IHS Markit's latest report provides further proof that SD-WAN is making the move out of the do-it-yourself model and into managed services.
While the shift to managed services bundled with other network functions virtualization (NFV) services and connectivity is underway in 2019, both direct and channel sales will continue to drive SD-WAN market growth for the foreseeable future, according to last month's “Edge Connectivity Strategies North American Enterprise” survey by IHS Markit.
“Telcos want to utilize the high speeds and network-slicing capability of 5G, along with the application-traffic steering capability of SD-WAN, to support the industrial internet of things and other new edge applications,” said Josh Bancroft, senior research analyst at IHS Markit, in a prepared statement. “The telcos view SD-WAN as a key way to ensure various traffic types are automatically steered to the appropriate links. It can also guarantee IoT traffic is prioritized over 5G, and other applications are automatically routed over broadband.”
“If they haven’t done so already, SD-WAN vendors should consider adding IoT-specific features to their offering, such as application identification, prioritization and protocol translation functionality on SD-WAN appliances."
In the fourth quarter of last year, vendors began to reap the rewards of partnering with multiple managed-service providers, systems integrators and telcos, according to IHS Markit. Revenue deal sizes continued to grow while the number of enterprise sites deploying SD-WAN is still undergoing a growth spurt.
According to Vertical Systems Group, carrier-grade managed SD-WAN services in the U.S. increased in the second half of last year to the tune of more than $282 million in revenue. Vertical Systems Group expects network operators to further ramp up their managed SD-WAN offerings.
Last week, Spectrum Enterprise, which is the business services division of Charter, announced it has launched its Managed SD-WAN service nationally. Spectrum Enterprise is offering its SD-WAN service as a virtual network function while also rolling out a security VNF with Fortinet as well.
Last year, Orange Business Services rolled out a managed SD-WAN service, called "Flexible SD-WAN," by working with Cisco's Viptela SD-WAN technology. In October, CenturyLink broadened its SD-WAN portfolio with the addition of a managed service that's also powered by Cisco/Viptela.
SD-WAN and ADC fourth-quarter numbers
SD-WAN software revenue, including appliance and control and management software, increased 26% quarter over quarter to reach $359 million in the fourth quarter of last year, according to IHS Markit. Overall, SD-WAN revenue reached $359 million in the fourth quarter, which was a 26% increase sequentially from the previous quarter.
Also in the fourth quarter, VMware/VeloCloud continued to be the leader for SD-WAN market revenue share with 20%, followed by Cisco (14%) and Aryaka (12%), according to IHS Markit. Cisco took over second place from Aryaka in the third quarter, according to the “Data Center Network Equipment Market Tracker” from IHS Markit.
Two years ago, VMware bought VeloCloud for an undisclosed sum, while Cisco paid $610 million for Viptela. Last year, VMware made a concerted effort to blend VeloCloud into its end-to-end portfolio, while Cisco announced it was continuing the integration of its Viptela acquisition by adding Viptela's SD-WAN technology to its enterprise routing platforms.
Application delivery controller revenue declined 4% quarter over quarter and 7% year over year in last year's fourth quarter, reaching $438 million, according to the data center report. Virtual ADC appliances comprised 35% of the ADC revenue in the fourth quarter.
F5 Networks' revenue slipped 8% quarter over quarter over the same time frame, but the vendor still accounted for 47% of the ADC market share. Citrix followed F5 with 27%, while A10 came in third with 8%.