our analyses.
They showed SD-WAN revenues of $1.37 billion in 2018, growing 64.9% year-over-year. The same report also predicted a $5.25 billion market by 2023. More interestingly, that report showed Cisco possessing the largest market share with 46.4%, VMware came a distant second at 8.8%, followed by Silver Peak at 7.4%, and Nuage Networks from Nokia holding 4.9%.
IDC's revenue includes hardware and software, but not managed services (installation or operations) nor connectivity. Now, when compared to the other popular SD-WAN market size report from IHS Market, we see a quite different story. IHS’ most recent report covering 2019 Q1, which counts only SD-WAN software revenue, including appliance, control and management software, sees VMware on top with a 20.3% share, followed by Cisco with 13.1%, and then Aryaka at 11.6%.
Gathering the fruit basket
Here's a detailed breakdown below from IHS as of Q1 2019. Note that they’ve stopped providing publicly the revenue numbers breakdown for quarters, providing instead percentage shares.
However, with a simple calculation, we can roughly figure out the Q1 revenues. Further, we can pull from publicly provided data to aggregate the total 2018 SD-WAN revenue for each of the vendors.
Note that IHS Markit occasionally updates previously published 2018 Q1 and Q2 numbers, e.g. adding vendors who did not initially provide data or adjusting the amount in the Other category, so some of these might not exactly match the numbers you see online, but it won’t impact our discussion below.
Adding pears, oranges, and more, oh my
There are two other sets of numbers that get quoted, including ACG Research's and Frost & Sullivan's. ACG Research’s SD-WAN breakdown shows, from a total revenue standpoint, VMware in the top position in 2018 with $91 million in revenue, followed by Cisco at $81.6 million, and then Nuage Networks at $58 million.
In 2018, Frost & Sullivan (F&S) published a breakdown of rankings of the SD-WAN vendors and also provided an estimate on the market size. Because they only had two quarters of numbers, they did not want to publish the exact market shares, instead they showed relative rankings. We have recreated these with rough percentages based on our eyeballing of their chart.
- VMware/VeloCloud ~27%
- Silver Peak ~18%
- Cisco ~11%
- InfoVista ~8%
- Nuage Networks ~7%
- Aryaka ~6%
- Oracle/Talari ~4%
- Fatpipe ~3%
- Citrix ~3%
- Others ~13%
Again, these percentages are likely not exact but close enough to illustrate a point. The Others category included the combined revenues from Versa, CloudGenix, Mushroom Networks, Riverbed, and multiple other SD-WAN vendors that each had semi-annual revenues less than $10 million. Half-year revenue was totaled at about $529 million. This implies a $1 billion plua revenue for 2018 since Q3 and Q4 2018 overall revenue were generally better for the listed vendors, which would be in line with the other market sizing. In F&S numbers, Cisco’s revenue excludes Meraki, and they separated underlay networks from Aryaka’s numbers. Surprisingly, Fortinet wasn’t included in the F&S report because, according to F&S, their SD-WAN numbers were not separable from their Fortigate security functionality.
Comparing apples to oranges to … jackfruit?
Let’s put these numbers side-by-side in a chart, so we can more easily compare them. For F&S, I’ve only included my rough estimates of the percentages.
Immediately, the discrepancies show up. The huge number for Cisco’s SD-WAN revenue in IDC’s report is likely due to inclusion of both hardware and software, as well as contribution from Meraki. That $500 million gap is still highly problematic though, just based on the sheer size of the difference that throws off comparisons with other market analyst reports. And it also doesn’t explain why VMware’s numbers are lower in IDC’s when hardware is included, as hardware doesn’t usually add negative revenue.
You can look for yourself and spot further differences, it’s not hard at all. There are many questions that arise, like the large variance in VMware/VeloCloud revenue across three reports just to name one.
SD-WAN fruit ninja – slicing up the market
As we all know, the methodology used in calculating something as ill-defined as SD-WAN revenue dramatically affects the end numbers. There are plenty of variables and ways that the numbers can be impacted. Some include:
- Is the reversal of any bundled underlay links done cleanly? What about managed services and professional services?
- Should we include hardware or not? And how do we amortize the hardware costs, if at all? What if it’s a subscription-based offering that includes hardware platform rental?
- For vendors that ship integrated wireless like Cisco-Meraki and Aruba, how is the SD-WAN component broken out? The same goes for firewall and security vendors like Fortinet and Barracuda. For WAN-opt vendors like Silver Peak and Riverbed, does the number measure truly just the SD-WAN contribution? And as SD-WAN eats up the entire enterprise edge market, should we just roll everything under the SD-WAN umbrella?
- And for vendors like VMware or Cisco which have adjacent products or that sell bundled licenses or enterprise-licenses, how do we calculate the appropriate allocation to SD-WAN revenues?
- How do we account for different licensing schemes: annual pre-paid, multi-year pre-paid or perpetual license with upgrade and support fees?
The bottom line is that after wading through the above, enterprise and service provider IT decision-makers might not be better off in terms of having the right information to make their SD-WAN decision. We’ll need to figure out whether these numbers matter. As we pointed out in the AvidThink newsletter, betting on a market leader means that there’s ongoing revenue to fund future development and it also might help with reducing risk of a career-ending decision if a deployment goes wrong — you can use the “I picked from the top 5” argument. The reality, though, is that most of the top 10-15 SD-WAN vendors will be viable for a long time — though a few may get acquired — and it’s more critical to understand the nuances of each offering and evaluate if the fit is appropriate for your needs. So get that fruit knife out and start slicing away!
Roy Chua is founder and principal at AvidThink, an independent research and advisory service formed in 2018 out of SDxCentral's research group. Prior to co-founding SDxCentral and running its research and product teams, Chua was a management consultant working with both Fortune 500 and startup technology companies on go-to-market and product consulting. As an early proponent of the software-defined infrastructure movement, Chua is a frequent speaker at technology events in the telco and cloud space and a regular contributor to major leading online publications. A graduate of UC Berkeley's electrical engineering and computer science program and MIT's Sloan School of Business, Chua has 20+ years of experience in telco and enterprise cloud computing, networking and security, including founding several Silicon Valley startups. He can be reached at [email protected]; follow him at @avidthink and @wireroy
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.