Palo Alto Networks this week increased the intensity of the SD-WAN and edge security market when it announced on Tuesday it would pay $420 million for startup CloudGenix.
That's a great result for CloudGenix, which has about 200 employees, and had raised a total of $100 million in financing, including $65 million in a C Round last April. The investors and founders should be happy. It also puts CloudGenix in the league of the other major SD-WAN buyouts: Cisco's purchase of Viptela for $610 million in 2017 and VMware's purchase of VeloCloud for about $450 million shortly after.
These companies are all chasing impressive growth in SD-WAN and edge security tools, a market that Futuriom estimates has a compound annual growth rate (CAGR) of 33%. It's also clear that some of the standalone SD-WAN startups are becoming quite sustainable in their own right, with many approaching or even breaching nine figures in revenues, according to our research.
Deal's impact on the SD-WAN market
What does this deal mean for the rest of the market? This deal reflects an increase in the urgency to provide edge security tools blended with the ease-of-use of cloud-based branch management supplied by SD-WAN. This is especially true in the time of COVID-19, which Palo Alto executives named as a contributing factor to improve technology to secure and manage branch offices and remote workers (Palo Alto executives said they had been talking to CloudGenix before the effects of COVID-19 became clear.)
Futuriom pointed out several years ago that firewall technology, virtual private networking (VPN) and SD-WAN were on a collision course—and would be increasingly sought as an integrated solution. Nearly all of the major SD-WAN vendors have moved to beef up their security offerings, either through partnership or their own internal development. For example, Silver Peak has major partnerships with Palo Alto and Zscaler. Other prominent SD-WAN vendors, such as Versa Networks, have their own security offerings. Both these companies are now obvious prime targets.
In the meantime, the firewall vendors such as Palo Alto and its competitors are racing to build in the cloud-management tools proffered by SD-WAN. Palo Alto competitor Fortinet last year launched an SD-WAN product to complement its own firewall and cloud security tools, and Palo Alto has been perceived to be behind in SD-WAN.
Analysts and industry experts will now dissect the market, and offer their own spin on what's happening. For example, Gartner has been pushing the concept of Secure Access Service Edge (SASE). But the bottom line is that cloud security, edge security and branch-office routing are all converging and more integrated and feature-rich solutions will be in demand. SD-WAN is a tool for managing and orchestrating these services with software, which has always been core to its appeal.
What's next for consolidation?
Now, we can watch as the SD-WAN market continues along its consolidation phase. Futuriom tracks more than 20 players in SD-WAN and edge security. I would say the next three strongest players in this market are Versa Networks, Silver Peak, and Cato Networks, all strong companies in their own right. Citrix has some interesting SD-WAN technology it is integrating with its applications delivery controller (ADC), but Citrix is a large public company, not a startup. And HPE has a homegrown SD-WAN technology -- or SD Branch as it calls it -- that it is integrating into its Aruba wireless division.
Aryaka Networks is another interesting potential M&A candidate, though Aryaka owns its own network and is more of managed service provider than an infrastructure provide, so it could be acquired by a service provider.
There is probably room for two or three more major deals in this space. Some networking companies, most notably Ericsson and Juniper Networks, are lacking clear SD-WAN strategies, which has now become a glaring weakness. It will be also interesting to see if Arista Networks, which has recently been moving into the enterprise campus space and recently acquired Big Switch networks, wants an SD-WAN deal. Let the negotiations continue!
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.