Overview

Last year at this time, networking vendors like Brocade, Cisco, Extreme Networks, Force 10, HP, and Juniper were hoping for the best and preparing for the worst:  a global recession, IT spending cuts, and little visibility into future business.  Twelve months later, the networking industry has a lot to be thankful for.  There is no question that deals got more competitive and projects were pushed out but, with the exception of the sad demise of Nortel Networks, 2009 wasn’t nearly as bad as expected.

The global recession has since turned into a global recovery with emerging economies leading the way back to prosperity.  Many data sources (including early results from ESG’s 2010 IT spending intentions survey) indicate a potential IT spending rebound in 2010.  CIOs will remain cautious and focused on reducing operations costs, but they are also positioned to buy more networking equipment and services through 2011.

Networking Industry Predictions for 2010

2010 will be more lucrative than 2009 for networking vendors, but rapid industry and technology changes will also challenge industry leaders and startups alike.  Innovation cycles are accelerating, technology layers are collapsing, and vendors face competition on a global scale.  As a result, ESG expects to see the following trends materialize in 2010:

1. IPv6 hits the mainstream. While industry pundits have consistently forecasted “the year of IPv6” since the mid-1990s, ESG believes that hype will become reality in 2010.  Why?  For one thing, we are truly running out of IP addresses as mobile device use continues to grow across the globe.  In the next decade, we can expect to see more than one billion devices in use and most of these will offer Internet connectivity.  Along with mobile device growth, we can also expect a precipitous rise in the virtual machine (VM) population to add to the IP address shortage.  While IPv6 isn’t pervasive yet, it is much further along than most people think.  Federal governments (in the U.S. and other countries) and ISPs are moving forward with IPv6 while conventional technologies like YouTube and Windows have already baked-in IPv6 support.  With these demand and supply side developments, ESG expects to see a significant increase in IPv6 consulting services, training courses, and equipment sales throughout 2010.
2. Beyond 10Gb Ethernet. In 2009, 10Gb Ethernet was a bright spot in an otherwise dismal year.  Virtualization, server support, and data center consolidation led to top-of-rack and aggregation switches in the data center, while increasing network traffic and latency-sensitive content (e.g., video, voice, gaming, etc.) drove 10GbE core network switch sales.  This brought the average “price-per-port” metric below the psychologically important $1,000 threshold.  These trends will continue in 2010—ESG 2010 IT spending data indicates that 27% of organizations believe that “upgrading networking infrastructure” is a top IT priority moving forward.[1] In 2010, network upgrades will come with a slight twist: we will see a noticeable increase in 40Gb and 100Gb implementations.  Actually, this is already happening.  In 2009, the Department of Energy allocated $62 million in funding to Berkeley Lab to build an all 100GbE data center.  Look for more bleeding edge implementation in 2010 while vendors differentiate themselves by delivering 100GbE capable switches and increasing their 100GbE rhetoric.  Greater attention to 40Gb and 100Gb will also put added pressure on alternative data center networking protocols like Fibre Channel and Infiniband.
3. Storage over Ethernet. While increased Ethernet bandwidth will accelerate the storage-over-Ethernet discussion, there are other industry factors influencing this trend.  Cisco’s aggressive marketing of its UCS (Unified Computing System) platform and Data Center 3.0 vision highlights FCoE (Fibre Channel over Ethernet), forcing other server and networking vendors to join the fray.  Additionally, HP now owns iSCSI leader LeftHand and networking veteran 3Com—a storage-over-Ethernet one-two punch.  Finally, data center networking vendors like Arista Networks, Extreme, Force10, and Juniper have no Fibre Channel baggage, so expect them to be active in the IEEE and become aggressive proponents of storage-over-Ethernet.  ESG data from 2009 supports the transition to Ethernet storage.  Note the strong 24 month plans for using 10Gb Ethernet as a storage transport and Fibre Channel over Ethernet (FCOE) as a storage protocol (see Figure 1).
Figure 1. Current and Planned Network Storage Connectivity Options



4. Network security renaissance. This old category will get a new coat of paint in 2010.  ESG 2010 IT spending data indicates that nearly half of all organizations consider network security one of their top security priorities for this year.  Why?  First, increased Internet and internal bandwidth demand faster network security systems like 10Gb-capable IDS/IPS from ISS/IBM, Juniper, McAfee, and TippingPoint.  Venerable firewalls will continue to be consolidated and virtualized simultaneously while Network Access Control (NAC) technologies are further baked into network fabric, clients, and server operating systems.  Finally, OSI Layer 2-4 security is no longer adequate; network security must climb the stack to Layer 7.  This means that network security needs much more content, application, and behavioral awareness.  Cisco is still a major network security player, but its emphasis on UCS and the data center seems to be weakening its network security efforts.  Yes, Cisco will still win business, but the true beneficiaries of these network security trends include Check Point, Juniper, and Sourcefire as well as emerging companies like Palo Alto Networks.
5. The merging of WAN optimization and Application Delivery Controllers (ADCs). While many networking vendors play in both the WAN optimization and ADC markets, products and go-to-market strategies have historically remained separate.  Starting in 2010, these businesses will start to merge.  Why?  First, network “super boxes,” like the F5 BigIP Viprion hardware, have the horsepower necessary to combine both solutions into a single network gateway.  Second, distributed web applications and virtual machine mobility move user requests, files, and system images from data center to data center, blurring the lines between WAN acceleration and ADC functionality—ditto for cloud computing and SaaS services.  WAN optimization and ADC consolidation will certainly impact the market.  F5 will see this as an opportunity to leverage its ADC install base to greatly increase its WANJet sales,  Citrix can play a number of desktop and data center virtualization cards, and BlueCoat and Riverbed will likely grab ADC innovators like A10 Networks.  Other players like Array Networks, Radware, and SilverPeak could capitalize on new opportunities, get scooped up by bigger players, or find themselves locked out of the market quickly.
6. Virtualization meets networking. According to ESG research, server virtualization is the number one IT spending priority for 2010.  The networking industry will support this trend in several ways.  Cisco’s whole UCS and Data Center 3.0 strategy is built on the assumption that networking, computing, and virtualization are coming together.  Beyond strategy, Cisco’s Nexus 1000V and VN-Link products already align networking and virtualization intelligence.  Expect other vendors to turn up the volume on similar initiatives in 2010.  Juniper’s secretive “Project Stratus” will begin to bear fruit, as will comparable efforts from Extreme Networks, Force10, HP, and startups like Overlook Networks.  ESG also anticipates more activity on the standards front to bridge networking and virtualization intelligence.  Look for Brocade, Force10, and Juniper to get behind Virtual Ethernet Port Aggregator (VEPA), a standard that moves virtual switching from the hypervisor to the switching infrastructure.  Finally, keep your eye on the Open Virtualization Format (OVF), a platform independent extensive standard that could create standard metadata tags that will allow virtual machines to communicate their networking and security policies as they move across servers, data centers, and the cloud.
7. Network services infrastructure upgrade. Imagine the future: massive data centers with tens of thousands of servers dynamically allocating processing loads to meet demand and conserve energy.  Cool stuff, but how will this play out in the network?   Even more fundamental, how will large organizations manage their IP addresses, provision them dynamically in real-time, manage ever-changing DNS, etc.?  Many organizations manage IP addresses using spreadsheets and homegrown tools—there is no way this will scale when we need dozens of virtual IP addresses per physical device.To accommodate cloud and virtualization demands in 2010:
   • Core networking services need an overhaul. With servers being provisioned and de-provisioned constantly, enterprises will need a distributed, secure core networking services grid that can manage network changes and their ramifications (note: the same will be true of switching and routing tables as well). Without it, core networking services could become the weak link in the cloud computing chain.
   • Automated IP address management is a requirement. Large organizations need to be able to manage who has what IP address in real-time and be able to shuffle the deck to accommodate spikes in demand, disaster recovery, maintenance windows, etc. With all due respect to Microsoft, Excel was never intended for this.
   • Core network services needs virtualization intelligence. Yes, we can “fake” this, but the more the network understands virtualization, the more we integrate core network services with cloud computing. As virtual machines get moved around or processing loads scale horizontally, this becomes especially important.
8. Network application intelligence. Juniper Networks is leading the way here with its JUNOS Space initiative.  The idea is that applications can call the network to gather information or ask the network to provision new services.  Today, service providers use these capabilities for geeky networking applications like planning and monitoring MPLS routes.  In the future, business applications and hypervisors will use them to provision VLANs, add bandwidth, or accelerate server-to-server traffic.  While none of these capabilities will be available in 2010, the networking community will certainly increase its network application intelligence rhetoric.  This is good news for Juniper as it already has thought through things like APIs, development support, and go-to-market programs.
9. Industry mergers and acquisitions. A common networking theme for 2010 is consolidation: the amalgamation of networking, computing, and virtualization; unification of WAN optimization and ADC; consolidation of storage, data, and server-to-server networks, and so on.  These massive consolidation trends impacted the networking industry when Brocade bought Foundry and HP grabbed 3Com. ESG expects additional deals in 2010 both big and small.  Potential takeover candidates include A10 Networks, Arista Networks, Aruba Networks, Crossbeam Systems, Meru Networks, Palo Alto Networks, and even Riverbed.
10. Cisco enterprise competition. Cisco will remain the 800-pound gorilla of the networking world, but ESG believes that it will face an unprecedented challenge: two competitive forces, innovation and commodification, which will occur simultaneously.  While Cisco focused on server innovation in 2008-2009, it seemed to minimize innovation in areas like ADCs, core networking, and WAN optimization, opening the door to aggressive competitors like F5, Juniper, and Riverbed.  Cisco also faces new margin challenges as HP offers 3Com/H3C products at much lower prices.  In 2010, Cisco must execute in the server market, continue to innovate in the network, live with lower margins, and remain active with M&A activity.  This is certainly a tall order—even mighty Cisco may not be able to pull it off.

The Bigger Truth

The good news is that networking budgets should increase as large organizations scale data centers, upgrade core networking equipment, implement IPv6, and bolster network security in 2010.  The bad news is that networking industry consolidation will make it hard to identify the players without an up-to-date scorecard.  Both networking vendors and end-users alike should expect a lot of innovation, M&A activity, and the affects of increasingly cutthroat competition to help separate the winners from the losers in 2010.