SD-WAN Vendor Success Criteria Vary by Lenses
July 16, 2020
Several analyst firms have reported recently about the state of the SD-WAN market, and not surprisingly, the market sizing is definitely due to inclusion of both hardware and software, and in Cisco’s case, contributions from Meraki. That’s the conclusion of AvidThink analyst Roy Chua, who believes that there could be a $500 million differential between pure SD-WAN software revenue and everything else deployed in the branch including hardware, circuits and wireless access only.
Given that Versa is one of the few if not only pure-play SD-WAN vendors that from a revenue recognition standpoint is software only, devising a methodology that incorporates hardware, circuits and dedicated wireless access can distort market reality, and not necessarily reflect other more transparent ways of evaluating the success of SD-WAN, such as in Versa’s case in terms of our large footprint of Service Provider partners (90+) and VNF licenses under contract (150,000).
Here are some of the main questions that Chua posited for the analysts’ conventional methodology, in a recent post in FierceTelecom, and our associated perspective:
Is the reversal of any bundled underlay links done cleanly? What about managed services and professional services?
Some vendors bundle underlay circuits, hardware appliances and SD-WAN licenses together, and combine that with design, deployment, implementation and management/support, which is the type of offer that Managed Service Providers take to market.Versa has over 90 Managed Service Providers and telecom operators who offer Versa’s software as a subscription, while bundling additional capabilities and value add to create a differentiated offering in the market.
Should we include hardware or not? And how do we amortize the hardware costs, if at all? What if it’s a subscription-based offering that includes hardware platform rental?
Ironically, many vendors sell a “Hardware-Delivered” WAN (HD-WAN) but call it a Software-Defined WAN; while there is need for a hardware appliance to deliver every vendor’s SD-WAN solution, comparing vendors that sell hardware and software bundled together compared to Versa that only sells software, is an important distinction to understand.Versa’s visionary solution is a software- and subscription-based solution; while we don’t sell hardware, Versa has certified hardware appliances and designs that customers can choose from and order directly from manufacturers.
For vendors that ship integrated wireless like Cisco-Meraki and Aruba, how is the SD-WAN component broken out? The same goes for firewall and security vendors like Fortinet and Barracuda.
Many incumbents have large legacy portfolios that are well established in the market yet are still trying to position themselves in a new ‘hot’ category by aligning their product to cover the bare minimal capabilities to claim that they address the burgeoning SD-WAN space.It’s difficult (almost impossible) to capture the actual SD-WAN software contribution for such incumbents who can report a small percentage shift in revenue from an existing product into a new category without impacting their position in the existing category.Dedicated Wi-Fi access points like Meraki or Aruba are consumed as Capex, so pure SD-WAN software subscriptions should be broken out and reported separately. Firewall vendors are most likely already going to have a dedicated piece of WAN edge hardware for NGFW, so even though their incremental SD-WAN functionality can be activated with a new license key, it typically will require a NIC or flash memory upgrade.
And as SD-WAN eats up the entire enterprise edge market, should we just roll everything under the SD-WAN umbrella?
SD-WAN is the tip of the arrow in an enterprise edge. There are many vendors who are offering SD-WAN point products that only promise an “MPLS arbitrage” outcome. But they don’t fully address the needs of an enterprise edge that needs a full router, lots of networking services (L3VPN, DHCP Server/Relay, CGNAT), and integrated security (NGFW, UTM, SWG).The need of most enterprises is to transform their edge to provide visibility, control and automation for network and security policy enforcement, and direct access (breakout) to Internet for Multi-Cloud access. (Gartner’s WAN Edge Infrastructure MQ and Critical Capabilities research reports are designed to project eventual branch consolidation).Versa’s vision and strategy have always been about leading transformation of the enterprise edge, delivering not just SD-WAN but also a true SD-Branch reality.
And for vendors like VMware or Cisco which have adjacent products or that sell bundled licenses or enterprise-licenses, how do we calculate the appropriate allocation to SD-WAN revenues?
Many incumbent vendors are using creative bundling and packaging to create a ‘lock-in’ strategy for an enterprise across multiple portfolios.For example, Enterprise License Agreements (ELAs) are typically offered across Data Center, Campus and WAN infrastructures to create stuff-down bundling strategy, which allows them to mask the true nature of their success in terms of SD-WAN software by including it in a broader licensing scheme.
How do we account for different licensing schemes: annual pre-paid, multi-year pre-paid or perpetual license with upgrade and support fees?
SD-WAN comes in many flavors, and there are many variations in what an enterprise can purchase: hardware+software, software only, bundled services with support SKUs, and so forth.For software, most vendors offer a variety of terms including monthly, annual or multi-year terms. When comparing vendors, it’s important to understand the variations in the offers of different vendors to accurately reflect a normalized view across the market.
Versa Networks is a market leader in a software-defined solution for the WAN and branch AND the only pure-play software vendor in this market segment. Our sole business is a software subscription revenue model, and the majority of it is delivered through Service Providers who adopt our technology and offer a managed service based on our solution. We also work with enterprises who opt to deploy and manage their own network DIY as well. In either case, our core business is software, not hardware or appliance; it’s annual subscription oriented, not perpetual license based.
We find that many of the current methodologies for market share reporting do not fully capture the variations in business models that apply to this market segment that we helped spawn. Comparing a software-only company to another entity that sells hardware and software (either perpetual or subscription) and/or other associated elements is a distortion of the market dynamic. Therefore, we’re no longer providing financial guidance to analyst research firms who only look at an aggregated view of hardware and software regardless of whether it’s perpetual or subscription.
At the end of the day, it’s very important for enterprise and service provider IT decision-makers to benefit from the most accurate market snapshot to influence their SD-WAN strategies. As Roy Chua pointed out in the AvidThink newsletter, assuming that you’re talking to a “market leader” in SD-WAN means that it’s even more critical to understand the subtleties of what entity is selling SD-WAN and how and to whom.