The Acquisition Of VMware VeloCloud Rekindles The Battle Of SDN With Cisco

The virtualization and cloud computing provider VMware made its interest in the network space known in recent years by entering the market of software-defined networks a few years ago. The company launched VMware NSX in late 2013, which merged its existing vCloud network product line with Nicira's network virtualization platform (which it acquired in 2012) into a single product family. In the years since then, VMware has seen strong demand from NSX, with a number of customers growing from just under 100 in 2013 to over 2,600 this year. Earlier this month, VMware announced that it will acquire the start of VeloCloud SD-WAN to increase its presence in the SDN space.

Obviously, this is a concern for network hardware providers, since the software-centric approach has the potential to make branded high-end network equipment redundant in the long term. Consequently, this has given a great opportunity to manufacturers of white box hardware to sell cheaper hardware. As a result, established hardware vendors must compete with software companies (VMware in this case) to develop high-end software that adapts to the changing requirements of the industry and simultaneously coincides with falling hardware prices. In 2014, VMware CEO Pat Gelsinger mentioned that Cisco ranked VMware as its "public enemy number one" after the release of NSX. At the time, VMware also reached an agreement with Cisco's rival Juniper Networks, which took advantage of VMware's NSX to virtualize Juniper's network equipment.

A key market space within SDN is the WAN (or SD-WAN) market defined by software. WAN (wide area networks) is the branch of the network that deals with connecting remote offices and computing devices to a central server or data center, usually in a large geographic region. This is different from local area networks, which connect devices limited to distances within a building or campus with locally managed network interconnections. SD-WAN, or software-defined WAN, uses cloud computing and virtualization technology separating the hardware involved from its control mechanism. The SD-WAN market can potentially interrupt the traditional market for enterprise routers.

SD-WAN Market Dynamics

Within the global router market, the business router market was estimated at around one fifth of the total router market (or around $ 3 billion) in 2016. In the coming years, SD-network solutions are expected WAN cannibalize traditional enterprise routers. Since SD-WAN solutions can theoretically run on cheaper white-box hardware, it could cause a decrease in the average sales prices of the enterprise router hardware. Consequently, Gartner predicts that the enterprise router hardware market will decrease to 3% per year to be a $ 2.5 billion market by 2020. On the other hand, the SD-WAN market is expected to increase by about $ 740 million in 2016 to $ 6 billion at the end of the decade - growing to a massive CAGR of more than 90%. This estimate includes the entire ecosystem, including SD-WAN providers, software vendors, product manufacturers, systems and product integrators, and migration service providers.