The excitement about SD-WAN as an operator offering doesn’t surprise me. My own research showed that for all of this year, the operator sales channel for SD-WAN was the fastest growing. My modeling shows that it’s very likely to make up two-thirds of all SD-WAN sales by the end of next year. But despite this rosy picture, operators don’t have a free run here. In fact, they face some major risks, which we’ll have to dig a bit to expose and understand.
SD-WAN adoption has multiple drivers according to enterprises I’ve dealt with, and many are influenced by more than one of them. Today, over 85% of all SD-WAN buyers say that their use of SD-WAN it primarily to connect small sites to company VPNs. About 60% say that the high cost of MPLS VPNs is a motivator. Just over 70% say that they can’t get MPLS VPNs at all their sites. Less than 5% of companies say they’re replacing MPLS VPNs with SD-WAN, and about the same number cite cloud connectivity as a driver. However, buyers cite high MPLS costs and MPLS replacement twice as often as they did at the start of this year. SD-WAN cloud connectivity as a driver is more than twice as high as the January level.
Operators also have multiple drivers for offering SD-WAN. The primary driver (over three-quarters of operators cite it) for operators is competition; they fear that managed service providers who are approached to connect small sites (not connected to the corporate VPN) via SD-WAN will try to sweeten their own pies by offering to replace MPLS VPNs in other small sites. A close second (with over two-thirds) is to gain additional revenue from sites not candidates for MPLS VPNs. The third (cited by, coincidently, a third of operators), is to contain the support impact of VPN connectivity problems created by SD-WAN and MPLS in combination. Operators think they’ll be on the hook to troubleshoot even MSP or an enterprise’s own SD-WAN setup. Only 15% of operators say they worry about losing revenue, but that number has also doubled since January.
If you mash all this information up, what you get is an SD-WAN market that started with a limited goal and is transforming into a potential VPN revolution. Buyers are far more willing to toss MPLS aside than they were at the start of the year. That’s increasing operator concern that they’ll lose money in the net with SD-WAN. One operator said that the profit from a single, small, MPLS VPN site was equal to the profit from five SD-WAN sites. Buyers are also driven to SD-WAN by their increased use of the cloud, in the form of hybrid cloud, and if you presume that most enterprises will adopt and expand hybrid cloud, then cloud SD-WAN will be the nose of a potentially bigger camel under the operators’ tent. That could lead to more MPLS VPN displacement if users get comfortable with SD-WAN’s cloud mission.
You can see market validation of the concern about hybrid cloud in things like Stateless’ software-defined interconnect offering, a strategy for (among other things) extending VPNs to the cloud without SD-WAN. Some industry pubs even cite Stateless’ approach as an SD-WAN competitor, which it is not. Do we think operator concerns about hybrid cloud pulling SD-WAN through and displacing more MPLS VPNs is unrelated to this Stateless announcement? I sure think it is.
There are only ## possible pathways for operators to follow, given their fear of net revenue loss with SD-WAN. One, obviously, is to stick their heads in the sand and drop selling SD-WAN, but as the operator who cited the profit difference between SD-WAN and MPLS VPN sites noted, the loss of an MPLS site to a competitor cuts profit even more than losing it to another of your own services. The second is to try to raise SD-WAN revenues, and the third is to try to limit the MPLS VPN displacement risk. It’s these last two that operators seem to be considering.
Charging more for SD-WAN without changing the nature of the services offered has very little credibility, but a full third of operators say they’re essentially looking at the option. The most popular notion would be some sort of enhanced over-the-Internet transport option, but some operators are wary of how that could be done without running into net neutrality issues. The prevailing idea is to create something like a local gateway on the Internet, to which SD-WAN traffic would be targeted, and which would then put that traffic on a “superhighway” (to paraphrase an operator supporter of the idea). There are also ideas linked to 5G evolution and infrastructure.
Creating new features to justify new charges is an idea almost all operators say they’re looking into. Cloud integration is such a feature, but operators admit that it’s table stakes at this point. Additional security, traffic prioritization, and explicit connection control are all being reviewed too. Some operators think that SD-WAN could be a Trojan Horse for NFV, via a piece of universal CPE (uCPE) on premises justified by SD-WAN then multi-tasked with other feature hosting.
Linking these new service features to some form of uCPE seems to offer an option in the “contain-the-MPLS-loss” approach too. One truth about SD-WAN to date is that whatever it does, it does to the traffic it actually handles. Traffic among users and resources still on the MPLS VPN are not typically impacted by SD-WAN at all. Sticking a nice uCPE box into every site would give operators a VPN-plus story everywhere, and it could also revitalize the moribund NFV space.
Be careful what you wish for, though, if you’re an NFV advocate. It’s very clear that NFV architecture is a long way from optimal, and in my view it’s actually over the line into non-functional. The work on creating NFVi “classes” to eliminate the variety of hosting requirements set by VNFs is a stark admission the ISG’s approach failed to properly abstract NFVi in the first place. If we were to get a lot of uCPE deployments, it would make any changes to NFV more difficult by posing the classic stranded-installed-base risk.
The problem with all the happy SD-WAN operator outcomes is the long-standing tendency for operators to be motivated more by competition than by opportunity. You can see that in their SD-WAN behavior to date, in fact. If operators play defense on SD-WAN, the inevitably fall behind, and this clearly isn’t a market you can afford to fall behind in.