Will Cisco Monopolize the SD-WAN Market?

by Sorell Slaymaker

IDC forecasts that the SD-WAN market will grow from $225M in 2015 to $6B by 2020.  This is a CAGR of over 90%!  The global enterprise network equipment market consisting of Ethernet switches, routers, firewalls, and load balancers is approximately $40B year, of which Cisco has about 50% of, according to Gartner.  For 25 years, Cisco has dominated the enterprise networking equipment market, but will they be able to continue, especially in the hot SD-WAN market?

Cisco is the “big fish” and has a lot of things going for it:

  1. $50B cash – The ability to acquire competitors such as Meraki or to invest in start-ups such as Velocloud.
  2. Installed base – Tens of thousands of loyal followers who have invested years in learning Cisco, working for very risk adverse IT managers.
  3. Distribution channels – Over one thousand global partners who sell and manage their products

Cisco has three primary challenges in dominating the SD-WAN market.

  1. More competition – Hundreds of medium and smaller competitors, “small fish” taking a bite out of Cisco. These include:
    • Traditional Competitors – Huawei, Juniper, Silverpeak, Nuage, Citrix, Brocade, F5 and others who have products in Cisco’s installed base.
    • New Startups – Viptela and Cloudgenix and many others that were founded by ex-Cisco employees, new startups such as 128 Technology that are building from the ground up and do not have any legacy install base or paradigms.
    • Cloud Providers – Amazon, Google, Microsoft taking advantage of open source and internally developed solutions and bringing these network services into the enterprise.Eating Fish
  2. Creating a viable solution – SD-WAN is the aggregation of many products – routing, security, application performance monitoring, and zero touch provisioning. While Cisco has all the right ingredients for an SD-WAN solution, they have not been able to put them all together into a single, simple, cost effective product.
    • Meraki – Cisco’s lower end solution that excels on simplified management but lacks more sophisticated routing and security functions.
    • I-WAN – Cisco’s higher end solution that takes DMVPN, IPSec, PfRv3, NBAR2/AVC and tries to fit them together
    • APIC-EM/Prime – Cisco’s SDN automation and network management platforms which take enterprises weeks to get installed and working.
  3. Software – Cisco’s business model, culture, and products are all very hardware centric. Cisco bragged for many years that it was one of the largest consumers of customized chipsets. Software running on commodity hardware has caught up and is displacing hardware centric solutions.
    • Throughput – Thanks to Intel’s Data Path Development Kit for fast packet processing and ability to do AES encryption, along with many other advancements, software routers can now match hardware routers up to 100Gbps, at a fraction of the cost.
    • NFV – The industry drive for Network Function Virtualization, so that many different network services can run on a commodity hardware platform. This will make changing software suppliers easier and will commoditize network functions.
    • Business Model – The high margins that Cisco has enjoyed will not be sustainable in an all software world. The complexity of Cisco solutions has enabled their channel partners to sell Billions in professional services to make their solutions work.
    • Speed – The speed at which all software companies can develop and deploy new services is 10x faster than hardware centric companies. Remember Blackberry?

Many enterprises are bringing in new SD-WAN players to augment their existing Cisco based WAN.  This allows them to gain new functionality at a low cost while also avoiding an expensive upgrade of aging routers.  For Cisco to maintain their monopoly, they will have to significantly lower their margins and create a more integrated solution.

If Cisco’s competitors start dominating the enterprise WAN equipment market, where Cisco has had an 80% monopoly, then the odds are high that more enterprises will be open to non-Cisco campus and data center solutions.  For now, Cisco will continue to sow seeds of Fear, Uncertainty, and Doubt and slow down the market but the result of this will be business leaders getting fed up with IT and looking to cloud service providers to bring in the network with their cloud solution.  This will further the end of the private enterprise network, which was discussed last week.