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Alternative models for the delivery of SD-WAN services threaten operators’ position as retail providers – podcast

14 October 2019 | Research

Catherine Hammond

Video and podcast | Large Enterprise Voice and Data Connectivity

Principal Analyst, Catherine Hammond, discusses how alternative models for the delivery of SD-WAN services may threaten operators' position as retail providers.

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Podcast transcript

Hello. My name’s Catherine Hammond and I’m a Principal Analyst in our ‘Operator business services and IoT’ practice. I’ve recently interviewed a number of SD-WAN technology providers about their go-to-market strategies, and about their relationships with telecoms operators and other channel partners.

Operators are an important route to market for many SD-WAN technology providers. Operators command a strong position in the market due to their existing customer relationships and ability to provide end-to-end managed services that include the underlying local access and backbone networks. However, technology providers are also developing alternative routes to market, often with new models for delivery and more-aggressive or innovative pricing. In this podcast, I’m going to talk about the threats posed to operators by these alternative delivery models. I’ll argue that operators must deliver effective SD-WAN solutions of their own, with good levels of customer satisfaction, in order to defend their business connectivity revenue.

You can find out more about this topic in my recent report, SD-WAN technology providers (volume II): nine case studies and analysis. In it, I provide a more-detailed assessment of many of the SD-WAN technology providers, including Citrix, Fortinet, Oracle and Silver Peak.1

A growing number of SD-WAN vendors are looking to operators as an important route to market

A significant number have built their main go-to-market strategies around partnerships with operators; examples include Nokia’s Nuage Networks, Versa and VMware. Cisco also relies heavily upon the operator channel. Other players such as Fortinet, Oracle and Silver Peak are also developing relationships with operators in order to extend their market shares and to address the growing shift in emphasis to managed SD-WAN rather than DIY deployments.

Most major network operators have already selected SD-WAN partners, but some vendors have ambitions to become an additional supplier. Silver Peak, for example, has recently become an SD-WAN provider to Verizon, alongside Cisco Viptela and Versa. Other vendors are targeting smaller operators that have not yet launched SD-WAN, or are seeking to provide SD-WAN solutions that deliver against certain criteria. For example, Ekinops is seeking to deliver low-cost solutions for the small and medium-sized enterprise (SME) market, and Infovista is providing solutions with high levels of application intelligence.

Vendors are also seeking to gain market share via alternative routes to market, and this could pose a threat to operators

Many SD-WAN technology providers sell services either directly to enterprises or via alternatives to operator channels such as systems integrators (SIs), managed service providers (MSPs), network integrators and resellers. The Master Agent channel is also an important route for many providers in the USA. Some technology providers (such as Aryaka and Cato Networks) consider themselves to be direct competitors to operators.

We’ve identified a number of threats to operators’ SD-WAN services (and to their business connectivity services more generally) that may come about as a result of these players’ strategies.

  • The first threat is that the use of the MSP channel is likely to grow strongly. Many of the vendors that I interviewed highlighted the MSP channel as being important. I believe that this channel poses a significant threat to operators, particularly if MSPs are also able to manage the underlying local access networks. There is a growing emphasis on managed SD-WAN rather than DIY deployments in North America and across Europe, the Middle East and Asia. Operators are well-placed to meet this change in emphasis, but MSPs can also deliver managed SD-WAN services. Many vendors additionally partner with Sytems Integrators to meet enterprise requirements for managed SD-WAN services.
  • The second threat is that procurement may become more application-focused and less network-focused. Many SD-WAN technology providers emphasise their relationships with application providers such as Ring Central and Salesforce rather than with network providers. This is especially true of vendors selling independently of operators, such as Citrix and CloudGenix. Under this model, procurement is likely to become increasingly application-led. Pricing and SLAs may be based on application performance rather than bandwidth provisioned. This has the potential to disrupt network operators’ traditional customer relationships.
  • The third threat is that the provision of global backbone connectivity is increasing. Several SD-WAN vendors, including Aryaka and Cato Networks, operate private backbone networks of their own to avoid routeing international traffic via the internet. Procuring backbone services from data centre players such as Equinix is also becoming more common. This threatens operators’ ability to differentiate their SD-WAN services to international businesses on the basis of global backbone connectivity.

In addition to these specific threats, the sheer range of alternative models being explored should itself be a concern to operators. Lots of non-operator models are being experimented with. These include those based around security such as Fortinet’s offer, or around applications, such as in the case of Citrix. Other models emphasise cost savings by dropping MPLS; Aryaka and Cato Networks both do this. In contrast, most operators rely on a single, network-integrated model for SD-WAN. It is not yet clear which of the alternative models might emerge as winners. However, from the weight of experimentation, it is likely that some models may emerge with clear advantages that operators will struggle to counter.

Operators then must ensure that they deliver effective SD-WAN solutions of their own

At present, operators continue to control key customer relationships and access to established sales channels. They have an ability to deliver end-to-end managed services that integrate the underlying local access and backbone networks with SD-WAN. They are also able to integrate SD-WAN with legacy connectivity services. These things are important considerations for many technology providers and businesses alike.

Business customers that are reasonably satisfied with the service received from their current supplier are unlikely to switch to an alternative provider without good reason. Surveys consistently report that most businesses are very cautious about switching their fixed supplier.

However, operators do need to deliver good levels of customer satisfaction, and they do need to be pro-active about delivering an effective SD-WAN solution of their own. Without these things, they risk losing a significant share of the retail business connectivity market.

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1 For more information, see Analysys Mason’s SD-WAN technology providers: case studies and analysis

Article: Alternative models for the delivery of SD-WAN services threaten operators’ position as retail providers