Investment In IP VPNs on the rise

27 November 2002 -- Improving performance of virtual private networks will lead to their "growing ubiquity" in society. And their invetsment potential is offsetting the adverse effects of the telecoms downturn, says a new market report from Frost & Sullivan.

The European IP VPN hardware and software gateway market grew at breakneck speed in 2000, as vendors developed product lines in response to market demand for private IP connectivity. Since then, the market has been coming off the boil, hit by the effects of the global economic slowdown, budgetary restraints and reduced capital expenditures by service providers and large enterprises.

However, the new study by market analyst Frost & Sullivan (F&S) reports that the powerful return on investment (ROI) equation of using the internet as a communications backbone for the corporate world has offset the full impact of these growth-inhibiting factors.

The launch of new applications, the prospect of tapping into new national market opportunities and mounting competition will drive the IP VPN gateway industry through the various stages of market maturity. F&S values revenues in the European IP VPN hardware and software gateway market at EUR428m in 2001, set to reach EUR1.2bn in 2006.

IP VPN resonates strongly among IT staff charged with serving remote office workers and corporate road warriors. Europe's increasingly mobile workforce will drive the implementation of IP VPNs as a means of facilitating secure and cost-effective access to corporate networks from remote locations.

"The cost savings of implementing an IP VPN over traditional leased line and remote access server (RAS) alternatives are easily identified. The cost benefits alone will give fresh momentum to market growth, but the ability to clearly, quickly, and easily illustrate these cost savings to the higher echelons of management are considered to be an even more crucial driving force," reports Jose Lopez, Industry Analyst at F&S.

Furthermore, the decentralisation of corporate offices heightens the need for communication. Corporations have become increasingly comfortable with the idea of expanding their operations via remote offices. This trend will continue for the foreseeable future as companies expand their geographic reach, exploit new markets, and seek reduced capital outlay.

This progressive trend necessitates communication between the various offices, widening the appeal IP VPNs to extend the corporate LAN to geographically disparate locations, and will continue to play a vital role in transitioning LANs into private WANs.

"Much of the difficulty associated with administering VPNs has been alleviated through intuitive user interfaces. In many ways, the technology behind VPNs is commoditised. In recent years, vendors have focused less on developing the security technology, and more on developing the management consoles and features. Noticeable improvements in ease of deployment, set-up, and administration have relieved many of the complications historically associated with using VPNs, and have significantly contributed to the market?s development," adds Lopez.

While the use of the internet as the communications medium for network connectivity boasts numerous advantages, its inherent weakness is the inability to offer quality of service (QOS) beyond the basic requirement. This problem is especially prevalent in VPN configurations that are communicating across vast distances.

The latency that can be experienced by using the public network is unacceptable for some applications that are sensitive to delays. Examples of such applications include streaming media, such as voice or video, and other applications that are affected by timeouts. For such applications, leased line alternatives that are able to guarantee QOS levels may be more suitable.

Competition from large leased line providers, who have already captured a sizeable chunk of users, will continue to pose a stumbling block. Service providers are increasingly making the transition to offering IP VPN services, but vendors agree that leased line technology will co-exist with IP VPNs for the foreseeable future.

One of the largest concerns for administrators deploying VPN solutions is how to secure the remote access point. Along with the shrinking security budgets of increasingly cash-strapped IT departments, the security vulnerabilities associated with client software will continue to hamper uptake as long as numerous remote access points exist.

The biggest mover and shaker in the European IP VPN industry is Check Point. The company has managed to leverage its unique brand strength in the firewall market to achieve similar visibility in the VPN space. However, even though the company is still generating strong profit in the region, hardware vendors are encroaching on its dominance. Check Point recognises that it has come under increasing pressure to counteract this threat and has formed a number of high profile alliances with several appliance vendors, such as Nokia.

Cisco is rapidly emerging as a strong contender to lead the overall IP VPN gateway market in the future as hardware-based solutions grow at a much faster rate than software-based ones. The company is well placed in the leading position of the hardware-based market and covers all sub-markets but being primarily strong in the high end of the market.

"The larger players active in the IP VPN market bring established distribution channels, reputable customer service, increased breadth of product offerings, economies of scale and scope, substantial capital backing for development and marketing expenses, and the experience of effectively integrating companies and product lines into their existing business models. This leaves the smaller players to compete with high throughput, features and price to meet customer demands," Lopez concludes.

Price: EUR5000
Report Code: B094
Publication Date: December 2002
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