Product, feature, or service? Why revenue sizing is proving difficult in SD-WAN

With over 60 vendors bringing divergent backgrounds and approaches participating in the SD WAN software market, it is easy to understand why top market research houses are coming up with dramatically different answers on revenue size and share within the SD WAN market.

 

I am going to cover both why the numbers diverge, and what insight can be gained despite the differences.

 

Here are some of the challenges when it comes to determining SD WAN revenue:

  • Is it a feature or separate product? Many vendors have added some SD WAN characteristics to existing product lines – do you count the entire revenue of this newly enhanced product or some percentage? Cisco is the most obvious example of this where they have added SD WAN to the core ISR product range, leading some to attribute very large revenues in SD WAN to Cisco.

  • Is it charged or positioned as an upgrade? A closely related issue to the one above, Vendors with large installed bases are often using SD WAN enhancements to protect the base, and attack new segments. Often this means they don’t explicitly breakout and charge for SD WAN even if it’s a separate product. Fortinet at the recent SD WAN conference in Paris said they are getting large traction with their new SD WAN functionality – but they don’t charge for it…

  • How should the hardware component be accounted for? SD WAN is software by definition, but it is often still sold bundled with hardware. Many analysts include hardware appliances in market sizing, making those who rely heavily on appliances look larger than those that deploy more often as VNFs on cloud infrastructure or white box servers. This distorts the figures as often the revenue being generated by the SD WAN software may be similar.

  • Is it managed service, or software that is being counted? Aryaka is regularly in the top 10 in terms of market size for software. Aryaka is a managed service provider that built its own platform, so the approach analysts take in separating out what is the managed service or infrastructure revenue and is key to sizing their size in the infrastructure market.. Many other vendors also run hosted versions where they supply a managed service of key components like orchestrators.

  • How are the licenses valued? Are they looking at potential annual value, or actual deployed value –e.g. just the months they are in production network for that year?

We can see how large the divergence between analysts is if we compare IDC’s SD-WAN 2018 market figures detailed in an article by Techtarget and the widely published IHS Worldwide SD-WAN quarterly revenue figures

This comparison reveals  following interesting points about the 2018 market: 

  • Total Market size for 2018 is $1.4 Billion per IDC and $1.04 Billion per IHS. Not a surprising difference given IDC’s broader definition of the market,  which includes hardware and routing if integrated with SD WAN. An approach that is particularly important when they look at Cisco’s which in some cases integrates SD WAN on to its existing routers.  It could well be that in the non public part of IDC’s report, they show the software portion of the market to be of similar size to IHS.
  • Top vendors listed are similar with slightly different positions.

  • Market shares are very different despite similar ranking. If we look at the top 2 companies, IDC gives Cisco a 46% market share dominating the rest of the field with VMWare having only 8.8% share. IHS has no player with such overwhelming dominance and instead puts VMware at a 19.1% and Cisco at a 12.6% share.

  • IDC has a significantly lower absolute value for VMWare – $121.2 Million versus $198.9 Million according to IHS (despite having more narrow market definition). The same is true for Aryaka at $57.7 Million per IDC and $138 Million per IHS. Both have a fairly consistent view of Silver Peak at around $100 Million.

  • IHS is signaling a fast rising Fortinet predicting a 193% quarter on quarter growth, suggesting Fortinet will quickly be in the top 5.

  • So, what insight can we gain from such divergent numbers, and what underlying questions remain unanswered?

We can see from the numbers:

  1. There is a pretty consistent view on which vendors are major players in the market despite the difference in sizing.

  2. There is a consistent view that the market is large and growing rapidly.

  3. The top players are enterprise focused in the most part—exception being VMWare early success and the portion Meraki plays in Cisco. This likely suggests carrier managed services for national SMB have not yet hit full stride.

The underlying questions that remain to answer:

  1. Revenue sizing is difficult and will get more so. SD WAN is not as consistently defined and measured and will never be as easy to count as MPLS circuits, Managed routers or even hosted UCaaS. So, is there a more insightful set of data we should be looking at? One obvious metric that used to be discussed frequently and is now less visible is number of sites deployed.

  2. There is still a big question of how managed services from carriers are being counted. a. Versa and Nuage both have been selected by multiple (10+) carriers. While Nuage is now showing up on the rankings, Versa still is not. b. IHS numbers would suggest that Aryaka (self-built platform) deploys more than the 20+ carrier customers of Nokia and Versa combined. Can this be true?

  3. Security is intersecting the SD WAN market, just as WAN OPS did in the early days. The rapid rise of Fortinet is the start of a much broader question about how much security players will reshape the landscape of networking vendors.

Over the new few months, we’ll be considering these questions further, and attempting to shed some light on them. Of course, we welcome your thoughts on market sizing and what different sets of data would be useful for your understanding of the market. If that’s a conversation you’d like to have with us, please do get in touch.

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