Most industry watchers still consider the software-defined WAN market an emerging one. This makes sense, given SD-WANs currently account for only a small percentage of enterprise networks. There are signs SD-WAN market share is increasing and maturing, however. The first is the recent merger-and-acquisition activity: Cisco acquired Viptela, and VMware scooped up VeloCloud. The other sign is the vendor landscape has started to settle down, with a few clear leaders in the pack.
Recently, Cliff Grossner, senior research director of cloud, data center and SDN at London-based IHS Markit, released his data center networking equipment quarterly market tracker for the first quarter of 2018. This report covers a wide variety of technology, including SD-WAN.
Editor's note: The IHS report referenced in this article focused on the SD-WAN vendors that sell SD-WAN appliances and accompanying control and management software to gain revenue, excluding those that offer subscription licensing or software-only approaches. The total SD-WAN market share for the first quarter of 2018 reached $162.1 million.
VMware-VeloCloud and Aryaka battle for the top
The most notable point in the IHS report is a two-horse race is emerging. This quarter showed VMware-VeloCloud with 19% of SD-WAN market share -- the same it had in the fourth quarter of 2017. In the meantime, Aryaka -- an SD-WAN provider with its global private network -- moved to 18%, up 1% from last quarter.
With only 1% separating the two, VMware and Aryaka are now neck and neck for market leadership. It would be easy to assume VMware's size and channel would allow it to break away from the competition, but VMware has stumbled in networking since it acquired SDN vendor Nicira. The company wisely left the VeloCloud brand in place, as it was one of the premier names in the SD-WAN space.
Aryaka has a solid grip on the No. 2 spot in the SD-WAN market and has a chance to jump into the top spot if VMware-VeloCloud stumbles with any integration challenges. Aryaka has a unique offering that uses its global private network instead of the public internet, making it the product of choice for global companies.
One of the perceived advantages of SD-WAN is its use of internet connectivity for transport. This might work when connecting from New Jersey to Chicago, but a global company that needs to make a Dubai-to-Seattle video call will experience much better quality riding Aryaka's private network, compared with making a bunch of internet jumps. In his report, Grossner pointed out that Aryaka customers have seen a significant performance boost for cloud-based applications, like Office 365.
Silver Peak and Cisco-Viptela vie for position
Silver Peak edged Cisco-Viptela out of the No. 3 spot in the SD-WAN market, with just under $1 million more than Cisco in first-quarter 2018 revenue. There's no question Silver Peak has done a great job of making the pivot to SD-WAN from WAN optimization and is all-in on SD-WAN. Its EdgeConnect product lets customers move to a hybrid network, then quickly migrate to an all-broadband WAN. Most of Silver Peak's revenue comes from enterprises, but it has been building a stronger book of business with service providers.
Cisco's position in SD-WAN is curious, as its success with Viptela is bad for its Integrated Services Router (ISR) business unit -- one of the largest revenue sources for the company. In the past, Cisco would have done everything in its power to fight the SD-WAN tide, but CEO Chuck Robbins is directing Cisco to be much more in tune with what customers want versus what Cisco wants customers to want. I believe Cisco will be willing to cannibalize its ISR base to win SD-WAN business. Currently, Cisco has only 12% of SD-WAN market share, but I expect it to be a major player over time.
These four vendors are the only ones with at least 10% of the SD-WAN market share, according to IHS. Outside of these four, the largest amount of revenue in Grossner's numbers comes from the "other" category. I expect to see more consolidation in that area, with one of the current leading vendors -- or perhaps another following behind -- rolling up several smaller vendors to gain share.
For now, VMware remains in the top spot, with Aryaka nipping at its heels. Expect to see this as a highly contested market over the next few years. This should benefit customers, as the vendors will push each other on innovation and bring more features to market faster. The SD-WAN market is real, and it is showing signs of maturity, but don't expect it to slow down.