Key Findings • The SD-WAN market has reached mainstream adoption. Enterprises and

service providers see SD-WAN as the edge networking platform of the future.• Futuriom expects the SD-WAN tools and software market to grow at a CAGR of

33% to $2.1 billion in 2020, $2.75B in 2021,and $3.5B by 2022.• Futuriom is increasing revenue forecast by 130% over last year’s forecast for

the year 2021. Based on bottom-up data collection from vendor sources.• The top drivers of SD-WAN adoption are network security and streamlined

management via cloud software and orchestration.• Of the 40+ SD-WAN software and tools vendors, the vendors leading in

revenue traction, according to Futuriom end-user surveys, are AryakaNetworks, VMware/Velocloud, Silver Peak Systems, and Cisco/Viptela.

• Cisco’s revenue reporting metrics are opaque, and it is difficult to break outSD-WAN revenue from other reporting segments such as routers.

• Additional vendors distinguishing themselves in the “Top Ten” of 40+ SD- WAN software and tools vendors include Cato Networks, CloudGenix,Cradlepoint, Fatpipe Networks, Nuage Networks, and Versa Networks.

• M&A activity is likely to pick up. Aryaka, Cato Networks, CloudGenix, FatPipe,and Versa Networks are strong candidates for M&A or IPO.

• Companies included in the Report. Aryaka Networks, Cisco Systems, CatoNetworks, Citrix Systems, CloudGenix, Fatpipe Networks, Fortinet, JuniperNetworks, Nuage Networks (Nokia), Silver Peak, Versa Networks, VMware.

2019 SD-WAN Growth Outlook Breaking down the virtualized wide-area networking (WAN) market

Premium Technology Research 2019

Featuring:

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Table of Contents

Top Drivers for SD-WAN Demand 6

Ø Security and Security Services 7

Ø Support for Cloud and Multi-cloud Connectivity 8

Ø Ease of Use: Router and Management Fatigue 8

Ø Reduced Opex and Capex 9

SD-WAN Use Cases and Features 11

SD-WAN Architectures & Strategies 16

Ø Key Differentiators in the SD-WAN Market 17

Ø SD-WAN Players Strength and Focus 20

Ø SD-WAN Strategies of Networking Incumbents 21 Ø Leading SD-WAN Startups 25 Ø Other SD-WAN Players to Watch 28

Ø Key Questions to Ask About SD-WAN Features 30

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38

SD-WAN Growth Forecast

Conclusion

SD-WAN Leader Profile 39

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Intro: SD-WAN Accelerates in 2019

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

datacenters.

Futuriom has been closely following this market for the past six years, including

correctly predicting it would be a fertile area for delivering revenue growth in

enterprise networking. Since our SD-WAN Growth Report Report last year, Futuriom

has conducted dozens of end-user interviews, surveyed the pattern of activity among

SD-WAN vendors, and conducted surveys with leading service providers and

customers. This year’s report presents the trends we see in the market, based on end-

market primary research.

What we’ve found is that enterprises are now educated about SD-WAN and no longer

see it as an early, experimental market. The market is maturing, and buyers are

interested in the multiple benefits of SD-WAN, including improving and managing

broadband Internet, reducing network costs for both connectivity and opex, and

improved management and automation. Service providers are aware of this trend and

are scrambling to put together managed services offerings, as their MPLS offerings

will clearly be replaced by SD-WAN services in the long term.

What we’ve found, in general, is that SD-WAN fits the unique characteristics of

enterprises looking to buy connectivity, network management, and applications from

the cloud. There are many reasons for this. The business world has been conditioned

to buy IT services, on-demand, from the cloud. Now enterprises want to buy WAN from

the cloud – rather than have it controlled by service providers or hardware vendors

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seeking customer lock-in with proprietary equipment on expensive private lines. At

the same time, gains in Internet availability and 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. This is driving a deeper look at SD-WAN, which has the

potential to lower both operating costs (opex) and capital expense (capex) of

managing enterprise WAN connections.

All of this has made SD-WAN, or cloud-delivered WAN, a dominant growth area 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.

Our conclusion is that growth of the SD-WAN market is likely to gather momentum in

2019-2020, with revenue cracking solidly into the billions of dollars and the

technology evolving to a point at which it’s accepted in the marketplace. The SD-WAN

market is the most successful representation of software-defined networking,

offering real value and return on investment (ROI) to enterprises looking to reduce the

escalating costs of their WANs.

As is common with hot markets, many players are rushing to plant their flags. The SD-

WAN market, which by some measures has more than 40 vendors assigned to it, is

becoming ever cluttered with competitors and their noisy marketing messages. That’s

why in this report we try to lay out the land and report the largest players and what

they are doing.

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Top Drivers for SD-WAN Demand In our discussion with end users, common themes emerge in the search for an SD-

WAN solution. Both enterprises and service providers are looking for a more flexible

model of delivering connectivity solutions using the cloud software model.

While the shift in enterprise bandwidth to cloud access is one of the overarching

drivers toward a new SD-WAN architecture, it is also reinforced by many broader

trends in IT. The chart below, from a recent Futuriom Service Provider SD-WAN survey,

recaps strong drivers expressed by service providers in their discussions with

enterprise customers about SD-WAN technology.

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As you can see, the top perceived drivers are better security (31.7%), support for

cloud and edge services (26%), and ease of use/management (21%). What’s

impressive in our reading of survey data as well as interviews with end users is the

breadth of problems they hope to solve with SD-WAN. The SD-WAN platform is seen

as a networking management tool that can improve security, provide more visibility

into applications and network usage, improve bandwidth while reducing cost, and

ease network management headaches.

Below are some of the most common areas of benefit seen in SD-WAN platforms. Security and Security Services

The data from a recent Futuriom Service Provider SD-WAN survey shows that 31.7%

of service providers cited security as a strong driver for customers to buy SD-WAN

technology, which reflects a common theme in the market: SD-WAN platforms are

seen as a crucial tool in delivering next-generation network security services.

The reason for this is multi-fold. First of all, security concerns are on the rise across IT,

as the number of breaches and risks increase. Second of all, IT professionals that we

have surveyed see managing multiple security tools as problematic, costly, and time

consuming. So platforms that can be used to consolidate or integrate security add

value to the enterprise.

SD-WAN platforms can streamline security management by integrating cloud security

tools as well as network security tools into the same framework. Many of the SD-WAN

vendors, including Cato Networks and Versa Networks, have focused on this story by

building their own security functions directly into the platform. But many other SD-

WAN vendors are developing a security strategy based on best-of-breed applications,

partnering with leading security firms such as Palo Alto Networks and Zscaler to

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integrate third-party security technology into the SD-WAN offering. Over the past

year, we have seen security grow in importance as a component of SD-WAN.

Support for Cloud and Multi-cloud Connectivity The acceleration of cloud services and software-as-a-service model (SaaS), in which an

enterprise accesses many applications using the Internet in the cloud, rather than

applications residing in a private datacenter, 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 show the use of IT services in the cloud is

steadily growing and expected to continue 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.

Moving forward, Futuriom expects SD-WAN platforms to become a vehicle for virtual

networking across multiple clouds, known as multicloud. Because SD-WAN can be

used to provision and manage virtual overlays, it makes sense that it can drive

multicloud connectivity.

Ease of Use: Router and Management Fatigue 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,

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without the need for complicated network configurations. Networks based on

complex proprietary routing schemes are falling out of favor. SD-WAN technology

offers the capability to drive branch equipment configurations from the cloud,

speeding up orchestration of branch office equipment to connect branches more

quickly and at lower cost.

End-users regularly cite the need to streamline the configuration and control of

branch connectivity devices – otherwise known as customer premises equipment

(CPE) – including eliminating or replacing routers altogether with more standardized

SD-WAN devices, which can be based on commercial off-the-shelf hardware.

In a series of interviews Futuriom conducted with end users, we found that the hidden

cost of managing routers was a motivation to switch to an SD-WAN platform. One

user of Silver Peak's SD-WAN product, Tennessee Oncology Chief Information Officer

David Stewart, said of the healthcare provider’s move to SD-WAN technology:

“We initially started discussions with Cisco using a traditional router

architecture and the initial estimates were astronomical — the Silver Peak

platform was probably one-third of the cost. And we no longer need somebody

familiar with BGP (Border Gateway Protocol) routing and all the complexities of

managing routers.”

In addition, cloud management is often cited by service providers as being in high

demand for enterprise WAN services, as reflected in our survey data.

Reduced Opex and Capex

Of course, reducing network costs, both for opex and capex, is important. In Futuriom’s

survey work and interviews, cost reduction is often second to security, cloud

connectivity, performance, and management concerns, but it’s still important.

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As connectivity demand strains network resources, the need for more cost effective

transport will not subside. Data shows more enterprise demand for broadband and

networking connectivity circuits for 100 Mbps and above, and gigabit Ethernet coming

online 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).

The end users that Futuriom speaks with regularly cite the need to reduce the costs of

network connectivity, including expensive private lines. But they are also focused on

operations, and they see SD-WAN as streamlining the cost of operating the network.

The expansion of options, including more reliable broadband and emerging mobile

options for enterprise connectivity, means that SD-WAN can be used to manage,

combine, and optimize multiple network links to boost bandwidth and reduce overall

costs.

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SD-WAN Use Cases and Features

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

• Improve overall network security

• Reduce costs related to WAN bandwidth

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

• Increased flexibility in CPE so that management can be outsourced or updated

with software-only upgrades

• Improve capability to purchase, provision, and manage network services via the

cloud, using software

The technology industry likes to discuss “uses cases” of a technology, but this can also

be thought of as a function of a feature. Customers and end users are looking to solve

problems, so a new technology will be deployed if it solves these problems.

Below, Futuriom summarizes the most popular use cases and features that we hear

about from end users. These are the main reasons that SD-WAN will be purchased or

implemented.

Router replacement and Open CPE: One of the higher costs of WAN frequently cited

by enterprise customers is the 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 this

complicated, but it can also introduce errors and complexities in building and

managing the network as the proprietary gear is configured.

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One of the key differentiating points of SD-WAN vendors is to simplify the

deployment and management of CPE – especially if you are a retail company that has

to manage hundreds or thousands of branches. For example, many SD-WAN hardware

and software implementations can be deployed with templates and remote

configuration. By running SD-WAN on COTS, the organization can standardize on

cheaper, standardized hardware platforms that are managed from the cloud. Another

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

routers, firewalls, or other network edge devices.

Regardless of the approach, the key is that the SD-WAN platform can be managed

using a unified approach from the cloud, rather than requiring manual, on-site

management.

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, malware detection, and intrusion

detection services (IDS) can be offered by the SD-WAN providers. Security is

becoming an important checklist item for SD-WAN. Futuriom sees many SD-WAN

providers racing to adopt as many security features as possible, whether it is through

native development or partnerships.

WAN Optimization: One of the goals of SD-WAN is to improve the performance of

applications on the network. WAN optimization, once a discrete function delivered

with a hardware or software appliances, is being integrated into SD-WAN

functionality. Many SD-WAN technologies include WAN optimization functionality and

we expect this to be a checklist item in SD-WAN deployments. A similar trend

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originated in the applications delivery controller (ADC) market, in which ADCs

optimized the access and performance of applications on a network. That is why many

of the WAN optimization (WAN-Opt) vendors, such as Silver Peak, FatPipe, and

Riverbed, have adopted SD-WAN architectures and built SD-WAN products.

Application Performance Enhancement: Cloud WAN solutions can be built that

optimize access to cloud applications by monitoring traffic 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 datacenters to provide more direct

access to cloud applications.

Broadband Link Balancing: One of the key features of many SD-WAN services is the

ability to aggregate and load-balance broadband links, such as combining mobile

broadband, fiber, DSL, and/or cable. As broadband technologies proliferate and point-

to-point 5G becomes a reality, this will help 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 or through other flavors of WAN

(such as WiFi or LoRa). In these cases, having SD-WAN features such as WAN

optimization and central SD-WAN software routing can optimize connectivity to save

money on cellular or WAN connection costs. VeloCloud (owned by VMware) was one

of the early innovators to push these features.

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The diagram below, provided by Silver Peak, shows how an SD-WAN architecture can

adapt to shifting demand from private networks to cloud and SaaS apps by redirecting

network traffic to where the applications are, in real time.

Source: Silver Peak

A similar model, provided by VMware’s VeloCloud division, can be seen below.

Source: VMware

SD-WAN architectures can vary widely, but most solutions focus on the same goals:

Improving the use of broadband Internet and balancing connectivity with MPLS

private lines while at the same time optimizing access to cloud applications.

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Network-as-a-service (NaaS) and Network Functions Virtualization (NFV): 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.

SD-WAN is increasingly being seen as a way to deliver either a cloud networking

service or a platform for delivering NFV applications by service providers.

Aryaka and Cato Networks are the notable SD-WAN NaaS providers in the market,

operating their own “middle mile” network using network POPs (in Aryaka’s case) and

IP transit (in Cato’s case). VeloCloud has a unique architecture with cloud gateways

that enables it to operate as a NaaS as well as an NFV platform. In addition, some SD-

WAN vendors such as Versa Networks are focusing on building a fully integrated NFV

platform with SD-WAN, to target service providers looking to launch SD-WAN

managed services from the cloud.

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SD-WAN Architectures & Strategies

There are many approaches to building SD-WAN. According to Futuriom’s research,

there are at least 40 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

The diagram below shows how SD-WAN technology can be used to build a virtual

overlay that connects the edge domain, data-center domain, private MPLS networks,

and cloud.

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Key Differentiators in the SD-WAN Market

In a market with more than 40+ providers, Futuriom tracks approximately 16 SD-WAN

companies with sufficient funding, technology, and market share.

There are many architectural differences between the SD-WAN players, all of which

must be assessed by the buyers. Some SD-WAN solutions will be suited to end

markets such as retail or small-medium business (SMB), which are more focused on

easing the pain of managing the branch offices and virtual private networks (VPNs),

while others are building more comprehensive solutions that can facilitate routing

and quality of service (QoS) from end-to-end, whether it’s crossing a datacenter or

multiple clouds.

Below are some of the architectural debates that are frequently discussed in assessing

solutions.

Thick Client vs. Thin Client: The competition over the client for the SD-WAN network

is a common one. One can view this as “thick client or “thin client,” meaning whether

functionality is delivered primarily from the cloud or a POP or loaded into the

customer CPE.

The tradeoff in thick vs. thin comes down to the cost and power of the CPE. Thick

clients demand more powerful processing (more expense) but will inherently deliver

more performance for applications such as security and NFV at the branch.

As an example, startup Versa Networks is a proponent of a thick branch, by pushing

integrated security software that runs on a more powerful CPE. On the other side of

the spectrum, Silver Peak and VeloCloud advocate a thinner branch and adhere to the

strategy of providing security services with third-party partners such as Palo Alto

Networks and Zscaler, allowing the customer to choose the security platform

delivered from the cloud or integrated with an existing firewall appliance. Advocating

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perhaps the thinnest client of all is Cato Networks, whose client is primarily a software

agent than can run on COTS hardware and deliver most functionality from the cloud.

POP, no POP, or Cloud? Does the SD-WAN vendor own its own network or points of

presence (POPs)? These strategies also vary. SD-WAN vendors such as Aryaka and Cato

are really service providers, offering their solution primarily as cloud services running

over existing network transport. Cato’s model is perhaps the most extreme, as founder

Shlomo Kramer recently told Futuriom is that he doesn’t believe the model of

deploying a technology platform with a traditional managed service provider will

work, because the customer ultimately wants the flexibility of managing their network

from the cloud.

Then there are vendors trying to provide the best of both worlds. VMware’s VeloCloud

offers an SD-WAN hardware and software platform, but it also maintains its own cloud

gateways, which are access gateways placed in cloud hosting POPs to deliver software

and services closer to regional cloud nodes.

To complicate things, 2019 also saw momentum behind cloud SD-WAN gateways, in

which major cloud providers such as Microsoft’s Azure, Amazon Web Services (AWS),

and Google’s Cloud Platform (GCP) are building gateways integrated with the various

SD-WAN providers. We expect this to continue to be a trend, with the cloud providers

providing more integrated direct access points in partnership with SD-WAN vendors.

WiFi or Not? Some vendors are coming at the SD-WAN problem from the cloud and the

overlay network (Cato and VMware), whereas others are coming from a branch-office

routing and WiFi heritage, such as Cisco (Meraki) and Cradlepoint. Ultimately, it makes

sense that SD-WAN integrates WiFi and cellular wireless connectivity with the SD-

WAN management platforms, because these are just other forms of connectivity.

Cisco’s progress in telling this story – i.e. how it will integrate Meraki and SD-WAN – is

somewhat vague. Others, such as Cradlepoint, have a solid wireless story but lack

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some of the depth in the core SD-WAN cloud functionality that enables a full suite of

features that can also manage application performance and integration on wired

networks. Over time, Futuriom expects all of these areas to converge – and the

winners will be the SD-WAN vendors and providers that can successfully integrate and

manage all branch networking devices into one SD-WAN platform. This will also be a

driver of merger activity, as the larger networking vendors look to fuse WiFi

management and SD-WAN manage. In the future, it makes more sense for enterprises

to be able to manage their wireless and wireline management platforms from one

platform.

Comprehensive Routing and Multi-cloud: A key differentiator in the market will be

the routing functionality offered by the SD-WAN vendor, specifically on an open CPE

or in the cloud itself. This includes support of common routing protocols such as BGP

and OSPF. Some router incumbents, specifically Cisco, are reluctant to offer routing

functionality outside of their own hardware platform. Others, such as Nuage Networks

(Nokia), are aggressively pushing sophisticated routing functionality in a generic CPE

as well as the cloud. Futuriom believes a key differentiator will be how SD-WAN

evolves into a multi-cloud routing platform. The vendors that take this approach will

be successful by providing secure end-to-end connectivity from the branch to the

cloud.

The chart below shows the focus and specialization of leading SD-WAN vendors

Futuriom follows.

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SD-WAN Strategies of Networking Incumbents

The large networking vendors are important to watch in the SD-WAN space, as their

networking equipment franchise comes under assault by the more software-centric

startups. Many of the incumbents have seen the strategic value of SD-WAN and have

made significant investments in the space. This has included a wide range of M&A,

internal development and PowerPoint.

For that reason, it’s important to review what the larger vendors are doing with their

SD-WAN strategy.

Cisco (Viptela, Meraki, ACI, Umbrella): Cisco has unleashed a barrage of SDN, SD-

WAN, and cloud security stories. The underlying motivation is that Cisco wants to

transition from being primarily a hardware provider to a provider of subscription

software services with annual recurring revenue (ARR). The challenge is that Cisco has

so many pieces, it’s hard to track exactly how they will work together – and from the

customer perspective, this has the potential to be too complex and expensive. For

example, do you really want to use Cisco Meraki to manage wireless connectivity, ACI

to manage routing, and Viptela as SD-WAN software? In 2017, Cisco purchased Viptela

for $610 million, but enterprise end users we speak to seem relatively confused by

whether Viptela will be a separate platform or fully integrated into Cisco’s router

portfolio. Currently, what we’re hearing in the channel is that Cisco is aggressively

pushing its own hardware. In addition, the general feedback we have gotten from the

end users is that Cisco’s solution risks being too expensive and complex with many

moving parts. Insurgent startups such as Silver Peak and VMware VeloCloud have

driven much of their success with a “simpler branch” strategy that can replace routers

with a lower-cost device and SD-WAN management platform, and this is resonating

with end users.

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Juniper Networks: Juniper has positioned Contrail orchestration product as an SD-

WAN tool, but Juniper has been slow to market to develop a more comprehensive SD-

WAN strategy. In addition, in our discussion with Juniper executives, it’s not clear that

Juniper sees SD-WAN as a strategic platform, and this could be a huge mistake. Part of

this, in our opinion, has been complicated by Juniper’s organizational structure that

splits the marketing of SD-WAN in service provider and enterprise divisions, which

have conflicting agendas. Recently, Juniper made a move to put Contrail management

in the cloud and use it to manage all devices, whether it’s routers or its own open

cloud CPE devices. This development is in the tradition of Juniper focusing on

developing its own high-performance hardware, so it’s a plus that the company has

both its own routers and COTS CPE to use as SD-WAN devices. Juniper also has

significant security resources such as its vSRX (virtual firewall), which can be deployed

using Contrail. Juniper is in a good position with many of the key components of a

wide-ranging SD-WAN story, but our sense is the company is not fully committed to

the market and the company will need to double down on marketing – or it might have

to make another acquisition to be seen as a true leader in the SD-WAN market.

Nuage Networks Nokia: Nokia’s Nuage division (which focuses on cloud networking)

late in 2018 relaunched its SD-WAN strategy, anchored by its Nuage VNS network

virtualization product. This was a much-needed and smart move, as VNS is a strong

datacenter virtualization product that rivals Cisco ACI and VMware NSX with multi-

tenancy features. SD-WAN is one of the applications for VNS, by setting up virtualized

WAN connections and delivering virtual network functions. In the past year, Nuage has

beefed up the SD-WAN story by anchoring its powerful CPE devices, the NSG, to SD-

WAN. Nuage has cleverly leveraged its routing expertise to build strong routing

features directly into VNS and SD-WAN, which means that the NSG is a powerful

router. This includes carrier-grade routing features, such as the handling of BGP and

LAN peering, which enables service providers or large enterprises to connect

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disparate networks into the virtualization system using standard routing protocols.

The NSG also has many built-in security functions such as an integrated next-

generation firewall and layer 7 applications visibility. The positioning of a discrete

CPE device with high-powered routing features is a significant differentiation and will

make Nuage a strong contender for SD-WAN deployments, especially among service

providers and large enterprises that want powerful routing functionality in the CPE

devices. Unlike Cisco, Nuage has integrated VNS and SD-WAN 2.0 management to

avoid the problem of having separate management interfaces. Futuriom was recently

given a demo of the Nuage SD-WAN cloud management interface, and it’s impressive

enough that we consider it a key differentiator.

VMware (VeloCloud Division): VMware purchased VeloCloud in late 2017, for a price

of $545 million disclosed in VMware’s annual 10K (though sources tell us the way the

deal is structured, the payout could escalate). The deal made a lot of sense because

VMware, which has a strong presence in the date-center SDN market with its NSX

product, would integrate with VeloCloud and extend virtualized networking

connectivity and services out to the branch with VeloCloud. The strategy has been

successful. VeloCloud has a unique architecture combining orchestrator, controllers

and dataplane with cloud gateways which allows it to scale in both multi-tenancy,

edges as well as performance. This enables the flexible platform to be sold both to

service providers to enterprises in a NaaS or DIY mode. VMware’s VeloCloud is one of

the top three SD-WAN players in revenue, according to our market surveysds.

This makes VMware/VeloCloud one of the best positioned of the networking giants for

SD-WAN with a compelling end-to-end virtualized networking portfolio. Without a

legacy of hardware sales, VMware can aggressively sell SD-WAN as a new software

platform to reduce the complexity and cost of hardware appliances. Vendors with

routing legacies such as Cisco, Juniper, and Nokia have a larger installed base of

hardware, which they will have to defend. On the other hand, VMware’s overlay

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approach often ignores control and integration with underlaying hardware, meaning

that it will need to be integrated with traditional networking hardware to provide a

comprehensive end-to- end solution.

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Leading SD-WAN Startups 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 several SD-WAN companies should be

considered on the shortlist, and we include them in our “Top Ten.” Futuriom believe

the criteria to be the following:

• At least a $50 million annual revenue run rate in 2019.

• Close to cashflow-positive, or at least the capability to show how it would

become cashflow-positive.

• Growing customer base. Futuriom believes the companies below meet the general criteria for a potential IPO.

If they do not target IPOs or decide on other strategies, they could be top acquisition

candidates:

Aryaka Networks 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. This 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 introduced its Passport security platform,

which enables a cloud firewall and threat protection features from third parties.

Aryaka is likely to be among several SD-WAN startup players to reach $100 million in

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revenue. Company leadership has expressed the desire to file for an IPO, which we

expect could occur in late 2019 or 2020.

Cato Networks is positioned as one of the leading NAAS providers in the SD-WAN

market, which it calls the Cato Cloud. Cato has a unique cloud-focused architecture, in

which hardware devices are placed in datacenters to connect to the company's

network of 40 worldwide points-of-presence (POPs). Cato operates these POPs with

its own IP-based network overlay. If any of those POPs endpoints fail, the Cato

network circumvents the connection by routing traffic around the failure. These high-

availability – or "HA" features – are built into all the client, appliance, and POP layers

with software. Cato provides a lightweight software “thin client” loaded onto COTS

hardware. Another big differentiator for Cato is that it provides a full security stack in

the cloud. This includes a Threat Hunting System (CTHS) capability that IT

organizations can use to identify which endpoints attached to the SD-WAN service are

potentially compromised. That data can then be used to quarantine endpoints

attached to the Cato network. CTHS leverages machine-learning algorithms.

CloudGenix recently made some headlines by raising a significant $65 million funding

round. It has major customers in the banking and retail industries, with some

examples including Columbia Sportswear, Autodesk, and Bank of Marin. In a recent

case study submitted to Futuriom, Prakash Kota – vice president of IT at San Rafael,

Calif.-based Autodesk, which makes 3D design and engineering software – says the

company picked CloudGenix to unify connectivity at all its offices, including remote

small offices, in a mesh network through the Internet instead of through hub sites. In

tests, he says, the CloudGenix solution provided better performance. Cloudgenix

offers application-specific service-level agreements (SLAs) with major cloud providers

including Microsoft Azure, AWS, and Microsoft Office365, and provides tools to

manage traffic at the application level. The company says one of its unique

approaches is the capability to monitor application sessions at the TCP level,

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evaluating response time. The software also comes with network automation and

network monitoring tools. Company officials have told Futuriom that the organization

in the last year grew bookings and revenue at a 300% rate.

Silver Peak has moved from its base in WAN optimization appliances in software and

successfully diversified into faster growing SD-WAN products and services. Silver

Peak officials recently told Futuriom that Silver Peak Unity EdgeConnect, its SD-WAN

product, now represents more than half of Silver Peak's revenue. The company’s

growth rate is substantial – it grew 200% in 2018 – and the company is estimated to

have roughly doubled the number of employees in the last year. The company also

says it has 25 customers that have spent more than $1 million each, globally. This

customer base is in large retail, large healthcare, oil and gas, technology companies,

insurance, legal services, and other industries. It’s a broad market, and Silver Peak is

well positioned for growth. Many of the customers we have spoken with say that

Silver Peak’s strength is that it can be deployed and managed very efficiently via the

cloud management functions, including the remote configuration of devices using

management templates. This is a key feature for companies that are moving to SD-

WAN as a branch-office router replacement strategy.

Cradlepoint, based in Boise, ID, is focused on mobile segment of SD-WAN, where it

can connect corporate assets such as information kiosks and retail point-of-sale units

using a secure SD-WAN overlay. It gained additional credibility in the SD-WAN space

when in 2015 it acquired the SD-WAN technology assets of Pertino Networks, giving it

SD-WAN controller capabilities, which improve routing and network performance.

Cradlepoint has an impressive customer base, and the company’s leadership says it

has market penetration in more than half of the top Fortune 100-ranked companies.

FatPipe is another company that has successfully transitioned from a WAN

optimization player to a broader technology provider of SD-WAN and edge VPN tools.

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Based in Salt Lake City, it has been around longer than some of the hot Silicon Valley

startups, and it has a solid roster of customers. The company is reportedly profitable,

according to our sources. Revenue is expected to be in the $50 million to $75 million

range in 2019, according to our sources. As one of the SD-WAN pioneers, FatPipe has

hundreds of customers that use its technology to connect branch offices, create

secure VPN overlays, and provide WAN optimization and application performance.

Versa Networks has focused on building an SD-WAN, security, and virtual network

functions (VNF) platform for service providers, although it also sells to large

enterprises. Historically, the customer mix has been about 75% service providers and

25% enterprise, according to the company. Key customers include Adobe, Capital

One, Virgin Media, Comcast, and Verizon. Revenue growth is high, and Futuriom

expects Versa to be approaching $100 million in annual recurring revenue (ARR) in

the next year. Versa provides the FlexVNF platform, which is a software stack that

provides routing, SD-WAN, and security and is capable of running on COTS CPE, virtual

appliance, and cloud platforms. The platform features full multi-tenancy, multiple

deployment options, and zero-touch provisioning to help solution providers to create

NFV-based managed service offerings. One of Versa's key differentiators has been to

focus on a high-performance "thick branch" that includes its own integrated security

stack. The Versa SD-Security solution includes a NGFW/UTM, malware protection, URL

and content filtering, NG-IPS and anti-virus, DDoS, and VPN/next-generation VPN. It

can be deployed with zero-touch provisioning and automatic service chaining of

different security network functions.

Other SD-WAN Players to Watch Citrix has been repositioning its Netscaler ADC product as a cloud-based SD-WAN.

Futuriom considers this a smart and necessary move, because, as we have observed,

ADC hardware will eventually go away and the software functionality is being

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absorbed into a software-defined NFV platform. But Citrix has been quiet lately and

has not been as aggressive as other appliance vendors that have made the transition,

such as Silver Peak, which is going directly after the enterprise router-replacement

and management market.

Fortinet is a security and firewall company that has been adding SD-WAN

functionality to its portfolio. The FortiGate Secure SD-WAN includes NGFW security,

SD-WAN, advanced routing, and WAN optimization capabilities. Fortinet in April

announced it is introducing the industry’s first SoC4 SD-WAN ASIC (application

specific integrated circuit), which it says will deliver the industry’s fastest application

identification and steering for more than 5,000 applications. The company believes

this will allow users to avoid delays in accessing their applications and accelerates

overlay performance, providing low latency and the best possible user experience for

business-critical applications. Given the fact that Fortinet has a wide presence in the

firewall market, and with the functionality of firewalls converging with SD-WAN to

provide security functionality at the edge, it is a company to watch in this market.

Riverbed Networks, much like Silver Peak and Citrix, was a WAN appliance vendor that

has been repositioning toward the cloud as an SD-WAN vendor. However, the

company has been somewhat opaque about its SD-WAN strategy, and from what we

hear from enterprise customers, it does not often get shortlisted as an SD-WAN

platform. Part of the challenge is that recently the company was bought by a private-

equity firm, so it’s unclear as to the amount of resources that will be committed to

developing a full-fledged SD-WAN Platform.

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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.

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 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 CPE? Futuriom has found that routing technology at the edge, in the CPE, is a key

differentiator. Important features including the ability to route using common

protocols such as BGP and OSPF (open shortest path first). Many customers are

looking for an SD-WAN solution that not only provides 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.

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Q: How powerful is the management interface and orchestration? One of the major innovations of SD-WAN is moving behind the tedious, manual

configuration of branch CPE (often routers) using arcane and proprietary management

interfaces including command-line interface (CLI) technical know-how. One of the key

advantages of SD-WAN will be its capability to streamline management with a

graphical user interface (GUI) that not only gives managers visibility into the SD-WAN,

but also applications activity and cloud services. In addition, some SD-WAN platforms

include powerful deployment templates that speed up adoption and reduce opex.

Orchestration templates, which allow specific types of branch installations to be pre-

selected using the orchestration software, are powerful management features.

Futuriom believes that the SD-WAN management interfaces, orchestration, and

deployment templates will be a key differentiator among the many products on the

market.

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

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be natively built into the SD-WAN architecture, without requiring additional or

separate equipment.

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 builtin

firewall or it may connect to a 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: What is the NFV Strategy? Futuriom believes that SD-WAN platforms have the potential to become fertile

strategic platforms in IT by offering the ability to upgrade NFV 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? What type of partnerships does the vendor

have with leading best-of-breed NFV applications, such as firewall and security

services?

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? What type of partnerships

does the vendor have with the leading public cloud services such as Azure, AWS, and

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GCP? 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 unites 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.

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SD-WAN Growth Forecast 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.

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

include the following problems:

• Different business models of different SD-WAN providers and how they charge

for services, software, and hardware

• Revenue recognition models of hardware versus software

• The services model versus 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 a 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.

Revenue Opportunity: NFV Integration

The value of SD-WAN will come from the SaaS or NaaS model that not only adds new

value but also substitutes hardware and software revenue for legacy network

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

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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 marketshare from existing hardware based

ADC, VPN, and WAN optimization markets. For reference, here were recent revenue

opportunities in some of these areas:

WAN Optimization:

• $800m-$1B billion

ADC Market

• $2-$3B

VPN Services (for branch office connectivity):

• $10-$20B

Sources: Gartner, IDC, Markets and Markets, Goldman Sachs.

Total Addressable Market To calculate the total market opportunity, Futuriom looks at the potential for

substituted revenue of WAN Optimization, ADC, and VPN 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 ten 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.

Put these numbers together, Futuriom estimates that the total addressable market for

SD-WAN services is more than $20 billion, with a run rate of $1 billion in 2018, $1.5

billion in 2019, and a 33% compound annual growth rate (CAGR) over the next three

years. Our market forecast is a blend of these numbers, based on actual reported

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revenues and historical values such as the estimated size of the MPLS and VPN market

(about $50 billion alone).

SD-WAN Market Acceleration In 2018, we saw and heard evidence of market acceleration. Enterprises now consider

the market mature enough. There are several reasons for this revenue growth spurt,

which include the following:

• MPLS and bandwidth fatigue: Enterprises 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.

All this means that there are now a half-dozen companies approaching or exceeding

$100 million in revenue in the 2019-2020 timeframe. After collecting and analyzing

numbers Futuriom is now comfortable in projecting faster growth than was previously

forecast last year (2018). We now expect the SD-WAN market to hit $1.5 billion in

revenue in 2019, with the potential for $2.1 billion by 2020 and $3.4 billion by 2022.

The numbers of our forecasts are presented on the next page.

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Conclusion: Agility and Cost Savings Driving SD-

WAN Adoption

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

benefit from the lower 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 in 2019 the market

will continue to accelerate and drive 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

networking.

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Versa Networks

Product Type: Software and Hardware Target Market: Service providers, Enterprises

Virtual CPE: Yes Network POPs: No Multi-tenancy: Yes

Description: Versa FlexVNF is a cloud native software stack that spans routing, SD-WAN, and

security and capable of running on COTS CPE, virtual appliance, and cloud platforms. Versa’s

solution combines full multi-tenancy, multiple deployment options, zero-touch provisioning,

and multi-cloud extensibility to enable solution providers to create high value NFV-based

managed service offerings. Additional benefits also include resilient connectivity and critical

security functions like next-generation firewall and secure web gateway that automatically

integrate with other networking functions.

Hardware CPE: With Versa, SD-WAN and uCPE services are unified so the underlying platform

has best-of-breed networking and security services inherently but can also host complementary

services. Because of the uCPE platform and SD-WAN construct enabled by the Versa Secure

Cloud IP architecture, visibility, service-chains, policies, and automation are easier and run

natively.

Top Reference Customers: Adobe, Capital One, Verizon, Virgin Media, Comcast

Partnership Strategy: Versa is empowering MSPs to transition to NFV- and SDN-based solutions

to build a stronger foundation for service creation, which is aided by Versa’s diverse portfolio of

software-defined solutions ranging from SD-routing, SD-Security, Secure SD-WAN, and a SD

Branch solution giving the ultimate control, flexibility, and simplicity to deliver superior QoS.

Security Features: The Versa SD-Security solution provides a broad set of software-based

security functions including NGFW/UTM, malware protection, URL and content filtering, NG-IPS

and anti-virus, DDoS, and VPN/next-generation VPN.

Company URL: https://www.versa-networks.com/

SD-WAN Leader Profile