Commercially available software-defined WAN (SD-WAN) solutions hold the promise of equipping cheaper Internet connectivity options with class of service and security, making them more competitive with tradtional MPLS offerings. In this Insight, we will explore the opportunities offered to end-users and CSPs by SD-WAN while also recognizing a few of the associated risks and adoption barriers.
SD-WAN: Why Telcos Should Have a Strategy
By Sidhant Jalan and Andre Chen
SD-WAN Is Set to Transform Enterprise Networking
The architecture of a traditional, MPLS-dependent WAN is often a poor match for the network demands of today’s enterprise application profile, which includes numerous Internet-dependent applications such as Salesforce.com and Office 365. Furthermore, traditional deployments are costly to scale, with enterprises expected to pay the price of a broadband connection many times over for an MPLS circuit of equivalent bandwidth. Growth in Data-Center connectivity spend and remote office / worker connectivity are additionally putting pressure on the MPLS network spend.
SD-WAN aims to address the shortfalls of a traditional WAN with the following value proposition:
- Enterprises can leverage lower-cost connectivity options such as best-effort broadband by offloading traffic onto public Internet links.
- Born in the software-defined era, SD-WAN will naturally be more agile and user friendly. Zero-touch provisioning allows for instantaneous service upgrades, whereas capacity expansion for MPLS networks may be slower by requiring Telco negotiations and provisioning.
So, how does it work? SD-WAN abstracts the various connectivity options in an enterprise (Carrier MPLS, Core Ethernet, Basic Broadband) to stitch together a single overlay enterprise network. This overlay WAN can be centrally and programmatically managed with application-level traffic steering, security and class of service. Enterprises can offload a portion of their application traffic onto cheaper, best-effort broadband links. The end result is a WAN that packs more bandwidth at a lower cost, and maps performance, reliability, and security requirements more granularly to different applications categories.
But, it is important to recognize that SD-WAN is not without its own disadvantages:
- SD-WAN contributes to overall network overhead because additional redundant broadband options must be established to compensate for the reduced reliability of best-effort broadband.
- The level of traffic visibility is not as high as in an MPLS network, where control is maintained from end-to-end.
Finally, it is a common misconception that SD-WAN will completely replace MPLS. This is untrue. The cost of MPLS is not without reason – its offer of highly reliable, SLA-backed transport cannot be matched by best-efforts broadband. Mission-critical traffic for large enterprises demands reliable transport, so MPLS will remain a vital component of the enterprise WAN. Figure 1 compares the distribution of application traffic between a traditional enterprise WAN and one with SD-WAN.
The SD-WAN Market, while Early Stage, Could Become a Meaningful Opportunity for CSPs
In 2016, the SD-WAN market was still nascent with a $225 million global valuation. However, the technology was already showing signs of maturity, and clearly had the potential to become a core communications offering. As seen in Figure 2, IDC forecasts the SD-WAN market to reach $6 billion by 2020. Below are the reasons why we believe the SD-WAN market could become meaningful:
- Greater proof points of market interest are emerging: By 2016, there were over 10 vendors competing for share, and communications service providers (CSPs) such as Verizon and BT Global Services had released SD-WAN offerings.
- At the same time, worldwide enterprise software-as-a-service (SaaS) spending is still growing strongly, with a CAGR of just over 18%. SD-WAN can be an attractive solution for businesses looking to provide bandwidth for their SaaS applications, as it is both economical and suitable for carrying these types of public-site oriented traffic.
*Recreated from CAGR, 2015, and 2020 values reported by NetworkWorld and PwC
However, in order to transition into a core and mainstream offering, the following hurdles must be overcome:
- SD-WAN products must be easy for enterprises to consume, as the comparable offering (MPLS) is a fully managed single vendor provided offering with a simple purchase process.
- The market needs to focus on a few “killer” use cases that offer the most value to customers. We believe that it is critical for value to be proven on a single use case with high bandwidth usage before relevance can scale to other applications.
- Significant investments have to be made in customer education and clarification of the value proposition. SD-WAN may appear to be yet another term within the broader SDN and NFV technologies universe, so there are outstanding misconceptions associated with its relevance and scope.
Opportunities and Threats for CSPs
For most CSPs, the glaring threat of SD-WAN is the risk it poses to their MPLS revenue. But, CSPs should also consider SD-WAN as an opportunity to acquire new revenue streams and provide a better experience for their customer base, all while keeping pace with the transforming enterprise networking market. We believe that all CSPs should investigate the SD-WAN market, establish relevance, and develop a product offer – neglecting to do so would only put a provider at a disadvantage.
With a developed SD-WAN product and partnerships with out-of-region providers, CSPs can look to monetize enterprises that are not physically connected to its network and enhance their positioning with existing customers. Upsell opportunities also exist for higher capacity broadband and value-added services, such as analytics and security. SD-WAN could very well be a chance for CSPs to improve customer experience, increase stickiness, and reduce churn rates.
Ultimately, existing MPLS revenue is very real while the aforementioned opportunities are mostly intangible as of now. While we believe that all CSPs should develop a competitive SD-WAN offer, each individual provider should refine its SD-WAN sales strategy based on its level of exposure to MPLS revenue:
- Little to no exposure: CSPs at this level should view SD-WAN as a pure growth opportunity and pursue an accordingly aggressive sales strategy to capture market share from dominant MPLS providers.
- Medium exposure: at this level, CSPs should sell opportunistically to customers that demonstrate a need for SD-WAN.
- High exposure: CSPs with high exposure should 1) position with SD-WAN to proactively target new customers, workloads, or regions and 2) develop a defensive position with existing customers and sell in reaction to inquiry.
How Cartesian Can Help
A well-constructed SD-WAN strategy will consider customer needs, competitive positioning and revenue impacts, alongside technical and operational constraints. Cartesian has the expertise to provide a detailed assessment of SD-WAN opportunity and help providers to bring new SD-WAN services to market. Areas of support include:
- Business case development to quantify the SD-WAN
- Competitive analysis and market research to support offer design
- Go-to-market strategy to minimize cannibalization of MPLS revenue
- Requirements definition and vendor assessment
- Operational readiness and process design
- ONUG Software-Defined WAN Use Case, Open Networking User Group, October 2014
- IDC: SD-WAN market to hit $6B by 2020, NetworkWorld, March 2016
- Enterprise Cloud Services Forecast 2015-20, Ovum, January 2016
- SD-WAN for service providers: Threat or opportunity?, PwC, 2016
- Technology Overview for SD-WAN, Gartner, July 2015