The adoption of WAN optimisation as a managed service

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1 The adoption of WAN optimisation as a managed service Peter Hall Pauline Trotter July 2008

2 1 The adoption of WAN optimisation as a managed service The demands of business software applications continue to grow and this places ever-greater demands on enterprise WANs (wide area networks). In addition, we are increasingly seeing voice and multimedia supported on the same networks as business-critical applications. However, ensuring that networks are optimised for the performance of demanding applications, and detecting network performance issues before they impact users and business processes can be a challenging task for enterprise IT departments. Ovum has conducted research with senior IT professionals in 150 large enterprises in Europe and the US to understand these challenges. The research demonstrates the critical role of enterprise networks on the health of the enterprise, and the interest of enterprises in adopting managed services for applications networking optimisation and 24 7 network and applications performance monitoring. Ovum view The importance of enterprise networks The research illustrates the importance that businesses now place on their enterprise networks and the critical role they can have on the whole business. The importance is likely to continue to grow as businesses become ever more dependent on networked software applications. In addition, the next five years will see a huge growth in convergent applications such as realtime voice and video conferencing over enterprise WANs. This will place ever-increasing strains on enterprise networks and IT departments to deliver high performance right across the applications set. Enterprises are willing to pay for additional services which strengthen their ability to maintain high performance levels of business critical applications. This includes QoS guarantees for important applications and improved ability to optimise network bandwidth performance. The research also indicates that there is significant interest, especially in North America, for managed services which provide a range of network, IT infrastructure and applications monitoring and optimisation capabilities. Managed services around the area of applications performance monitoring and optimisation offer an important opportunity, particularly for telcos and IT services companies. Global telcos such as AT&T, BT and Orange Business Services are amongst the most advanced today in offering managed service capabilities for network optimisation and applications performance monitoring and are working to

3 2 expand the capabilities offered further. We expect most VPN providers that serve the large enterprise market will offer similar services over the next five years and this will become an area for fierce competition and competitive advantage. At the same time it will benefit enterprises in driving up service levels and offering more choice for those wishing to outsource functions to a third party. The critical role of networking in businesses Business applications are the lifeblood of modern enterprises Business applications are the lifeblood of most modern enterprises. Of course this is not new and has evolved over more than three decades so that we are now at a position where most enterprises simply could not continue to do business without very high availability of their business applications and communications networks. The increasing dependence on networked applications has been driven by many factors: driving down costs and improving competitive position automating processes and making employees more productive through applications such as enterprise resource planning (ERP), supply-chain management and access to company information through intranet portals improving customer service the use of CRM in sales and service functions throughout the enterprise enabling new business models online trading and customer support through the Internet. Increasing dependence of applications on networking Although the dependence of businesses on applications and networking has evolved over a long time, in recent years we have seen a significant increase in the demands of applications on networking. Some of this has been through a rapid proliferation in the number of business applications that need to be supported. It is now not uncommon to find business-critical applications in a large enterprise, most of which are dependent on networking beyond the LAN environment. In addition we are seeing a large increase in the extent to which applications are networked, driven by the growth in importance of IT at branch office level combined with the trend towards centralisation and virtualisation of IT. With the increasing globalisation of businesses, this often means hundreds or even thousands of sites worldwide. The impact of convergence To add to the already significant demands of networks to support data applications, the growth of convergent networks means even greater challenges. Applications

4 3 such as realtime voice and multimedia are sensitive to network parameters such as delay, jitter and packet loss which are characteristic of all packet networks. In order to support applications such as voice and multimedia, alongside missioncritical data applications, particular care has to be taken to ensure that applications performance doesn t become unacceptable as applications compete for bandwidth. To address these needs QoS (quality of service) mechanisms have evolved and we have seen wide adoption of MPLS-based VPNs which allow different classes of traffic (eg , business applications and voice) to be prioritised. Increasing demands on IT departments The growth of business critical applications places considerable demands on IT departments: More business applications, more business sites, more users but no more budget! Most enterprises will be under constant budget pressure, meaning they have to operate in an ongoing more for less financial environment. Optimising use of resources such as bandwidth is important. The applications environment is rarely static existing applications can grow in users and traffic, and new applications are introduced meaning that the demands for networking can vary greatly over time. Even with the benefit of MPLS VPNs, the dynamic nature of most types of traffic means that optimising use of total bandwidth is still a challenge. Maintaining high service levels across a large number of applications can be challenging. Many enterprise IT departments are not resourced to proactively monitor performance across a large number of applications so have tended to only address an applications issue when a problem has already been encountered that impacts uses and business processes. In addition, applications expertise is likely to be concentrated in a handful of applications and the expertise to interpret and translate network performance data into actionable information, which can be used to localise and fix an applications performance problem, can be very limited. The business impact of poor performing applications The impact of poor applications performance on a business can be substantial and often translates directly into lost business or higher operational costs. In the case of hard failures, where an application is unavailable, this can mean lost business until the fault is rectified. Although this type of situation will usually generate immediate attention it can sometimes be time consuming to localise the fault between IT systems and the network. However, not all networking problems mean that applications cease to operate entirely and, in many situations, an application can operate at below optimum performance for days or even weeks before a fault is localised and addressed. The impact can be just as costly as a hard failure.

5 4 Ovum survey with large enterprises The survey Ovum has conducted a survey with senior telecoms/it managers in 150 large enterprises across Europe and the US. The survey includes all key industry verticals as well as government bodies and included only enterprises with a minimum of 3,000 employees, with just over a third having over 10,000 employees. All enterprises in the survey have a VPN (virtual private network) connecting at least ten sites and approximately half have over 100 VPN sites. Overall, 41% of sites are international (i.e. are outside the headquarters country). The survey was conducted by means of telephone interviews. Figure 1 illustrates the key demographics of the survey. Figure 1 Key demographics of the survey Employees Geographic distribution 10, % 3,000 to 4,999 50% Germany Benelux 3% 14% France 17% US 40% 5,000-9,999 14% UK 17% Canada 10% % Branch sites 1,000+ <20 3% 11% Other 22% Verticals Finance 22% % % % Government 23% Retail 10% Manufacturing 23%

6 5 The majority of large enterprises now use IP-based VPN technologies All VPN technologies are represented among the enterprises surveyed, including frame relay, ATM, IP VPN (MPLS-based and IPsec-based) and Ethernet VPN. Figure 2 shows the main VPN technology used for branch office sites, which make up the majority of enterprise sites (we also asked separately about HQ/data centre sites). The last ten years have seen a significant migration from the legacy technologies of private lines, frame relay and ATM towards IP VPN and wide area Ethernet technologies. As the chart shows, these now dominate the enterprise networking scene in both Europe and North America. In particular, MPLS-based VPNs are now being widely deployed by enterprises because of their superior QoS (quality of service) support for networked business software, voice and multimedia applications. The move from legacy technologies to IP started earlier in Europe than in North America and we see continued wide use of legacy technologies (frame relay and ATM) in the US at branch office level, although we expect this to rapidly diminish over the next two to three years. We also see greater use of fully managed IP VPNs in Europe. The chart also shows the use of network technologies by size of network (number of branch office sites). Enterprises in our survey with very large networks (over 100 sites) are much more likely to use MPLS-based VPNs and much less likely to use private lines.

7 6 Figure 2 The main WAN technologies used by enterprises in survey What is the main data network technology used by your company? Branch sites 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 8 - Private lines 7 - Ethernet VPN 6 - Internet or IPsec VPN self managed 5 - Internet or IPsec VPN managed by a service provider 4 - MPLS VPN with CPE self managed 3 - MPLS VPN with CPE managed by a service provider 2- ATM 1 - Frame relay 0% North America Europe Up to 100 sites Over 100 sites A wide range of applications traffic is supported by enterprise VPNs Not surprisingly, the most common applications supported by enterprise VPNs are web browsing and . Figure 3 shows the types of traffic currently supported by enterprise VPNs in the enterprises we surveyed. However, over 70% of enterprise VPNs support business software applications (eg SAP) at branch sites as well as HQ sites. File services and data back-up are supported by VPNs in over 60% of enterprises. Multimedia applications are also widely used with over a half of enterprises in the survey supporting video conferencing and over 40% supporting voice at both HQ and branch site locations.

8 7 Figure 3 Types of traffic carried over enterprise networks What types of traffic do you run over your company VPN? Web/Internet browsing Business software e.g. SAP, Oracle File services Data backup, archiving Video conferencing Video streaming Voice 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Data centre or HQ sites Branch office sites We also asked about the extent and pace of voice data convergence. Although there is little difference between Europe and the US for fully converged networks today (with 20% of both European and US enterprises reporting that they have fully converged networks), we find that considerably more US enterprises report partial convergence (67% in US versus 46% in Europe). However, the gap is expected to close over the next five years with only 29% of European companies still not expecting to be fully converged in five years time versus 32% in the US. Realtime voice and video are demanding applications for network resources and the continued rollout of convergent applications and networks will place an increasing strain on IT departments to ensure high performance levels without impacting other business critical applications. Networked applications can have a critical impact on the business as a whole Figure 4 illustrates the critical role that networks now have in terms of the impact of performance degradation on the business as a whole. Thirty-eight percent of

9 8 companies surveyed report that performance degradation could have a severe impact on company revenues and a further 40% claim a major impact on areas such as customer service and production. We asked respondents to give examples of the impact of major network performance issues and these were very diverse, with many illustrating the impact on the core role of the company. Examples include: A network failure caused a breakdown of the production activity and the whole company was paralyzed The network was degraded and placed medical safety in jeopardy for several hospital facilities In addition we saw examples of the issues now being experienced by companies as a result of convergent applications, an example being: When the board members are using the new telepresence system we run out of bandwidth and the whole network becomes very slow It is perhaps surprising that even very large enterprises, with access to substantial IT resources, encounter such basic problems but the fast pace of convergence in many enterprises means that the full impact on other important networked applications can often still be overlooked. Figure 4 The critical role of networking on the enterprise How would you best describe the potential impact of performance degradation of networked applications on your company? Medium to low minor impact on business processes 22% Critical e.g.. could have severe impact on company revenues 38% High e.g. major impact on processes e.g. productivity, customer support, production delays 40%

10 9 Access to specialist skills is a concern to companies We find that even large enterprises with substantial internal IT resources suffer from problems with staffing and skills. Figure 5 illustrates the key staffing and skills issues experienced by enterprises with regards to network and applications performance issues. Approximately 40% of enterprises consider that staff availability and skills in both basic and advanced networking technology is a very important issue. A similar number consider communications between networking and IT services professionals to be very important. We find that this is often a problem area because networking staff don t have access to data and tools that allow them to relate networking problems to applications problems. Thirty-five percent of enterprises consider that the amount of staff time spent on troubleshooting networking and networked applications problems to be a very important issue and the same number also consider staff availability and skills in applications networking an important issue. Figure 5 Important staff and resourcing issues How important are the following staff and resourcing issues in managing your network and networked applications performance? Staff availability and skills in basic networking technology Communications and co-operation between networking and IT services or applications professionals when problems arise Staff availability and skills in advanced networking technologies (e.g. traffic management, WAN optimisation) Staff availability and skills in understanding applications network issues Amount of staff time spent on troubleshooting with regard to network or networked applications problems Amount of staff time spent on configuration and maintenance of networking technology Amount of staff time spent on testing and selecting networking technology 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Very important Important Not important Many enterprises use in-house tools to monitor applications performance but 24 7 use is more limited Many large enterprises have invested in in-house tools to assist in the monitoring of applications performance. As can be seen in Figure 6, these are used by over half of enterprises for business software applications. Whilst the proportion is smaller for voice and video conferencing we have to take account of the fact that

11 10 these applications are not supported by all enterprise VPNs today. We also asked respondents whether the in-house tools were used for 24 7 monitoring. About 70% of those that use tools for business software applications deploy them for 24 7 monitoring and around half for voice and video conferencing. Given that most global enterprises operate 24 7 across various timezones it is increasingly important that applications are monitored Figure 6 Current use of performance monitoring tools Do you currently use tools to monitor the performance of individual business applications? Business software applications 17.3% 39.3% Voice 19.3% 16.7% Video conferencing 16.0% 14.7% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% In-house tools (not 24x7) In-house tools (24x7) Enterprises are not reporting high satisfaction levels with the in-house approach Figure 7 refers to respondent satisfaction with the tools and other information (e.g. network provider reporting) they have at their disposal to maintain high levels of applications performance. Only 45% of respondents give a good rating for business applications and this proportion is lower still for voice and video conferencing. Furthermore an appreciable number give a poor rating for voice and video conferencing. These results suggest that the current approach has some significant limitations. We also have to remember that these are all very large enterprises and hence should be in a stronger position to address these issues than other businesses.

12 11 Figure 7 Adequacy of the tools and other information available How do you rate the adequacy of the tools and other information at your disposal to maintain high performance on your data network of the following applications? Business software applications 10.7% 44.0% 45.3% Voice 22.7% 38.7% 38.7% Video conferencing 34.0% 34.7% 31.3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Poor Adequate Good Enterprises are willing to pay for enhanced services We asked enterprises about their willingness to pay for enhanced services. Figure 8 looks at the potential services from network providers for which enterprises would pay extra. A very significant 30% claim that they would pay extra for improved QoS to guarantee performance of mission-critical applications and 27% would pay extra for improved ability to optimise bandwidth and justify bandwidth upgrades. Twenty percent would be prepared to pay extra for consultancy services to help them with performance monitoring and improvement solutions. The research also indicated that North American enterprises have slightly greater willingness to pay for these capabilities than their European enterprises. There is also interest in acceleration services, although this was significantly lower in Europe than North America. For all the capabilities listed, a high additional proportion reports that they might be prepared to pay extra. While we were not able to quantify the additional revenue opportunity, these results point to an important opportunity for network service providers which could translate into additional revenues and/or competitive advantage.

13 12 Figure 8 Willingness to pay for additional performance improvement and optimisation features With regard to performance improvement/optimisation from your network service provider, which of the following might you be prepared to pay extra for? Improved quality of service to guarantee performance of business critical applications Improved ability to optimise bandwidth and to justify bandwidth upgrades Acceleration technologies to enhance File Services over the WAN Consultancy services to select, test and implement performance monitoring and improvement solutions Would be prepared to pay extra Might be prepared to pay extra Unlikely to pay extra Acceleration technologies to reduce WAN bandwidth and delay constraints for business critical applications 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% The opportunity for managed performance optimisation services The managed services approach We have seen that many enterprises want more from their network service provider, and are prepared to pay for it. An important approach for network providers, and potentially other types of service providers, is that of managed services that can assist in addressing performance optimisation and monitoring issues. Interest in using a managed performance optimisation service is greater in the US than Europe As can be seen from Figure 9, a significant minority of large enterprises in both Europe and North America already use a managed service provider or other third party to assist in monitoring or optimising business critical applications. About half

14 13 of those using a third party today only use it for monitoring and not optimisation services. A very interesting result is the high interest in the proportion of North American large enterprises, about 35%, that would consider using a managed service provider or other third party. This is significantly higher than for European enterprises. We cannot offer a definitive explanation for this geographic difference, though we observe much lower overall confidence amongst North American enterprises in their existing ability to maintain high applications performance, and this might be a factor. In addition, fully managed IP VPN services are more commonly used in Europe than in North America and this may create a perception in Europe that additional management is unnecessary. There was no significant difference in enterprises with large networks (over 100 sites) versus those with smaller networks (under 100 sites) in their use of managed performance monitoring and optimisation services today or in their willingness to consider their use in future. Figure 9 Use of third-party managed services for monitoring or optimising the performance of business critical applications? Do you use, or would you consider using, a managed service provider or other external third party to assist in monitoring or optimising the performance of business critical applications? Europe North America 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Use a third party now for monitoring only Use a third party now for monitoring and optimising performance Don't use a third party now but would consider using one Would not consider using a third party

15 14 Telcos and IT services companies are the preferred suppliers for managed performance optimisation services The types of third party currently used to assist in applications monitoring and optimisation are shown in Figure 10. Again we see a marked difference between Europe and North America with many more European companies in our sample using their network provider, and none using a software provider, for this role. This aligns with other Ovum research which indicates a greater willingness of enterprises in Europe to entrust their network provider with IT-centric services. In both Europe and North America just over 40% give this task to an IT services company. The research also suggests that enterprises with very large networks (over 100 sites) are more likely to use an IT services company and those with smaller networks (less than 100 sites) are more likely to use their network provider for this task. Figure 10 Type of managed service provider used for applications monitoring and optimisation What type of company is the managed service provider (or other third party) you use to assist in monitoring or optimising the performance of business critical applications? An IT services company/system integrator e.g. IBM 42% North America Your network service provider/telco 26% An IT services company/system integrator e.g. IBM 42% A software vendor or vendor partner e.g. SAP 16% An equipment vendor or An equipment vendor or vendor partner e.g. Cisco vendor partner e.g. Cisco 8% 16% Europe Your network service provider/telco 50% A software vendor or vendor partner e.g. SAP 0% Users of managed network optimisation services see a wide variety of benefits The most important benefits of using a third party for network and application optimisation include fewer disruptions to business critical processes and reduced cost of failure within the business, as Figure 11 shows. In addition, users see a reduced need for specialist skills which allows the networking team to focus on

16 15 core business tasks. Cost is also seen as a benefit, both in terms of predicable charges (and reduced need for capex) and reduced network TCO. Just over 60% of users also found the improved ability to justify bandwidth upgrades a benefit. Figure 11 The major benefits from using a managed service provider/third party to assist in monitoring or improving business critical applications What are the major benefits you have derived from using a managed service provider/third party to assist in monitoring or improving business critical applications? Predictable charges (opex rather than capex ) Fewer disruptions to business critical processes Reduced cost of failure within the business Reduced need for specialist skills in-house Ability to detect problems before any impact to end-users Networking team can focus on core business tasks Improved ability to deliver applications globally Improved ability to justify bandwidth upgrades Reduced overall TCO for your network 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Enterprises are interested in a broad range of features from a managed network optimisation service Enterprises that indicated they use or would consider using a managed service were asked to rate the importance of a list of possible features. Figure 12 shows that the highest rating goes to 24 7 monitoring of IT infrastructure, with 58% of respondents rating this as very important. Also high on the list are availability and performance guarantees for specific business critical applications and associated bandwidth per application data and network optimisation tools. Users are also interested in seeing expert assistance with diagnostics and fault localisation. Application acceleration is mentioned as very important by 40% of respondents. Least important was the ability to monitor voice and multimedia applications, although we would expect this to increase significantly over the next three to five years as these applications are deployed much more widely.

17 16 Figure 12 Features expected in a managed network optimisation service What features would you expect to see in a service provided by an external third party to assist in monitoring or optimising business critical applications? 24X7 monitoring of key IT services infrastructure e.g. servers, storage SLAs for availability or performance of specific business applications Bandwidth per application data and network optimisation tools (e.g. traffic shaping) to guarantee performance of business critical applications Expert assistance with diagnostics and fault localisation 24 7 monitoring of end-to-end network performance Acceleration services to reduce WAN bandwidth and delay constraints for business critical applications 24 7 monitoring of performance of individual business applications Acceleration services to enhance File Services over the WAN Ability to monitor voice and multimedia applications 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Very important Fairly important Not important Adequate in-house skills & tools and cost issues are the leading reasons for enterprises not considering use of managed services We also looked at the key reasons for enterprises not considering a managed service and this is illustrated in Figure 13. The main reason given, mentioned by 60% of enterprises that stated that they would not consider use of a managed service, is that they have adequate tools and skills in-house. Cost and privacy issues are also frequently mentioned. Only about a quarter of those who wouldn t consider using a managed service mentioned concerns relating to their confidence in a third party being able to perform the role suggesting that this isn t a significant barrier.

18 17 Figure 13 Reasons for enterprises not considering managed services for applications monitoring and optimisation What are the reasons why you would not consider using a managed service to assist in monitoring or optimising network performance? We have adequate tools and skills in-house Cost concerns Privacy or security concerns Third parties cannot achieve the required reactivity Too strategic to be outsourced We don t need performance improvement Third parties lack appropriate expertise We prefer capex rather than opex 0% 10% 20% 30% 40% 50% 60% 70%

19 18 Client re-use disclaimer The enterprise end-user research for this study has been commissioned by Ipanema Technologies Ovum operates under an Independence Charter and the report represents the views of Ovum. Further information on Ovum s Independence Charter can be found at This is a verbatim reproduction of independent material that has previously been published by Ovum within the last 6 months Ovum may have been paid by the client for the right to re-use the material Ovum may have a deal with the client to supply research or consultancy. However, no other relationship exists between the 2 companies (e.g. shareholdings, loans, non-executive directorships etc) While we take every care to ensure the accuracy of the information contained in this material, the facts estimates and opinions stated are based on information and sources which, while we believe them to be reliable, are not guaranteed. In particular, it should not be relied upon as the sole source of reference in relation to the subject matter. No liability can be accepted by Ovum, its directors or employees for any loss occasioned to any person or entity acting or failing to act as a result of anything contained in or omitted from the content of this material, or our conclusions as stated This material is the copyright of Ovum Europe Ltd.

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