VMware today announced plans to acquire VeloCloud, one of the leading companies in the fast-growing software-defined Wide Area Network (SD-WAN) market.
SD-WAN represents a new way to manage network connectivity to branch and remote offices using software-defined networking principles. Software-based SD-WAN offerings from companies like VeloCloud can aggregate multiple types of connections, including broadband, MPLS and cellular, to create more reliable connections that are often less expensive than a pure MPLS use. Research firm IDC predicts SD-WAN will be a more than $1 billion market this year, and grow at 69% to more than $8 billion by 2021.
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VMware is still best known for its virtual machine management software based on its popular ESX hypervisor, but its acquisition of VeloCloud underscores VMware’s pivot, mostly through acquisitions, to focus on network management. In 2012, VMware paid more than $1 billion to purchase startup Nicira, the virtual-network company whose product is now sold by VMware as NSX.
“In some ways this was anticipated,” says IDC networking analyst Brad Casemore about the VeloCloud purchase. VMware has partnered for the past year and a half with a handful of SD-WAN vendors, including VeloCloud, Silver Peak, CloudGenix and Versa. Casemore says financial and industry analysts have been pressing VMware to more clearly define its SD-WAN strategy. In choosing to purchase VeloCloud, VMware says it’s found a company that has done well with mid-market and enterprise customers, and has seen some success in service provider and telecommunication provider users as well, Casemore says.
While he doesn’t expect immediate changes, he says there are opportunities for VMware to integrate VeloCloud’s technology into its broader set of management tools. VMware could eventually provide customers a single management platform that would control not only their NSX virtualized data center network environment, but also branch-office connections on the WAN. While today these environments are managed separately, Casemore says he could see value in common application and user policies that span both. Plus, buy purchasing VeloCloud, VMware is jumping into a fast-growing market.
The move puts pressure on some other vendors such as Cisco and HPE. Cisco purchase SD-WAN vendor Viptela this past summer for $600 million. Now that one of Cisco’s biggest competitors in the SDN market has formally entered SD-WAN, it could lead both companies to continue investments to improve the underlying technology.
HPE has not yet acquired an SD-WAN vendor, but Casemore says it could be inclined to do so. Also, Dell-EMC, which owns a controlling stake in VMware, announced a partnership with three SD-WAN vendors earlier this year, including VeloCloud, Silver Peak and Versa. VMware’s acquisition of VeloCloud could lead to Dell-EMC choosing VeloCloud as its preferred bundled hardware-software SD-WAN offering.
VMware did not announce terms of the acquisition price.