Could SD-WAN Acquisitions Hurt Global Enterprises in 2018?

Would you sign on with a partner if you knew within a year they would be looking to move off in a new direction?

Probably not. But that’s essentially the reality enterprise buyers face as they evaluate SD-WAN technologies today.  The market is rife with new players but is rapidly contracting as legacy infrastructure vendors and service suppliers acquire technologies to try to gain a position in this hot and rapidly expanding market.

Recent deals include Cisco’s acquisition of Viptela in August for $610 million, VMware completed its purchase of VeloCloud Networks for an estimated $525 million, and Riverbed’s acquisition of Ocedo (both of which are private and terms were not shared).

Acquisitions are a common portfolio-building strategy in Silicon Valley because it saves the acquiring company the time and cost of building from scratch, and lets them enter the game after there is evidence the market is real.

But there are risks for the companies involved and for the enterprise buyer that invests in a platform that gets swallowed up by another player.

The top risk: many acquisitions simply don’t work.  “Study after study puts the failure rate of mergers and acquisitions somewhere between 70% and 90%,” says Harvard Business Review.

Why?  The challenges are many:

• Key people tend to flee after an acquisition, including the founders and technology visionaries.
• The newly acquired technology often doesn’t get adequate attention/funding to keep innovation going and simply starts to mold in the backroom. After all, a roadmap for a standalone product is one thing, but what happens when that simply becomes a feature in a legacy product?
• Some of the promised integration with the legacy player’s stack happens but the efforts stall because of unforeseen technology snags, strategic shifts, subsequent M&A activity, etc., negating the synergies that made the deal look good on paper.

Then there are potential channel conflicts.  If the enterprise customer bought from a reseller, and that reseller has a conflict of interest with the acquiring company, the customer will be left in the lurch.  In fact, all of these scenarios add up to bad news for customers and sometimes result in the dreaded “Product end of life” notification, one of the biggest nightmares for an enterprise that has made a significant technology investment.

Even if the product lives on, there is always the question of whether the features that attracted a given buyer in the first place will be retained, because any integration with legacy products and services will be a series of compromises.

All of this uncertainty becomes particularly acute for enterprises evaluating next generation WAN technology, given deployments are often global in nature and the integrity of the WAN is so critical to application performance, especially for cloud access.  SD-WAN is THE ONE investment decision you don’t want to be second guessing six months after the fact.

Customers of acquired companies Viptela and Velocloud, for example, are going to have front row seats to witness how the sausage is made, and enterprises that invest in tools from the bulk of the remaining hardware players will likely get the same “opportunity” since virtually all of them are looking to be acquired.

“We anticipate an increase in M&A activity in the SD-WAN market following two high-profile acquisitions worth hundreds of millions of dollars each: VMware’s purchase of VeloCloud in early November, and Cisco’s reach for Viptela in May,” the 451 Research group says. “Other IT titans might snag some of the remaining SD-WAN incumbents and startups as this technology becomes increasingly important for network automation and orchestration – a key capability and asset to own in the cloud and virtualization sectors.”

The one SD-WAN company that is not looking to be acquired: Aryaka, and we have our eye on an eventual IPO.

It makes sense when you realize that we are substantially different from all the other players. From the start, we’ve been the most disruptive market entrant because we offer Managed SD-WAN as a service delivered over a private global network.  It is a consumption vs. construction model that is in keeping with the shift to cloud computing.

Aryaka also owns all their proprietary hardware. We have 29 physically secure global points of presence that are within 30 milliseconds of 95% of global business users (in many cases, 10 milliseconds), and the POPs are linked with a fully meshed, encrypted Layer 2 network using links leased from Tier 1 and 2 service providers, and all of it is orchestrated with our patented tools.  The result is a locked down, reliable, lightning fast network that enables us to guarantee network performance while competitors that rely on the flaky internet for the middle mile can only offer target SLAs.

Side by side analysis pitting our network against those that rely on the internet show Aryaka delivers 4 times better application response time and 2.5 times lower variation in response time, which is why we have landed customers in industries ranging from finance to manufacturing, and why we have grown the business 3x in the past three years.  There is simply no comparing Aryaka’s approach to SD-WANs built using publically shared long haul pipes.

Other service providers have begun to recognize the appeal of offering SD-WAN as a service, but keep in mind they are typically buying SD-WAN technology from the existing flock of hardware players and simply spinning up their offerings based on that.  That enables you to consume SD-WAN as a service, but that service will still typically use the internet for the middle mile, leaving you exposed to the vagaries that plague those public links.

The research community recognizes that we stand apart.  451 Research writes, “Aryaka Networks is an established SD-WAN provider realizing significant growth, with partnerships with many service providers in APAC and EMEA. We see Aryaka as a likely IPO candidate.”

And IHS Markit, a research firm in London, just announced that Aryaka garnered an 18% share of the global SD-WAN market in Q3 2017 (after excluding the company’s connectivity revenue), ranking it second overall, but making it the largest independent vendor focused solely on SD-WANs.

While the other SD-WAN companies scramble to find investment partners that will give them an excusable exit strategy, Aryaka alone has the meaningful differentiation to build toward an IPO.

To learn more about the current SD-WAN download the IHS Markit Report today.