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Comcast Business Study: SD-WAN Blossoming in the Channel

SDN

Most channel partners expect their SD-WAN revenue to grow in 2019.

“SD-WAN Channel Strategy Survey,” the latest study from our analyst colleagues at Heavy Reading, shows that 78% of channel respondents anticipate to make more money off software-defined wide area networking sales this year. But the same respondents also predict growth for MPLS and Layer 2 Ethernet.

Heavy Reading asked 83 partners about how SD-WAN fits into their business model. Led by principal analyst Sterling Perrin, the survey’s goal is “to better understand the needs and plans of the indirect channel as the channel looks to partner with service providers to offer SD-WAN managed services.”

“Although surveys of enterprises and network operators have been conducted in the past (including by Heavy Reading), there was little industry understanding about how the channel is approaching the nascent but promising SD-WAN market — until this study,” the survey states.

Comcast Business commissioned the survey.

Scroll through the gallery below to see data and observations from Heavy Reading about the state of the channel and SD-WAN.

Heavy Reading SD-WAN
Methodology

The Heavy Reading team recruited 83 partners from the Channel Partners data base. These U.S. partners, which include agents, VARs and SIs, are actively pursuing SD-WAN technology. Heavy Reading conducted the survey in February and March.
Heavy Reading SD-WAN
Revenue

The findings begin with a big-picture view of how partners made money last year.

At least 55% of the average revenue came from recurring transactions: 33% carrier connectivity services and 22% managed services. That doesn't include SaaS earnings, which alongside premises-based software accounted for 12% for revenue. We find that 71% of revenues came from services if we include one-time professional services (16%).

Meantime, selling hardware (17%) still has a place. A consultant told Channel Futures earlier this year that the top MSP quartile gets 30% of its revenue from hardware.
Heavy Reading SD-WAN
WAN

Wide area network (WAN) services are common but not dominant in the average partner portfolio.

Only a small fraction of partners surveyed (11%) don't sell it, and a large chunk (31%) generate less than 5% of their revenue from the WAN. About one-third (29%) attribute more than 20% of their revenue to WAN, but the other 71% fall below that number.
Heavy Reading SD-WAN
SD-WAN

For the companies that did provide WAN services, SD-WAN on average comprised the largest portion of the revenue at 32%. MPLS services, which some studies and vendors described as complementary to SD-WAN, accounted for 25%. The study authors noted that telecom-focused agents tended to sell more MPLS services than SD-WAN.
Heavy Reading SD-WAN
Growth

Although respondents seem quite bullish on SD-WAN, they express positive sentiments about other types of WAN services as well.

Almost everyone (76%) anticipates SD-WAN to drive more revenue this year, with a contrarian 6% saying it will drive less. Layer 2 Ethernet and MPLS also look poised to grow, with channel partners feeling slightly more confident about Ethernet growth (48%) than MPLS (40%).
Heavy Reading SD-WAN
Hybrid?

Our next question touches on a heated debate among vendors: Does SD-WAN exist to augment the existing architecture or replace it? As far as revenue is concerned, the combination of SD-WAN and MPLS was the most common approach for 39% of respondents. But SD-WAN as a complete overhaul wasn't far behind (30%), as well as implementing SD-WAN for customers that never before used a WAN.

We asked a similar question in a website poll: "How do you approach customer MPLS networks in the age of SD-WAN?" and nearly 400 folks answered. Almost 250 respondents (62%) picked a hybrid approach, 116 (29%) chose rip 'n' replace, and only 30 (8%) said they are staying with MPLS.
Heavy Reading SD-WAN
Internet

Business have options for their internet connectivity. Channel partners most commonly managed a mix of broadband, coaxial cable and DSL (42%). The second most popular mix – fiber and Ethernet – wasn't far behind (39%).
Heavy Reading SD-WAN
Customers

The survey narrowed in on SD-WAN sellers to learn the size of their install bases. About half of those respondents (67%) have already gotten their feet wet with at least 10 customers, but only 18% of partners exceeded 50 SD-WAN sales.

The study at multiple points describes the SD-WAN market as "nascent," meaning that it is young and full of potential.
Heavy Reading SD-WAN
Carrier vs. OTT

Partners split right down the middle when asked if they preferred an over-the-top SD-WAN solution or one with its own network.

However, the question was about which one they think is more profitable, not which one they use. Another statistic is that 52% of partners sell a carrier-based SD-WAN, according to Craig Schlagbaum, who runs Comcast Business' channel program. Schlagbaum explained the advantages of "in-network" providers in an April interview with Channel Partners.
WAN
Conclusion

The survey authors write:

"Not all channel partners sell WAN services, but, for those that do, SD-WAN was the biggest contributor in 2018 — accounting for 32% of total WAN services revenue. Interestingly, among telecom agents – which specialize in telecom – the SD-WAN percentage was lower. Agents are more likely to be rooted in older services, such as MPLS. For many non-agents, SD-WAN will provide their entry point into WAN services.

"As SD-WAN market adoption increases, the channel clearly sees its own opportunities in managed SD-WAN. The vast majority of respondents (76%) expect to see their SD-WAN revenue increase in 2019, a greater percentage than any other WAN service."
Sales Growth Chart
Conclusion (cont'd)

They go on to say:

"Still, despite warnings of its demise, many expect MPLS revenue growth in 2019, and the percentage expecting declines is relatively modest. Forty percent of survey takers expect MPLS revenue growth in 2019, while just 18% predict revenue declines."
Sales Growth Chart
Final Thoughts

The authors conclude:

"SD-WAN is clearly a nascent market for the channel. For those that had SD-WAN sales in 2018, 31% reported fewer than 10 customers and just 18% reported more than 50 SD-WAN customers to date. Nearly one-half (49%) reported between 10 and 50 customers. And we note that these figures include only those that had 2018 sales. Many partners that have an interest in SD-WAN had no sales in 2018 and are still building their strategies."

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