Industry Voices—Raynovich: Why large service providers and networking companies missed the SD-WAN boat

While the SD-WAN and network-as-a-service market is booming, some service providers have been slow out of the starting blocks.

Futuriom recently released its 2018 SD-WAN Growth Outlook report, which indicates that interest in the software-defined wide-area networking (SD-WAN) market is accelerating with enterprises and service providers alike expected to purchase SD-WAN tools and network-as-a-service (NaaS) market is $1.5 billion by 2019 and $2 billion by 2020.

But why is this happening? And how did so many people miss it? I have been following SD-WAN for years and it seems to me that many big players have been slow on the uptake of emerging SD-WAN, especially larger service providers and networking companies.

The short answer is fear. There is an interesting dynamic for SD-WAN, in that it helps enterprises reduce their operating expenses (opex) and capital expenses (capex) for large WAN networks. But what's good for the enterprise isn't necessarily in the best interest for either service providers or large network equipment suppliers, who generate revenue from the legacy WAN services and equipment they sold to enterprises to connect their data centers.

Enterprise opportunity

This new dynamic may be why SD-WAN is started to take off while the incumbent networking suppliers and service provider drag their feet to put off cannibalizing revenue. Enterprises see the allure of using SD-WAN to increase bandwidth while lowering costs at the same time, which cannibalizes many business models.

SD-WAN delivers secure bandwidth in the cloud using low-cost commercial off-the-shelf hardware. This means that the new WAN requires neither specialized private circuits using Multiprotocol Label Switching (MPLS) nor proprietary hardware that was used to connect these circuits. These technologies represent established WAN revenue streams of leading service providers and networking vendors.

But the business models of the past no longer matter. Enterprises want ways to purchase cheap, secure bandwidth from the cloud, which is the SD-WAN value proposition. These end usersranging from small medium business to large enterprisewill continue to drive the trend.  Here are four main drivers transforming the WAN.

Cloud-centric networks—Most enterprise end users are getting to applications directly in the cloud, often by the internet. This runs counter to way legacy WANs were built, to connect private data centers with expensive private lines. Enterprise IT managers no longer want to backhaul cloud traffic to private data centers, because that is too expensive.

Bandwidth costs—Quick, think of a place where the demand for bandwidth is decreasing. Right, I didn't think you'd find that. Data shows incessant demand for more bandwidth at larger increments. As circuits cross 10 Mbps to 100 Mbps and above, gigabit broadband is not far behind. Much of this bandwidth is coming to market as plain-vanilla internet or secure Ethernet, which is much cheaper than MPLS. Managers are looking for ways to optimize and secure less expensive Internet broadband circuits to drive down their WAN costs.

Branch-office proliferation—CIOs and IT managers need to set up branches more quickly than ever before. Many of these branches may be in new areas, or even halfway around the world. The software-driven model of SD-WAN allows managers to set up office networks and branche connections more quickly, often using software in the cloud with no truck roll or complicated network configurations. This can lower the cost of both opex and capex when setting up and managing branches.

IT Speed and Agility—Digital transformation has dictated that businesses be more agile and flexible in their IT needs than ever before. SD-WANs bring more business flexibility because they can be configured with software and even automated to adapt to changing business needs.

Software eats the WAN

The transformation from a hardware-driven WAN to a software-driven WAN is reflecting the changes across the IT landscape, where software creates natural value with flexibility and programmability.

The legacy WAN was built with purpose-built hardware, manual configuration, and nailed-up private circuits. The new world demands the opposite of that.

The acceleration of cloud services and software-as-a-service model, in which an enterprise access many applications using the Internet in the cloud, is fundamentally changing the need for how networks are built.

This is a strong value proposition that will continue to attract investment from enterprises to build next-generation SD-WANs. Providers of legacy WAN hardware and services should adapt as fast as possible, or they risk being left behind.

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, 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 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 Fierce staff. They do not represent the opinions of Fierce.