In the VPN space, the South African market closely follows developments and technological evolution of the more developed telecommunications markets.
The SA market is characterised by escalating bandwidth volumes on the WAN and decreasing prices of products. This is driven by declining bandwidth prices, expansion of broadband infrastructure, and an increased consumption of bandwidth-hungry applications by businesses.
VPN technology mix evolution
VPN customers have been adopting hybrid solutions as they begin consuming many of their services from the cloud. Separate broadband links, rather than the private WAN, are often used for break-out into the internet. The mix of technologies used for WANs will change. MPLS and Internet VPN will show strong decline over the next five years. SD-WAN is expected to show strong growth, coming from migration of existing customers from MPLS and Internet VPN, and new greenfield customers.
The expected lifecycle evolution of these three technologies is presented in the graphic below. MPLS has reached maturity phase. Although widely used among corporates, it is expected to begin declining and see a significant reduction in its use over the next five years. IPSec continues to dominate the Internet VPN space, but it is expected to decline, as is Internet VPN in general, which will be replaced to a large degree by SD-WAN. The latter is currently at an early introduction stage in SA but expected to become mainstream within the next five years.
The MPLS VPN market, continues to be dominated by half-a-dozen service providers. The growth of the SD-WAN market will introduce new players into the VPN market, although the existing market participants will also move into this space. Service providers will either develop their own SD-WAN platforms (IS already launched its platform earlier in 2017) or will partner with global SD-WAN providers to offer their services locally. Some of the service providers will move to integration of all three VPN technologies to provide a hybrid mix to their customers.
VPN market growth
The VPN market is expected to continue growing at a healthy rate in terms of the number of new connections, although it will be impacted to an extent by migration to the cloud. With full migration of applications, storage, etc. into the cloud, there is no need for a company WAN. The total market is forecast to grow from 100 thousand VPN connections in 2016 to reach 276 thousand by 2022, showing a CAGR of 19% for the period 2017 to 2022.
Market growth is illustrated in the following graphic. However, the mix of technologies accounting for the future connections will differ significantly form the current market landscape. They key drivers of SD-WAN uptake are going to include: a) stronger move into the cloud environment, b) drive to reduce company network / WAN costs, and c) requirements for greater network flexibility.
A strong uptake of SD-WAN products is expected in the SME market, but large companies will also replace some of their MPLS links with SD-WAN. However, given their spending power, large companies will continue to account for over two-thirds of WAN revenues.
Ready for the future
To remain competitive in the evolving VPN market, service providers will need to also evolve their technology / product strategy and service approach, including:
- Have the ability to offer a suite of VPN products for various market segments
- Develop SD-WAN capabilities
- Educate customers about new technologies becoming available and their benefits.
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