Software defining the future of the enterprise market

20 February 2019 | James Pearce

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Enterprises are increasingly looking at SD-WAN as their solution of choice, with more carriers entering the market. Jean Critcher, of Orange Business Services, says carriers shouldn’t be afraid of the move away from traditional MPLS

Demand for software-defined wide area networking (SD-WAN) among enterprises is booming. Don’t believe me? Let’s look at some figures. According to IDC, this segment will hit around $4.5 billion in revenue by 2022, having grown at a compound annual growth rate of 40.4% between 2017 and 2022.

In 2017, the last available figures, SD-WAN infrastructure revenues increased by 83.3% reaching $833 million. Much of this growth is being driven by the need for more flexible networking.

For global telecoms, this serves as both a threat and also as an opportunity. Enterprise remains the “golden goose” to many telcos, with the opportunity to sell a wide range of value added services that can greatly increase profit margins. It is also highly competitive.

Orange Business Services (OBS), which is the enterprise services arm of French giant Orange, is some way down its own SD-WAN journey, offering the services to its enterprise customers which range from smaller units to some significant multinational companies.

Jean Critcher, Head of Solution Consulting, Global Solutions at OBS, tells me that Orange has seen a lot of traction with SD-WAN over the last few years, with more companies turning to it as a significant part of their networking solution. But sometimes, it isn’t actually SD-WAN itself that enterprises are looking at.

Critcher explains: “I’ve sat with more than 30 customers this past year, either in workshops or in meetings, who have said they want to do SD-WAN, but once you dig down into what they want to do with it, you realise 7/10 times that SD-WAN means using MPLS  to all internet.”

The question her team then puts to the customer is “how do you plan to use SD-WAN in your network?” A lot don’t have an immediate answer, she adds.

“A good example is with a customer we have today, after nine months of discussion, is that they really want to be able to measure end-user productivity,” she says. “They don’t want to prove SD-WAN technology works, they want to see how it improves things for them. What are the benefits? For them, the vendor discussion wasn’t even relevant. It was about seeing actual improvements on both the IT and business side, and how it helps them meet key KPIs.”

So what are the main drivers behind SD-WAN adoption. I suggest cost reduction, which has been one traditional concern. MPLS, after all, can be quite expensive, especially when compared with running a lot of applications over the internet.

Cost reduction, Critcher replies, is “becoming less relevant” in these discussions. “There is much more of a focus on what they intend to do with SD-WAN. When technology comes up, it is more often a question of what improvements they will see and how Orange is going to make that work. Those are the discussion points.”

Are the margins good for Orange? Critcher won’t give me numbers but, as she points out, they range massively based on the deployment. Orange offers significant transport services for enterprises, but also offers overlay and value-added services too.

It does this through a number of vendor partnerships. On SD-WAN specifically, OBS is working with Juniper Networks, Riverbed, Infovista and Cisco VIPtela. If an enterprise wants another partner, Orange will look at what the business needs and if it already has an option before adding more.

The vendor market is driving SD-WAN but it is also an ever evolving market. Critcher explains: “Last year we saw around 40 different vendors in the space – some are very recognisable, while others have been the subject of acquisitions. There aren’t necessarily more vendors entering this space, but some are finding their niche before getting acquired. Take Cisco’s acquisition of VIPtela. “They could integrate this with their existing platform without losing traction. That was their strategy,” she adds.

“Other players like Oracle or VMware snapping up players like Talari and Velocloud have seen that if they play from the data centre point of view, which is where customers are now beginning to downsize data centres and move everything to the cloud, the reasoning is not to lose a stronghold and offer the capabilities in software and virtualised services as data centres change. They themselves can potentially become another Amazon Web Services – this technology allows them to answer the SD-WAN needs as their customers are evolving.”

Service providers “want to capitalise on the same thing” by being able “to virtualise these capabilities on the existing infrastructure. They are also looking to be seen as a cloud provider as customers move away from old data centre models by offering the ability to host and manage services for our customers through our partners, says Critcher.

“Then the licencing cost comes into play, and that is where having strong relationships with our vendor partners comes into play.”

So back to margins. These vary so much on the business case. Costs for one time charges and cost of licencing models are “where customers squeeze the most” she claims. “One time charges we have to explain and articulate the value customers will see from deploying an SD-WAN network with Orange. We give them so many different options of setting up their network and getting that built.”

Deployments

Orange has had a number of notable deployments for SD-WAN but the most talked about in all of the conversations I’ve had with members of the OBS team is its deployment with Siemens, the German industrial giant.

Siemens is a global powerhouse positioned along the electrification value chain – from power generation, transmission and distribution to smart grid solutions and the efficient application of electrical energy, as well as medical imaging and laboratory diagnostics. It has subsidiaries all over the world, and the company was looking to move towards an internet-driven SDN platform to support its 1,500 sites, spanning 94 countries. The deployment is ongoing, but the Internet-based SDN and Universal CPE rollout has already helped the industry giant to enhance its capability and scalability whilst also enhancing reliability and security.

Critcher tells me: “With Siemens, we were scared to death of giving away MPLS because the customer wanted to go all internet. It was our CEO in that conversation who said okay, we’re with you. If you go all internet, we’re with you. We made these decisions almost two years ago because we realised that if we didn’t we wouldn’t get the bigger deals.”

This is the crux of a challenge facing a lot of carriers who are contemplating an SD-WAN offering. The demand for it is there, clearly, but some deployments will be hybrid, and some will be pure internet-based. If you are a global infrastructure provider, or a company with a history of being the supplier of the big, fat data pipe, what can you offer when a customer comes to you and says they don’t actually want to use your infrastructure – your bread and butter?

For Orange, it has been a learning curve. OBS has been around since 2006, forming as a rebrand of existing businesses Equant and Wanadoo. Despite this, SD-WAN is still new, says Critcher: “We have a considerable amount of experience and a lot more than we did last year. We’re also now not afraid of not being the transport provider. We have a number of deployments where we provide no transport services whatsoever.

“We’ve made some significant deals across all types of models, from traditional underlay models to ones where we offer the overlay, and some where we don’t even provide transport services.”

So what is Orange providing in this case? Overlay and value-added services. I want to know how that discussion first went – how Orange went from being an infrastructure company to being a services company.

OBS first had the chance to just do overlay for a customer at the end of 2016 when a large German chemical manufacturer went out to the market, Critcher explains. “They said they were looking to change how they do things, but wanted a provider who could offer other value-added services, even if we looked elsewhere for connectivity options.”

When they took that on, the agreement had to be made from C-level down and “we had numerous customer workshops to make sure we hadeverything covered, including UC and the SD-WAN piece”, she adds.

“We were already prepared for the fact that we might not win the connectivity tender. We won the part of the tender with no connectivity – one fourth of the actual contract value. It was a half a billion contract with this customer – 100 million is going to the underlay providers. We’re still delivering on this project because it is enormous – more than 1,000 sites – and the scope on the connectivity keeps growing. We add nothing but overlay and UC services. We were quite happy to take that, and it was a starting point for us, because prior to this we were focussed on providing connectivity as well.”

Transport contracts get squeezed year on year with customers expecting to see cheaper access and lower equipment costs across a five year contract. “All of these revenues are decreasing unless we add services.”

Is this a strategy she’d recommend to other carriers looking to offer an SD-WAN service? That, she says, depends purely upon their experience level.

“We had already been doing integration models for more than 10-15 years,” she says, pointing to WAN optimisation as an example. “If carriers have that kind of experience of a multi-source integration model then they shouldn’t be averse to giving up the connectivity. If they don’t have that experience and want to take that risk, that’s up to them, but we have the confidence to do this because we have experience outside of just network transport. It gave us the chance to really put that out there.”