SDN: An Offer You Can’t Refuse?

Godfather BrandoWhile there is no doubt that SDN poses a major threat to Cisco’s proprietary hardware business, it’s also not up for debate that it would be bad business — at least from a revenue and margin perspective — for networking’s capo di tutti capi to aggressively accelerate the expected move to networking’s next chapter until it has to. So while the company appears to be acknowledging the eventual emergence of SDN, nobody should be surprised that it is advising that this transition will take years, and hoping the longer, the better.

The market researchers and network gurus are all over the map when it comes to the who, what, where, when, and even why of SDN, with forecasts for both feast and famine coming fast and furious. The latest numbers come courtesy of IDC, and they paint a pretty picture, predicting that the worldwide SDN market for the enterprise and cloud service provider segments will grow from $960 million in 2014 to over $8 billion by 2018, representing a robust CAGR of 89.4%.

“SDN is taking center stage among innovative approaches to some of the networking challenges brought about by the rise of the 3rd Platform, particularly virtualization and cloud computing,” said Rohit Mehra, Vice President, Network Infrastructure at IDC. “With SDN’s growing traction in the data center for cloud deployments, enterprise IT is beginning to see the value in potentially extending SDN to the WAN and into the campus to meet the demand for more agile approaches to network architecture, provisioning, and operations.”

The research company sees ‘significant near-term use case opportunities’ in both cloud service provider rollouts and enterprise deployments. These use cases include Web scaling for hosting/public cloud providers; private/hybrid cloud deployments; network programmability/customization; and security applications.

It’s primarily tire-kicking time for enterprises, but IDC expects they will be a major driver of SDN growth over the next few years. “2014 through 2016 period will be a significant launch point for SDN in the enterprise, with significant growth opportunities for both enterprise-focused SDN infrastructure and cloud service providers,” said Brad Casemore, Research Director, Datacenter Networks.

Northwards of $8 billion (out of a networking stash currently valued at $50 billion) is some serious moolah, so it’s guaranteed that Cisco is sitting up and paying a lot of attention to SDN. As CEO John Chambers noted recently, “we’re well on our way to reinventing Cisco one more time.”

He extolled the benefits of SDN and said “(y)ou’re going to see us embrace SDN, you’re going to see us implement it for the value that it has. We not only will lead to this implementation, it will allow us to get higher gross margins on our switching and architecture.”

Here’s where it gets a little complicated. While Cisco has at least paid lip service to embrace SDN, if somewhat gradually, three of its biggest customers are looking for a great deal more. Goldman Sachs Group Inc., Verizon Communications Inc., and Coca-Cola Enterprises Inc. have told Cisco they won’t keep paying for expensive equipment, when software can squeeze out more performance and make the machines more versatile.

“What we spent on your gear last year is not what we’re going to spend on your gear this year unless you do something really different,” Martin Chavez, Goldman Sachs CIO, said he told Chambers earlier this year. Verizon demanded a software-only version of some of Cisco’s video-streaming technologies in 2012, Mike Palmer, Verizon’s vice president of product development, said in an interview with Bloomberg in May. Cisco complied, he said.

Chambers also accommodated Coca-Cola Enterprises when the bottler wanted to outsource the operation of its internal phone and video conferencing systems. “By the end of this year, there won’t be any more Cisco boxes in our offices,” said CIO Esat Sezer, who in previous years had purchased hundreds of products from Cisco for these jobs.

SDN is too important, too big and too complex to happen overnight, but all the signs point to a sooner-rather-than-later emergence. Cisco (probably) has time to reinvent itself, but the clock is ticking. “There is so much interest in these trends, that Chambers cannot be blindsided by his customers,” said Sezer.