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Virtualization has moved from the server throughout the data center to the cloud. VMware is trying to keep pace by breaking into the SD-WAN market, but it has run into a few challenges along the way.
The acceptance of public cloud has sparked interest in SD-WAN offerings. In November, VMware acquired VeloCloud Networks, an SD-WAN service provider. The VMware-VeloCloud acquisition provided VMware with a new offering to address users' pressing network needs, and has also pushed the vendor a bit out of its comfort zone.
SD-WANs have rapidly gained traction.
"The enterprise WAN edge has become the focus of new architectural approaches," said Joe Skorupa, vice president at Gartner.
By the end of 2018, SD-WAN appliances and x86-based virtual customer premises equipment will be the basis of more than 40% of WAN edge infrastructures -- compared to traditional routers -- up from less than 2% two years ago, according to Gartner.
The changing WAN landscape
The growth of public cloud is driving this change. As network traffic moves out of the data center and into the WAN, companies will need new infrastructure to support rising traffic volumes.
Because of this change, SD-WAN revenue boomed in 2017. Market research firm IDC found that sales increased from $550 million in 2016 to almost $1.1 billion last year.
The high growth initially attracted a large number of established, as well as startup suppliers, but mergers and acquisitions are becoming more common.
"We have begun to see a winnowing of market players," said Brad Casemore, research director, datacenter networks at IDC. At the beginning of 2017, the SD-WAN market supported about 40 vendors, but that number is expected to drop to a handful in a few years.
VMware makes its move
Founded in 2012, VeloCloud had been riding the SD-WAN wave for some time now. The firm, which earned a total of $84 million in venture capital, had over 1,000 customers.
The VMware-VeloCloud acquisition helps VMware on a number of fronts. First, the offering provides them with a well-known product in a fast growing market.
Second, VeloCloud can improve VMware's software-defined networking (SDN) story. SDN is an emerging technology designed to help enterprises manage network resources more efficiently by consolidating network infrastructure management into a single product and automating tedious manual processes, such as configuring a router. Now that WANs are the fastest growing part of the enterprise network, customers are looking for ways to better manage them.
The goal is to make network management more effective for customers. Eventually, businesses will be able to orchestrate the configuration and deployment of network services across the data center, the cloud and remote sites.
Facing new hurdles
Long term, VMware can integrate VeloCloud with NSX and its management tools. Such work is exceedingly complex, but the VMware-VeloCloud relationship was strong even prior to the acquisition, enabling VMware to put the building blocks for this integration into place.
VeloCloud was part of the VMware Ready for Network Functions Virtualization (NFV) certification program, which validates interoperability between third-party offerings and VMware's vCloud NFV platform. VMware was also a member of VeloCloud's SD-WAN Security Technology Partner Program, designed to ensure interoperability among different products.
The VMware-VeloCloud acquisition also creates other challenges. For one, this purchase moves VMware slightly outside of its comfort zone. There are two ways to purchase SD-WANs: Enterprises can purchase them directly, deploy them and manage their own networks, or they can purchase them in a bundle with other services from a telecommunications vendor.
VeloCloud has done quite well in the telecom area; AT&T, Sprint, Deutsche Telekom, Telstra and Windstream are a few of the carriers that use its software as the foundation for their SD-WAN services. How well VMware will be able to support service providers -- whose needs differ from enterprises -- is an open question.
Battle of the titans
Finally, VeloCloud puts VMware in direct competition with Cisco. The two have been banging heads since the inception of the SDN market, and they've emerged as the industry's top two vendors.
In May 2017, Cisco paid $610 million to buy SD-WAN firm Viptela. The startup is now part of Cisco's enterprise routing group within Cisco's Networking and Security Business unit. In light of this, VMware's purchase could be perceived as reactive rather than proactive.
In addition, Cisco has been a top player in the legacy WAN optimization market. The vendor generated more than $3 billion in WAN optimization revenue in 2017 and has more than 150,000 WAN customers who predominantly use its router-based platforms, according to Gartner.
Despite the potential benefits the VMware-VeloCloud acquisition presents, dislodging Cisco from its top position will be challenging.