article

FLYIN’ HIGH

Posted: 10/2001

FLYIN’
HIGH
IP VPNs Rev Up SMB

Service for Resellers, Partners
By Tara Seals

We all know
most SUVs never will stray from asphalt streets. Still many Americans happily shell out thousands of dollars to have the option of traveling unpaved territory. It’s no surprise to see the trailblazing craze also driving business communications off the hard-wired road and onto the virtual pathways of the Internet.

Virtual private networks (VPNs), which create a network by tunneling through the Internet, have emerged as an alternative to the circuit-based lines typically used for wide area networks (WANs). They offer quick, cheap, on-the-fly connections that are not constrained by service provider footprints. VPNs allow small and mid-sized business (SMBs) to throw the fiber maps away and have the same connectivity big business always has had, but on their terms.

As they take their services off the beaten path, providers also look outside their organizations to channel partners to put the word on the street and the SMBs in the driver’s seat. It’s no sentimental journey for resellers and distributors; they’re towing a product and a marketing message that fits their SMB customers like a Porsche hugs a corner.

Research firm IDC recently reported the VPN technology has “proved immune to the continuing economic woes,” and is poised to explode.

“IP VPNs are attractive for their low cost, ubiquity, and the flexibility they provide in ad hoc connectivity,” says Jason Smolek, an analyst with IDC’s IP VPNs research program. “Companies that deploy IP VPNs don’t need to build private lines between their sites, and for organizations with multiple sites, this represents huge cost savings in terms of capital and time.”

Equipment such as routers to the Internet, security and servers and services such as Internet access and VPN-specific connections make up the VPN milieu. Infonetics Research forecasts worldwide revenue increases in VPN products from $2.1 billion in 2001 to $7 billion in 2005. Similarly, the firm says VPN services revenue will increase from $10.7 billion this year to $41.2 billion in 2005.

Joyriding

Sprint Corp. and Williams Communications LLC are among the carriers creating indirect channels for VPNs.

Sprint announced in August that it will sell its E|Solutions portfolio via its diverse partner program, which includes resellers, integrators, VARs, VADs and agents. Initially, Sprint will release collocation to the channel, but VPNs, web hosting and managed network services will follow by the first quarter of next year.

The carrier recognizes that channel partners bring their own competencies to the table, which will help E|Solutions market penetration. “Maybe they’re selling a hardware solution of some sort or they may be selling a voice solution on behalf of Sprint already,” says Tim Donahue, assistant vice president of e-business and alternate channels for Sprint Global Markets Group. “They actually might also be peddling applications that would allow them to leverage our E|Solutions portfolio.”

Channel partners’ trademark customer relationships are another driver for the rollout.

“There are certain segments of the marketplace that the customer actually wants a local relationship and in some cases it’s impossible for any Tier 1 carrier to have resources in all those markets at every level,” says Donahue. “Services might be deemed to be complex by the end user, but if you’re leveraging a local resource, that’s really an extension of Sprint, and that goes for our E|Solutions portfolio more so than it would for basic transport.”

Williams also plans to launch its VPN solution in a wholesale model during the first quarter 2002. It will offer quality of service guarantees, full security and a global reach, thanks to partnerships with other carriers. Williams’ Joe Turcotte, vice president of IP services, says VPNs likely will be available to the carrier group and will target enterprises via partners like system integrators and Williams’ own Vyvx video and broadband media unit.

Vyvx will approach the broadcast industry with VPN for digital bidirectional content management. Vyvx offers content and

distribution of media extranet offerings and hosting services. “Vyvx for the IP VPN as a clear channel because a lot of those broadcasters are looking at digital conversion,” says Turcotte. “Vyvx has carried the Super Bowl for a decade plus and has relationships with Fox and so on, so they have a strong relationship in a very difficult market.”

In the Driver’s Seat

Experts say that cost-effectiveness, the rise of IP and enterprise applicability are driving the market.

“Customer demand has not fundamentally changed — customers want to buy VPNs,” says Jeff Wilson, Infonetics’ VPN analyst. “What they want to use them for is a moving target, so the exciting VPN application for the last nine months or so is combining VPNs and broadband connections for telecommuting, day extending and connecting remote offices.

“Now, with the economy spinning as it is, large companies are really starting to look at VPN connections to reduce operations costs,” Wilson says. “That means really taking a hard look at replacing frame relay connections to your branch offices.”

A T1 frame relay connection from San Jose to Boston could cost $3,000 per month, says Wilson, adding that in contrast, a VPN — offering “mostly T1 speed network across the globe” — is about $500 per month.

Adding sites to a VPN also is cheaper and simpler than other routes. “If you want to add another site on your VPN, we can do that as a matter of keystrokes, whereas if you want a frame or an ATM that’s really provisioning an additional circuit,” says Mike McAndrews, Williams’ director of Internet services. “And further, if you want that to be meshed with every other site on your network, the cost at scale almost gets prohibitive, but it’s keystrokes for IP.”

That ease becomes important for franchise-structured businesses that deploy network connectivity between headquarters and the franchisees, for point-of-sale transaction capabilities. Also, many of their existing solutions have been cobbled together from dial-up, satellite and frame relay connections that are not suited to the Internet age.

“IP VPN [is] an excellent vehicle to e-enable a company because business processes can be linked without resorting to expensive infrastructure investments,” says Smolek.

In some ways, the benefits of VPNs are the benefits of

the Internet. Examples of applications made accessible include Internet kiosks at a car dealership — hosted at the corporate site — that allow customers to try out color variations and features, or the ability to layer e-mail over the same link as the back-office functions.

“You might have a frame relay connection that was handling the back-end transactional info but had no public-facing component to it,” explains Chris Roeckl, NetScreen Technologies Inc ‘s director of product marketing and alliances. NetScreen. offers managed security services and VPNs. “If they said okay., let’s add some front-facing applications, and wanted to give remote sites the ability to host their own web pages, VPN allows that. The pages sort of hang off the big site — everyone gets their own minisite hosted off the main computer.”

“It’s the idea of the Internet,” adds Roeckl. “Focus on how customers can use the technology in a new way — it piques their interest, gets their imagination going, and by the way, it costs less and is better performing.”

Williams’ Turcotte sees increasing demand for VPN services as IP becomes the coin of the realm. “When we look at a three- to five-year long-term view on IP, we see a point of inflection in 2003,” he explains. “A lot of the web junk — content and traffic demand — is starting to diminish from relative growth-rate view, but there is going to be a profound shift in the demand to the enterprise space, and that’s a latent market that will accelerate very quickly as some of the enterprises convert their legacy systems to IP services.”

That enterprise demand includes SMBs that do not have the resources to put in expensive WAN connections. Sprint’s Internet VPN solution will target the SMB segment.

“If you look at your portfolio today and it’s primarily transport-oriented, the beauty of moving to VPN is, you have more flexibility and you have fewer fixed costs in a network-based solution,” says Donahue.

VPNs are a leveling force, giving remote offices and workers sizeable connections to the corporate network for the first time. “It gives small business access to things only large business could afford before, and now VPNs are a technology that leverages the Internet to give everyone access to remote networks and access,” says Wilson.

While user education and technological hurdles have been crossed, a remaining obstacle to VPNs hitting the mainstream is the lack of large-scale deployments, say market watchers.

“We’re all at about there right now, where we have solid entry-level VPN configuration and policy management tools,” says Roeckl. “We’re only a couple of months away from having something that’s much more scalable, so you can start to add something that is hundreds of thousands of VPN tunnels with very little manual intervention.”

Current VPN customers could be the first test beds for larger solutions. “The customer typically wants to do the first five or 50 sites, and now we’ll be looking for some of these deployments to go through the roof,” says Roeckl. “We’ve done our proof of concept, now we want to deploy the 5,000 offices.”

Along for the Ride

Service providers, VARs, integrators and other partners stand to benefit from the burgeoning VPN market. VAR IES Data Services, for example, sells equipment for VPNs, and then layers value-added services, such as monitoring, if needed. VARs also provide complementary IP services, such as security, firewalls

and hosting.

“VPN doesn’t care what type of data is passed over it,” explains says IES co-founder Matt Pisoni. “You can simultaneously send voice, faxes, video, e-mail and other types of data over the same VPN. Combining everything is the most sensible solution for the customer and also allows the service provider to provide more services, in turn generating more revenue.”

“[VPNs] allow us to generate a stream of recurring revenue which makes us more stable in volatile market conditions and allows us to build relationships with customers,” says Pisoni. “So when other needs arise they are more likely to ask us to fill the need, versus going elsewhere for that service or product.”

IES also offers customers an outsourcing alternative wherein it builds and manages VPNs using IES-owned equipment and carries all responsibilities for performance and up-time, charging a monthly fee to the customer.

The market for outsourced services is looking increasingly brighter as economic constraints force businesses to offload IT and telecom management. In a report published in July, InfoTech forecasts that the market for managed IP VPNs is projected to grow from $1.5 billion in 2001 to more than $11 billion by 2005.

In a spring survey of 380 U.S. enterprises and SMBs, InfoTech found that 35 percent said they were “very likely” to implement a managed IP VPN with convergence features, up from 19 percent a year earlier.

Roeckl’s experience also bears out this trend. “The enterprise customer wants some form of outsourcing,” he says. “It ranges from a complete outsourcing from assessment, vendor selection, deployment and ongoing management, to just pieces of that, where an enterprise may not have the expertise or people to deploy a solution.”

He says, here is where the VAR steps in. NetScreen relies on a channel that includes about 400 domestic VARs as well as service providers reselling or bundling NetScreen’s solution, which is a turnkey, centrally managed, hardware-based security/VPN “appliance” that a partner would deploy at remote sites. The end user thus has minimal hardware investment per site, while the VAR benefits from customer “stickiness” and no large up-front requirement.

“So now you can have a branch-office VPN deployment where a VAR can drop ship a NetScreen box to the end site, and someone just needs to plug it in and all the configuration can be done from the central site, and there’s no big installation process,” says Roeckl.

And for VARs that want to make some extra recurring revenue by managing VPNs, NetScreen offers Global Pro, a management package that allows VARs to run third-party reports under their own brand.

Netscreen’s channel strategy is working; a year ago, 70 percent of its business was driven by firewall sales, 30 percent by VPN. In the first quarter of this year, those numbers reversed.

Driving the market growth and user demand is a transformation in the IP VPN market from networks targeted at corporate data application to converged networks capable of supporting voice and video in addition to data, according to the InfoTech study. Currently, the research firm says these “convergence VPNs” represent less than 5 percent of the managed IP VPN market, but by 2005, they will mushroom to 75 percent.

InfoTech found these same companies are likely to pay a premium for service level agreements, opening the door for service provider to sell network-hosted applications, such as unified messaging and remote access for telecommuting.

“We see a substantial market opportunity for service providers to deliver high-value, high-margin solutions by hosting selected multimedia communications applications in conjunction with their managed IP VPNs for convergence,” says Terry White, senior director and IP Studies manager at InfoTech.

The
Links

IDC www.idc.com
Internet Engineering Systems Inc. www.iesdata.com
InfoTech www.phillips-infotech.com
Infonetics Research www.infonetics.com
NetScreen www.netscreen.com
Sprint Corp. www.sprintbiz.com
Vyvx www.wcg.com/vyvx
Williams Communications LLC www.williamscommunications.com


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