Approaches to SD-WAN by different types of service provider

30 August 2019 | Research

Tom Rebbeck


Research Director, Tom Rebbeck discusses approaches to SD-WAN by different types of service provider.

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Podcast transcript

Jim Barksdale, President of Netscape at the time it went public said: "There are only two ways to make money in business: one is to bundle; the other is unbundle."

With SD-WAN, we are seeing moves both to bundle and unbundle by different types of player.

While MPLS wide-area networks are combined with connectivity in almost all cases, SD-WAN has decoupled these elements. This separation makes it possible to offer new bundles of services (such as SD-WAN plus managed IT services), it allows for unbundling (that is, selling SD-WAN as a standalone product) and provides a new version of the connectivity-plus-WAN bundle (that is, connectivity plus SD-WAN).

In our latest case study report, we look at how different approaches are being adopted.

It is not yet clear which of these approaches will be the most successful and it may be that no model dominates, for example if each serves a different type of customer or need.

However, if one of these approaches is more successful than the other, service providers may need to adjust their tactics.

If we look at current strategies, we can see that approaches to SD-WAN are influenced by the providers' existing positions in the market. Most service providers are allowing their current overarching strategies and target customer bases to dictate their SD-WAN strategies.

Let's consider the SD-WAN approaches of each service provider group, starting with challenger operators.

Challenger operators are typically focused on gaining a greater share of the connectivity market, mostly by winning customers from incumbents. SD-WAN is often being provided in a relatively simple bundle with connectivity. This is resulting in a clean proposition that may be easier to sell and support, and one that is less likely to create conflict with partners.

However, this approach limits revenue opportunities beyond connectivity for the challenger operators.

The second category is incumbent telecoms operators. Faced with this pressure from challengers, these operators are offering SD-WAN to remain competitive, but are also hoping to use it to gain a greater portion of the business spend on IT services (such as managed Wi-Fi).

New innovative services, such as using the SD-WAN server as a gateway for IoT devices, may also emerge.

However, the resulting propositions may become complex and hard to understand, creating challenges for sales teams, support staff and customers alike.

Incumbents may threaten the territory of partners, such as systems integrators, by offering more IT services in the LAN.

Our third category, managed service providers (MSPs), typically manage services in the LAN (for example, servers, routers and endpoints). SD-WAN can provide them with a greater share of the telecoms/connectivity spend.

The addition of SD-WAN increases the complexity of their offers, but incremental steps should be manageable. For example, Cisco Meraki offers a version of SD-WAN and Meraki is already used by many MSPs for Wi-Fi networks.

The final category, SD-WAN technology service providers, offer SD-WAN as a standalone solution.

Trying to sell a new product without the benefit of having an existing customer base may be challenging, but this does give these players the potential to be disruptive in terms of pricing models, agility and the customer interface.

Many customers may not want to work with these new players, but more-sophisticated customers may be early adopters, taking away initial opportunities from the established telecoms operators and MSPs.

Businesses in countries with high MPLS costs or with limited competition from alternative operators may also be attracted to players in this category.

It is not clear which of these strategies is 'best' and it may be that strategies do well in different vertical markets. For example, the pure-play SD-WAN players may do better with technology companies, while the more-conservative retail banking sector may prefer to work with its established telecoms providers.

We may also see some differences by country or region.

MSPs' and DIY options appear to be more successful in the USA, perhaps because there is a greater arbitrage opportunity than in Europe (that is, businesses can save more on connectivity by buying SD-WAN and a separate direct internet access circuit).

However, a dominant model for providing SD-WAN may emerge.

If this happens, service providers will need to be flexible enough to change their approaches, regardless of their existing positioning or target markets.

For example, if challenger operators see that bundles including IT services are gaining traction for incumbents, they may need to move more aggressively to match these offers.

Equally, if technology providers start to gain market share from providing standalone offers, other service providers will need to see how they can match this 'unbundling' approach.

Even to make a success of their current SD-WAN strategies, service providers may need to move out of their comfort zones.

MSPs will need to show that they can manage WAN solutions and incumbents must demonstrate that they can manage LAN services for smaller customers.

SD-WAN technology firms will need to show that they can sell and support the technology, and not just develop it.

Furthermore, for any of these strategies to work, service providers will need to change how their potential customers perceive them.

Providers attempting to bundle services will need to be seen not just as a connectivity provider, an IT helpdesk or a technology developer, but as a mixture of all of these things.

The service providers that transcend their origins are likely to be the most successful, even if it is these origins that appear to be dictating their current strategies.



Article: Existing market positions are dictating service providers' strategies for SD-WAN



Tom Rebbeck

Partner, expert in TMT consumer and business services