2018 SD-WAN Growth Report v2.6 · This means that SD-WAN, or cloud-delivered WAN, is now one of the more dominant growth areas for enterprise communications services. Enterprises

2018

SD-WANGrowth Outlook

Breaking down the virtualized wide-area networking (WAN) market

Analysis of Advanced Technology Markets

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Premium Technology Research 2018

SD-WAN Growth Outlook

Breaking down the virtualized wide-area networking (WAN) market

2018 SD-WAN Growth Outlook

Key Findings

• Growth in the SD-WAN market is now accelerating. SD-WAN technology isreceiving broad market acceptance as enterprises see direct return-on-investment in implement cloud-managed WAN.

• The top drivers of SD-WAN growth are service agility and operational expense(opex) cost savings including bandwidth costs.

• Futuriom expects the market for SD-WAN tools and network-as-a-service(NaaS) revenue (non-legacy service provider) to reach $1.5 billion by 2019and $2.5 billion by 2021. Our data was gathered from both SD-WAN softwareand services players and industry sources.

• Many of the private SD-WAN companies are gaining momentum and havepotential for an initial public offering (IPO) or major acquisition in the nextfew years.

• Pure-play SD-WAN tools for Do-it-Yourself (DIY) and NaaS solutions are moreattractive to end users than services provided by traditional service providers.Futuriom believes that enterprises are more likely to build their own SD-WAN orpurchase SD-WAN from an independent NaaS.

Featuring:



Introduction: 2018 – The SD-WAN Growth Sweet Spot It’s been an interesting year for software-defined Wide-area Networking (SD-WAN) so far, with business activity increasing and the market accepting and deploying the technology to manage the operating costs (opex) and capital expense (capex) of deploying new bandwidth, whether it’s used to connect global branch offices or data centers.

The world has been conditioned to buy services, on-demand, from the cloud. Now enterprises want to buy WAN from the cloud – rather than have it controlled by service providers deploying proprietary services on expensive, specialized routing equipment. At the same time, gains in bandwidth optimization technology such as WAN optimization, de-duplication, load-balancing, and link balancing have become more sophisticated, enabling enterprises to leverage Internet broadband for business applications

The driver? Enterprises have long struggled with the cost, complexity, and operations of managing WAN networks, and SD-WAN has a direct ROI: Lower the cost and increase the bandwidth, at the same time.

This means that SD-WAN, or cloud-delivered WAN, is now one of the more dominant growth areas for enterprise communications services. Enterprises will buy SD-WAN, to reduce the complexity in configuring branch-office devices, routing schemes, and network addresses. With SD-WAN, much of these functions can be abstracted into the cloud and managed by the service provider or an enterprise manager using a cloud interface, rather than using proprietary networking equipment.

SD-WAN software and hardware providers, as well as network operators, are building these platforms for delivering WAN services in the cloud. This flexible cloud model offers other opportunities to bundle services with SD-WAN, which can be deployed via the cloud, including but not limited to: WAN optimization, application acceleration, SD-WAN routing, and security services.



Futuriom has been closely following this market for the past five years, including correctly predicting it would be the most fertile area for delivering revenue growth in enterprise networking in many years.

To collect data for this report, Futuriom surveyed more than a dozen vendors for data and feature sets. We also conducted dozens of interviews with dozens of SD-WAN customers, suppliers, and service-provider partners.

Our conclusion is that the SD-WAN market is accelerating in 2018, with hundreds of millions of dollars in revenue changing hands and the technology evolving to a point at which its accepted in the marketplace. The SD-WAN market is by far the most successful incarnation of software-defined networking, offering real value and return on investment (ROI) to enterprise looking to reduce the escalating costs of their WANs.

The only drawback for end users is that there are 20 or more legitimate SD-WAN vendors in the marketplace, with aggressive sales pitches and complex market dynamics. Choosing solutions is not easy, and they often come down to specific applications and very complicated feature sets and architectures.

Read on, to get Futuriom’s full analysis of the SD-WAN market, including:

Why? Why is SD-WAN a popular service? Why do people want it? Why will it matter?

What? What has happened in the past 12 months? What are the key features that end users are looking for.

Who? Who is buying SD-WAN and why.

How? How does Futuriom expect SD-WAN to evolve?

How much? What are the total revenue numbers at stake? Futuriom has gathered independent, private, and anonymous data from many sources in the market to come up with what we believe are the most comprehensive, accurate revenue figures to date.



I. Trends Driving Demand for SD-WAN

Huge demand for cloud services means huge demand for wide area network (WAN)

connectivity, security, and bandwidth. It has also changed enterprise network

architectures and created new challenges for Chief Information Officers (CIOs) and IT

managers in charge of building networks and purchasing bandwidth for their

company.

What’s changed? The acceleration of cloud services and software-as-a-service model,

in which an enterprise access many applications using the Internet in the cloud, rather

than applications residing in a private data center, has changed traffic patterns in

enterprise networks. This is a fundamental change for the way that networks were

built over the last several decades, when enterprises were focusing on building

internal, private connections between datacenters and branches.

Cloud platforms are driving business models and IT operations toward a global,

public-Internet orientation. Forecasts for the use of IT services in the cloud are

steadily growing and are expected to dominate the growth of many IT services over

the next 10 years. Amazon’s recent quarterly results released showed Amazon Web

Services (AWS) growing 43% year-over-year growth.

Overall, cloud computing is projected to increase from $67 billion in 2015 to $162

billion in 2020, with compound annual growth rate (CAGR) of 19%, according to a

cross-section of industry research.



Top Drivers for SD-WAN While the shift in enterprise bandwidth to cloud needs is one of the overarching

drivers toward a new SD-WAN architecture, this is reinforced by many broader trends

in IT. Let’s take a more detailed look at these trends.

1) BandwidthDemandandCostEscalation

Demand for bandwidth is incessant.

Data shows more enterprise demand for

broadband and networking connectivity

circuits for 100 Mbps and above, gigabit

Ethernet coming on line as well. As

cloud services proliferate, the thirst for bandwidth is accelerating, and IT

managers need a break in cost. Using expensive private-line and MPLS circuits is

no longer a solution – managers are looking for ways to optimize and secure less

expensive Internet broadband circuits. SD-WAN technologies offer a way to do

that with demonstrable return on investment (ROI).

2) Cloud-centricApps

As discussed, end users going directly to

the cloud, often by the Internet, has

generated new demand for cloud-centric

bandwidth. But this has implications

beyond simple demand for raw bandwidth.

The cloud-centric focus creates other drivers for WAN software and hardware

architectures such as the need for cloud-linked security, increased interoperability

with open cloud standards and platforms, and the need for applications visibility and

quality of service so that applications can be rated by priority, creating new need for

built-in application delivery and optimization.



3) Branch-officeGlobalization

Networks and enterprises have never been more

global. CIOs and IT managers are seeking more

flexibility in connecting branches with a

software-driven model that can get branches and

offices up and running quickly, with the need for

complicated network configurations. SD-WAN

approaches offer the capability to drive configurations from the cloud, speeding up

orchestration of branch office equipment to connect branches more quickly and at

lower cost.

4) NeedforITSpeedandAgility

The new demands of the enterprise, where applications

and network needs are constantly changing, places new

demands on flexible networks that can adapt to

business needs. SD-WAN approaches offer an ability to

manage and plan network needs with software-based

design and configuration that can be changed and managed centrally.



Revenue Driver: Creating Value with Network ROI Why is there so much customer excitement about SD-WAN? The technology can solve

many of the challenges outlined above, delivering real-world, tangible ROI benefits to

end users. They realize that the technology can offer immediate business returns that

make an IT manager look like a rock star in the organization. Not only can they use

SD-WAN technologies to more efficiently manage their WANs, improve application

performance and bandwidth optimization, limit hardware, and reduce both opex and

capex, but it also has the potential to roll out a more agile platform that can respond

to end-users or customer needs more quickly.



Futuriom research indicates that the cost of MPLS connections is a large driver of

demand for SD-WAN. An example gathered from data for Aryaka Networks and a

range of publicly available broadband pricing data, shows that MPLS costs can run as

high as 20X-30X those of Internet broadband costs.

This cost difference may not have made much a difference several years ago when

Internet broadband was considered unreliable. But the continual improvement of

Internet broadband, as well as the maturation of SD-WAN and a range of optimization

technologies, means that SD-WAN solutions can now significantly improve the

performance of Internet broadband to meet or even exceed the performance an

security requirements of MPLS.

There is now enough evidence of this among multiple customers using multiple SD-

WAN products to replace or augment MPLS. CIOs and IT managers see SD-WAN as a

solution that will lower the costs of both opex and capex and show real-world results

to their bosses. In interviews with vendors and end-users, we have found this to be

the primary driver of SD-WAN technology. We have also seen individual business

Source: Aryaka Networks, Network World, publicly available broadband pricing data



cases that show an average reduction in opex by 40%. In this example, if 50% of the

WAN is opex ($10 million), and a 40% cost reduction in opex can be delivered with

SD-WAN technology ($4 million), it may justify a $1 million-$2 million annual SD-WAN

software investment (that is, you are investing $2 million a year to save $4 million, for

total savings of $2 million). It’s likely that end-users will demand even better ROI.

Summary: ROI Goals for the SD-WAN Futuriom’s ongoing interviews with dozens of equipment providers and WAN users

reveals the following goals in connecting the WAN in these new cloud environments:

• Optimize and accelerate WAN traffic to the cloud

• Reduce costs related to WAN bandwidth

• Leverage multiple access technologies such as fiber, DSL, and wireless

• Increased flexibility in customer premises equipment (CPE), so that

management can be updated with software-only upgrades

• The capability to purchase, provision, and manage services via the cloud, using

software



II. SD-WAN Requirements andDifferentiation

There are many approaches to building an SD-WAN that can leverage a variety of

access technologies and cloud resources. According to Futuriom’s research, there are

at least 20 providers of SD-WAN tools, platforms, and services. For the purposes of

this report, we have focused on the technology vendors, platforms, and services that

we consider leaders in the market.

This report looks at pure-play next-generation SD-WAN platforms, tools, and NaaS

services. Although service providers are rolling out managed SD-WAN services, this

report will not look at those in detail because the providers are largely reselling the

SD-WAN platforms covered in this report and many enterprises are electing to use the

platforms themselves to consolidate connectivity, rather than buying a managed

service.

[Note: In collecting data for this report, Futuriom reached out to more than 15 providers of SD-WAN technology and services, though not all replied. In the cases in which vendors did not reply, we did our best to describe technology or services using publicly available information.]

Architecture of SD-WAN Products Although is a wide range of approaches to implementing SD-WAN, most SD-WAN

products are based on a similar design and architecture, with the general goal of

optimizing WAN network connections and introducing a wide range of transport

services.

The origination of the SD-WAN architecture revolved around three primary goals:



• Optimizing network connections balanced between private-line, MPLS, and

broadband Internet, and LTE to re-route traffic to its destination in the most

efficient way, to avoid use of more expensive network services or data-center

backhaul.

• Provide secure and direct connectivity to public cloud services.

• Simplify and centralize the management of WAN edge devices with software,

using commodity off-the-shelf hardware and/or virtual clients.

The diagram below shows how SD-WAN technologies can be implemented to create

virtual WANs controlled from the cloud.



Futuriom groups two general approaches into SD-WAN platforms and SD-WAN

Network as a Service (NAAS).

• SD-WAN platforms provide the software management, customer premises

equipment (CPE) or virtual client software, and network features to set up SD-

WANs, which can be implemented either by enterprise customers or service

providers looking to offer SD-WAN to their clients.

• SD-WAN NaaS providers offer an SD-WAN platform that runs on their own

private network, connected using network points of presence (POP).

Within these two groups of product approaches there is much differentiation, with

different vendors focusing on specific needs or niches. There is also wide variation in

the features offered.

Primary Features of SD-WAN Technology professionals like to talk about “use cases” for emerging technology.

These are useful references points for why a technology will be purchased or

implemented, though they are not the end-all or be-all.

The SD-WAN market contains many use cases and features that are appealing to

different enterprise and service providers. Some target customers may be looking for

specific use cases, but not others, while larger enterprises and service providers may

want a full portfolio of features.

Many of the SD-WAN vendors and managed service providers are focusing on specific

niches. For that reason, we have tried to highlight some of the specific requirements

and features being sought by specific customers.



Router replacement and Open Customer Premises Equipment (CPE). One of the

higher costs of WAN frequently cited by enterprise customers is the operating

expense (opex) of managing proprietary hardware and CPE, including branch-office

routers. For example, if you have a load of Cisco gear, it might require having a Cisco

Certified Internetwork Engineer (CCIE). Not only is managing proprietary routers

complicated, but it also introduces potential errors and complexities in building and

managing the network as the proprietary gear is configured. In addition, hiring

certified specialists to manage these branch-office routers is expensive.

One of the key differentiating points of SD-WAN vendors is how CPE is implemented.

Some of the SD-WAN providers have taken edge routing technology and enabled it to

be controlled with SD-WAN software to enable remote configuration. This may include

running SD-WAN on open, standard commercial off-the-shelf (COTS) computing

platforms that act as a CPE. This means that the software for the SD-WAN service can

be “pushed” out to cheaper, industry standard hardware platforms. Yet another

approach is to implement a light or virtual client than can be installed on existing

routers, firewalls, or other network edge devices and managed by SD-WAN.

Regardless of the approach, the key is that SD-WAN features, upgrades, and patches

can be installed as software on the edge device, running in a virtual framework (using

technologies such as virtual machines (VMs) or containers). One of the key differences

here is where the network features reside – whether they run on the edge devices or

in the cloud. This is known in the industry as the “thin edge” or “thick edge”

approaches.

Security and Cloud VPN for Branch Office (including firewall replacement): One of

the allures of SD-WAN technology is that it can be used to deploy a virtual private

network (VPN) as a software overlay using end-to-end encryption. This helps meet

security requirements for businesses that may want to connect branch offices or retail



outlets but also have high security requirements. It also means that value-added

security services such as stronger encryption, next-generation firewall (NGFW),

intrusion detection services (IDS), and intrusion prevention systems (IPS) can be

offered by the SD-WAN providers. Where and how these service are implemented can

be a matter of debate, as some SD-WAN providers believe some security services,

such as unified threat management (UTM) need to be distributed to the cloud, due to

the compute power necessary. Some vendors focusing on security, have a different

approach, arguing for a full secure branch where secure VPN connectivity with local

next-generation firewall is applied locally.

WAN Optimization: Futuriom believes most networking functions that are provided as

discrete software and hardware appliances will be subsumed by SD-WAN services and

solutions. One of the goals of customers of SD-WAN products is to streamline their

edge equipment and software into a single SD-WAN management platform. For

example, WAN optimization emerged when network appliance vendors added special

software and hardware that could increase the efficiency of WAN links using

techniques such protocol acceleration, compression, and de-duplication of data. Many

SD-WAN technologies include WAN optimization functionality and we expect this to

be a checklist item in SD-WAN deployments. A similar trend originated in the

applications delivery controller (ADC) market, in which ADCs optimized the access and

performance of applications on a network.

Application Performance Enhancement: Cloud WAN solutions can be built that

optimize access to cloud applications tracking traffic patterns and routing higher-

priority business applications ahead of leisure services such as Netflix and YouTube.

Additionally, many WAN services can peer directly with cloud services to offer a “fast

lane” to the business applications. These techniques can be used to "offload"



enterprise WAN backhaul, routing cloud traffic directly to the source using a

combination of broadband technologies. This will also have the effect of challenging

the traditional ADC model of providing these services as part of a discrete hardware

device. In addition, some SD-WAN vendors are working with cloud vendors to set up

specialized cloud gateways and POPs in cloud data centers to provide more direct

access to cloud applications.

Broadband Link Balancing and Remote Connectivity: One of the key features of many

SD-WAN services is the ability to aggregate and load-balance broadband links, such as

combining LTE or mobile broadband, fiber, DSL, and/or cable. This helps to leverage

Internet broadband to maximize resources and build a more mission-critical WAN. In

addition, SD-WAN solutions can be used to optimize cloud connectivity using mobile

connections. Examples might include the Internet of Things (IoT), whereby a retail

kiosk or a commercial truck is connected to the corporate WAN using mobile

connectivity, whether that be cellular, WiFi, or LoRa.

NaaS. Many enterprises don't even want to build or manage the WAN, but they also

want something better than plain-vanilla Internet. In this case, they can go to NaaS

providers who can provide software that aggregates existing broadband services into

an SD-WAN that is managed by the service provider. Customers can provision and

operate the WAN using a provisioning and management system provided with a Web

interface, and they avoid the costly process of managing and configuring hardware,

because the hardware is provided by the service provider and managed using SD-

WAN software. Aryaka is one of the the notable SD-WAN NaaS providers in the market

that operate their own private networks for clients.



Differentiating Providers in the Space With all the SD-WAN companies in the space – by some measures more than 50 –

narrowing down the list is not easy. Futuriom has followed 20 or so companies with

legitimate funding, technology, and market share. But even so, it’s unlikely that 20+

SD-WAN companies will survive.

The SD-WAN market is complex with many nuances and specific needs. The

companies that survive will need high levels of execution -- they must blend

scalable technology, effective sales, and marketing strategies, as well as

integration capabilities. In speaking with customers and investors in the market,

here are some of the leading characteristics that will be needed:

• The capability to add new features, whether it’s specific networking

protocols or open-source code, quickly

• The willingness to be open and partner with technology firms that add

value, including other networking companies, open-source projects, as well

as network applications.

• Sufficient funding. The average SD-WAN startup will require at least $50

million in funding and larger firms will need continuous investment to keep

up with market pace.

• Architecture: Do the specifics of your business require a “think branch” or a

“thin branch”? Are you looking to outsource the management of the service

or bring it in house? Do you want to connect to cloud gateways?



Private SD-WAN Companies with IPO Potential

In the next category of companies, let’s look at private startups that appear to be

ramping revenue aggressively to get to significant scale. Futuriom believes that the

successful SD-WAN companies will be in high demand as acquisition targets, but some

may also opt to pursue an IPO to reward their private investors.

Our ranking methodology includes three categories of data: 1) Revenue estimates

from internal and external sources, 2) Word-of-mouth from industry sources, and 3)

Existing public customer announcements and proof points.

Based on the available information, we believe there are several SD-WAN companies

positioning for potential IPO. Futuriom believe the criteria to be the following:

• At least a $50 million annual revenue run rate in 2018.

• Close to cash-flow possible or at least the capability to show how it would

become cash flow positive.

• Growing customer base.

Aryaka Networks is uniquely positioned as one of the two global SD-WAN NaaS

company, along with Cato Networks. Aryaka operates 26 global POPs. It has focused

on a strategy of improving the performance of the “middle mile,” for example

connecting branch offices around the globe, which is a pragmatic approach that

appeals to midsized to larger enterprises looking to leverage the public Internet with

SD-WAN to provide quality of service to offices around the world. Recently Aryaka

introduces its PASSPORT package to introduce cloud firewall and threat protection

features that are in high demand. Aryaka is likely to be among several SD-WAN startup

players to reach $100 million in revenue. Company leadership has expressed the

desire to file for an IPO, which we expect could occur in late 2018 or 2019.



Key Questions to Ask About SD-WAN Features In enterprises ranging from small to large, there is immense diversity in customer

needs. Some SD-WAN solutions are suited to some customers while others may need

something entirely different. The feature-set requirements are wide ranging.

In our discussion with end-users and supplies, the same questions come up again and

again. Here is a summary of some of the key questions you might want to ask about an

SD-WAN technology platform or NaaS provider.

Q: Is the hardware CPE solution open and what protocols and routing technologies does it support?

There is wide variation among the providers in the feature-sets of CPE. Some SD-WAN CPE equipment is driven by proprietary orchestration technology that will not allow the customer to install other vendors’ equipment. Some CPE supports advanced routing schemes such as Border Gateway Protocol (BGP), some do not.

Q: How much routing at the edge?

Futuriom has found that routing interoperability at the edge, in the CPE, is a key differentiator. Many customers are looking for an SD-WAN solution that not only providers traditional SD-WAN services, such as orchestration and applications prioritization from the cloud, but they are also hoping to replace expensive branch office routers with more affordable CPE. If the SD-WAN box is simply being stacked on top of the branch router, that may not be the right solution.

Q: Does the solution offer orchestration templates?



As mentioned, one of the key benefits of SD-WAN technology is to speed up the deployment of networks in new offices and branches. One feature that is attractive is orchestration templates, which allow specific types of branch installations to be pre-defined using the orchestration software.

Q: Does it have a true graphical user interface?

One of the major innovations of SD-WAN is moving behind the tedious, manual configuration of branch CPE (often routers) using arcane and proprietary graphical-user interfaces. Is the SD-WAN product driven by a pure GUI or does it also require specific command-line interface (CLI) technical know-how. This is key to the ease-of-use.

Q: Are there intent-based networking features?

Intent-based networking is the next frontier of networking, in which networks can be programmed to respond in real-time to network or business demands. Some SD-WAN providers are moving to include business intelligence and intent-based features in the SD-WAN products.

Q: Is WAN optimization built in? Does it cost extra?

SD-WAN growth has proven to be naturally complementary to WAN optimization, which was used to condition private-line applications to network conditions. However, as some WAN optimization vendors are integrating their products with SD-WAN, and vice versa, there are differing business models in offering functionality. Futuriom believes it’s going to be most appealing to the customers to have WAN optimization to be natively built into the SD-WAN architecture, without requiring additional or separate equipment or pricing.

Q: What is the security architecture?

Integrated network security is becoming a checklist item for SD-WAN solutions, but there is a wide variety of solutions. In some cases, the CPE may include a built-in stateful firewall or it may service chain with cloud security services. Futuriom believes that many enterprises will want as many security features as possible built into the



SD-WAN solutions, including integrated firewall capabilities at the edge as well as security functions offered from the cloud.

Q: Is there a wide range of virtual network functions (VNFs) available and how do you add them?

Futuriom believes that SD-WAN platforms have the potential to become fertile strategic platforms for agile IT by offering the ability to upgrade network functions from the cloud, across the network, without requiring new equipment. For example, a customer may want to add applications such as firewall, deep-packet inspection, applications control, and routing using a centralized software platform. How easy is it to do this and does it operate on the same hardware platform?

Q: Is the platform cloud-ready?

Cloud is a loaded term that is often misused in marketing. What we mean by this question is, how much of the platform can run from multiple forms of clouds … whether it be a public, private, or hybrid cloud? Can it run natively in the cloud from a public cloud instance without requiring specialized hardware. Depending on the customer architecture, the solutions that are most oriented toward the cloud are likely to have the broadest appeal.

Q: Does the solution support multi-tenancy?

Multi-tenancy is a key functionality sought by many larger enterprises or service providers who would like to segment applications or customer traffic on one CPE for multiple users, customers, or applications. One example might be an enterprise that wants different business units to share the same SD-WAN with segmented channels. A service provider obviously needs the ability to host an SD-WAN in the same area – perhaps the same building – and provide multi-tenancy for multiple customers. In some situations, multi-tenancy can be a must-have feature.



III. SD-WAN Growth Forecasts

There is no doubt that SD-WAN is a hot market, having attracted billions of dollars in

investment and customer interest. After years of startup hype, the deployments have

started in earnest, with customers investing real money for key ROI return. Futuriom

has conducted in-depth interviews with SD-WAN service providers, technology

vendors, and customers to gain insight into how revenue will scale in the market.

Legacy WAN Function Substitution The value of SD-WAN not only comes from the organic model of delivering SD-WAN in

the SaaS or NaaS model, but also in delivering additional hardware and software

functions such as ADC, VPN, and WAN optimization. In a legacy architecture, these

functions were sold as separate boxes and systems that were “racked and stacked” on

top of each other. In the ideal SD-WAN model, they will be plugged into one standard

x86 box that can accommodate new functions that are instantiated with VNFs.

This means that SD-WAN is likely to take market share from existing hardware based

ADC, VPN, and WAN optimization markets. For reference, here are some recent

revenue opportunities in 2017 for some of these areas:

WAN Optimization:

• $800 million in 2017• 0% growth

ADC Market:

• $2.2 billion in 2017

VPN Services (for branch office connectivity):



• $4 billion in 2017• 15% CAGR

Cloud security Services (for branch office connectivity):

• $2 billion in 2017• 30% CAGR

Organic SD-WAN NaaS and software license growath

• $600 million in 2017• 40% CAGR for next five years

Sources: Gartner, IDC, Grand View Research, Markets and Markets, Goldman Sachs.

Total Addressable Market Futuriom estimates the Total Addressable Market (TAM) market for SD-WAN services is

more than $10 billion over the next ten years, with a realistic current run rate of $1

billion in 2018 and a 36% compound annual growth rate over the next three years.

This revenue estimate is a composite estimate of projected market penetration in

addition to revenue estimates gathered from company sources.

To calculate total addressable market (TAM) Futuriom looked at the potential for

substituted revenue of WAN Optimization, ADC, VPN, and related security services

with the organic growth rate of value-added SD-WAN – a so-called top-down forecast.

We compared this with measured organic growth rate from an aggregated base of

revenue numbers given to us by at least six SD-WAN startup vendors – a bottom-up

forecast. In addition, we polled dozens of industry sources, including current and

former members of sales staffs, to gauge their sense of the revenues of the startups in

the market.



SD-WAN Revenue Components and Differing Business Models The Futuriom SD-WAN revenue forecasts include pure-play SD-WAN revenues

including:

• Software licensing of SD-WAN tools and services.

• Integrated licensing of end-user hardware.

• Related services and support contract

• All software licensing revenue.

Note: Accounting for revenue in the SD-WAN market is inherently complex. For

example, one company may be booking end-user CPE into the contract and another

may not. Because of different business models and accounting practices, Futuriom has

focused on the revenue in terms of annual bookings associated with SD-WAN

software and services. Our forecasts include the total amount of revenue that we

expect to be booked calendar year. Many companies may account for this revenue

differently but we believe bookings to be a good indicator of growth and the value

creation on the SD-WAN market.

SD-WAN Market Acceleration The sweet-spot of growth rate in SD-WAN is happening now, and in surveying end

users and vendors, it’s clear that things are accelerating as we enter the sweet spot of

growth in 2018-2019, with the greatest growth rates of up to 100% into 2018 and

2019 as startups grow a relatively low revenue base. There are several reasons for

this revenue growth spurt which include:

• MPLS and bandwidth fatigue: Enterprise are struggling with keeping up with

bandwidth demand while keeping costs low.

• Cloud Acceleration: The move to the cloud is forcing enterprises to look at new

WAN architectures, as discussed in Section II.



• Technology maturity: Many of the startups in this market have now had years to

tweak and perfect their technology to match the needs of real-world

customers.

Forecast Methodology After collecting and analyzing numbers Futuriom is comfortable in projecting faster

growth than was previously forecast last year (2017). We now expect the SD-WAN

market to hit $1 billion in revenue by 2019, with the potential for $2.5 billion by

2021, with CAGR of 35% through 2021.

Forecasting revenue in the SD-WAN market is inherently difficult. The challenges

include the following:

• Different business models from SD-WAN providers and how they charge for

services, software, and hardware

• Revenue recognition models of hardware vs. software

• The services model vs. the software model

Futuriom believes that whether SD-WAN is sold as a platform or a service, it is

delivering the same value proposition to the customer: Optimizing WAN bandwidth

and providing ROI in managing and deploying new WAN services. Whether it’s a

service provider selling a WAN NaaS or an enterprise technology company selling a

platform to build a managed WAN, both entities are all selling the same thing:

software that can maximize the value of their network connections.

Futuriom looked at the market from both a bottom-up and top-down perspectives to

arrive at our forecasts. We spoke to at least two dozen sources in the markets, to

gather information about estimated revenue run rates at the leading companies. At

the same time, we estimated the rate at which legacy WAN function substitution



occurs and the potential TAM to gain a realistic perspective on how fast the market

can grow. To recap, here are the components of our projections:

• Aggregate revenue range estimates from anonymous sources for the 10 leading

companies. Assumption that 10 leading companies will account for 80% of the

market revenue.

• Projecting WAN function substitution occurs 5-10% annually with an $8 billion

opportunity, converted to SD-WAN market.

• TAM of $20B achievable over 15 years.

The full market forecast can be seen on the chart on the following page.





IV. Conclusion: IT Agility and Cost SavingsDrive SD-WAN Market Growth

The flexible, software-based approach of SD-WAN is right for the changing dynamics

of the WAN market, and it appears to be gaining market traction with end users who

see direct applications to lower the costs of WAN equipment, bandwidth, and

operations.

The market has evolved from slideware to customer deployments that are now

totaling hundreds of millions of dollars. Futuriom believes that 2018 is the year that

this will accelerate and drive the market into the billions of dollars, including the

replacement of some legacy hardware markets for VPN, ADC, edge routers, and

firewalls. The market is consolidating around software-delivered and adaptive WAN

services that can connect either through thin customer clients or industry-standard

CPE. This trend toward more flexible WAN architectures and consolidated CPE means

that enterprises are looking to purchase more services that offer network-on-demand

capabilities.

Both the SD-WAN software and services markets have lots of room for growth as they

become platforms for delivering a wide range of functions.

CIOs and IT professionals are being incentivized on several levels to look at new SD-

WAN solutions that can lower both capex and opex, increase organizational and

management flexibility, and take away some of the management headaches of

installing and services WAN equipment.



SD-WAN Player Profile

Aryaka Networks Product Type: Software Target Market: Serviceproviders,Enterprises

VirtualCPE: YesNetworkPOPs: Yes

Description: Aryaka’sglobalSD-WANcanbeusedtoenhancetheperformanceofallmission-criticalon-premisesandcloud/SaaSapplications,augmententerprisenetworks,andasanalternativetolegacyMPLS-basedconnectivityworldwide.Itcombinespurpose-builtprivatenetwork,SD-WANtechnology,WANoptimizationandaccelerationtechniques,connectivitytocloudandSaaSservices,andnetworkvisibility.

Hardware CPE: Includesintent-basedapplicationclassification,controlandmanagement,QoS(classification,marking,shaping,policing),routing(policybasedRouting,eBGPsupport,thinRIP,StaticRouting),WANoptimization,redundancy,SmartLINK,DHCPServer/Relay/Client,NATSupport,VLANsupport,SNMP,DNSProxy,integrationwiththird-partynext-generationsecurityservices(likeZscalerandPaloAltoNetworks),andzerotouchprovisioning.

TopNamedCustomers: SamsungElectronics,EmiratesAirlines,Cigna,Skullcandy,PlatformSpecialtyProducts,CityandGuildsGroup,Crocs

Partnership Strategy: Aryakahasmorethan100GlobalPartners,withwellover10,000agentsinthereferralprograminAmericas.ThePartnerNetworkissegmentedinto4uniquepartnertypesdependingonGEO,partnertype,levelofpartnerskills.

CompanyURL:https://www.aryaka.com

Documents

2018 SD-WAN Growth Report v2.6 · This means that SD-WAN, or cloud-delivered WAN, is now one of the more dominant growth areas for enterprise communications services. Enterprises