Answering the Top Questions About SASE Asked by IT Professionals
The acquisition of VeloCloud Networks by VMware closely follows the acquisition of Viptela by Cisco few months ago. In this post, I want to touch on the drivers for this acquisition given the apparent success of VeloCloud with service providers, and what it implies about the role legacy service providers will play in the future of network services.
SD-WAN is driving WAN transformation
SD-WAN is a change agent in the stagnant market for WAN services. The ancestor of SD-WAN, SDN, promised to use software and commodity hardware to reduce the dependency of enterprises on proprietary legacy routers. SD-WAN followed the same logic, targeting network service providers’ private MPLS networks. With SD-WAN, customers virtualized their networks, enabling the use of multiple types of underlying services (MPLS, fiber, xDSL, cable and 4G/LTE) to meet specific business requirements. Before SD-WAN, setting up a routing environment to support this kind of diverse set of services was prohibitively complex. With SD-WAN, underlying services could be deployed, adjusted, and swapped without massive network re-engineering.
Service provider business models are under attack
SD-WAN was in fact, a serious threat to service providers. Before SD-WAN, they offered an “all or nothing” or “one size fits all” network service that focused on selling a premium product (MPLS) at a premium price and then “locking in” the network architecture to ensure service levels are met. The side effect of this approach was a rigid and expensive network that was slow to evolve and adapt. These network constraints started to impact the business when traffic flows changed with the increased adoption of cloud services. Virtualizing the network with SD-WAN meant that it was now possible to open up the network architecture to multiple service providers, multiple types of underlays, and optimize service levels vs. the cost of services. The MPLS “cash cow” was suddenly at risk.
Service providers embrace SD-WAN…or did they?
Service providers faced a conundrum. Their lucrative MPLS business was under attack but ignoring SD-WAN was not possible. Customers were in a position to seriously re-examine their service provider relationships as contracts came up for renewal by augmenting or outright replacing their MPLS networks with affordable, MPLS alternatives.
Service providers responded by signing up SD-WAN vendors and adding SD-WAN appliances to their offerings. However, it was still in the best interest of service providers and their channel ecosystem to re-sign customers to existing MPLS services even at a reduced price without introducing SD-WAN. Keeping customers on MPLS maintained customer control.
50 service providers agreements and one modest exit
VeloCloud was the poster child of a provider-centric go-to-market strategy, closing more SD-WAN partnerships than any other vendor. As SD-WAN was projected to take the world of enterprise networking by storm, VeloCloud was standing to benefit from a “tsunami” of customers adapting SD-WAN delivered by service providers. And yet, VeloCloud had chosen to be acquired by VMware instead of playing its “hand” in the exploding SD-WAN market. With a purchase price that is rumored to be far lower than Viptela’s $610M acquisition by Cisco, it seems likely that an opportunity to build a multi-billion dollar enterprise software company was lost.
Or was it? Maybe VeloCloud looked at its chosen go-to-market strategy, the service provider bundle, and saw some worrying signs. We mentioned above the inherent conflict of interest service providers have when selling WAN services, and their MPLS bias. In addition, service providers initiatives to software-enable their infrastructure are painfully slow to get to market. Network Function Virtualization is still in pre-production phase and the NFV industry is buzzing about the lack of real return on this massive investment.
In a conversation we had with an analyst of a very large firm on the the link between SD-WAN and legacy service providers, he said: “Enterprises are unsure that their existing service providers are the right partners for SD-WAN. If you take a simple and agile SD-WAN solution, and bolt it on top of a rigid and expensive service model, you end up with very little of the promised SD-WAN benefits.”
The battle for the future of network service providers
SD-WAN is, for the most part, an enabling technology for a new type of a network service provider. One that is not hampered by legacy business models, and bloated and expensive processes. Much like Amazon Web Services took over the hosting industry with a new agile, simple, affordable, and self-service solution, the battle for the future of network service is on. It is not enough to have the “right technology” or even all of the “right pieces.” To win in the market, all network service providers, both incumbents and upstarts, must adapt to deliver the total customer experience businesses are looking for. Can Cisco/Viptela and VMware/VeloCloud arm their partners with the tools needed to achieve that level of customer experience? Transforming legacy network service providers into agile and nimble organizations will require more than just technical capabilities and prove to be a significant challenge for them both.