Cloud-Managed WiFi Set to Grow to $2.5 Billion by 2018

Insight Cloud-Managed WiFi Set to Grow to $2.5 Billion by 2018 Nolan Greene Curtis Price Rohit Mehra IDC OPINION The worldwide enterprise wireless (WLAN) market for cloud-managed WiFi reached $334.0 million in 2013, more than double from the $144.1 million recorded in 2012. This is important to the enterprise WLAN market as it represents a conduit for sustained growth in both hardware and services revenue at a time when growth in traditional WLAN deployments have somewhat slowed from the lofty gains of the past few years due to relative maturation of the market. In addition: In recent years, increased adoption in the midmarket and the distributed enterprise (e.g., retail, K 12) has fueled a large part of growth of cloud-managed WiFi, as many enterprises in these verticals have sought to upgrade their networks with architectures that can accommodate their unique needs around BYOD, scalability, and maintenance. As many enterprises within some of these key verticals are in the midst of infrastructure upgrades (in addition to greenfield deployments) and need to deal with "lean IT" challenges while keeping up with vertical-specific compliance, these segments of the market will continue to drive growth. IN THIS INSIGHT This IDC Insight examines the market trends and opportunity for the cloud-managed segment of the enterprise WLAN market for 2011 2018. It covers both IEEE 802.11 compliant cloud-managed WLAN (WiFi) hardware and the adjacent services market. This Insight covers worldwide cloud-managed enterprise WiFi access points (APs), management and control software and platforms, and the surrounding managed services market. Also, it examines cloud-managed WiFi as a change that is likely to have a long-lasting impact on how enterprise networks are deployed in the future. Note: All numbers in this document may not be exact due to rounding. SITUATION OVERVIEW Today, having a strong, robust wired and wireless network deployment is mandatory for enterprises. The proliferation of BYOD and mission-critical network applications has led to impressive uptake of wireless LAN within the many different enterprise segments over the past decade. In addition, increased adoption in the midmarket and in verticals such as healthcare, education and, more recently, retail, large public venues (LPVs), and hospitality has fueled a large part of this growth. As these March 2014, IDC #247738

enterprises continue to face increased network demands, this growth is likely to be sustained over the next several years. The cloud-managed WiFi market is forecast to grow 54.6% in 2014 and increase 38.8% over the next five years, reaching $1.7 billion by 2018. Enterprise network managers face a number of complex and seemingly competing demands when implementing or upgrading network infrastructure. Many verticals are seeing greater adoption of enterprise-grade networking as business needs change and high-capacity networks become critical and, in some verticals, mandatory (i.e., healthcare). Enterprises are searching for increasingly sophisticated network functionalities despite continually tight budgets and limitations around infrastructure, space, and staffing. Moreover, many enterprises need a singular, centrally managed and controlled network for branch locations that are geographically dispersed. The verticals most forcefully driving the adoption of cloud-managed WiFi healthcare, education, and retail face different challenges and possess different requirements than the traditional carpeted enterprise. Often, these enterprises are "distributed" or made up of a central (HQ) facility with dispersed regional, branch, and remote locations. In many of these distributed sites, there is often no dedicated IT staff or deep networking knowledge. At the same time, there may only be a small team to support IT at headquarters (with limited ability to travel). These enterprises may also face space and other infrastructure limitations for deploying new equipment as well as capital investment constraints. These factors have led to burgeoning adoption rates for cloud-managed WiFi, referred to here as delivery and/or management of wireless networking in real time that can be accessed by any device with Internet capability anytime and anywhere. Cloud-managed networking technologies, as mentioned, are creating new opportunities for certain types of enterprises to gain greater networking efficiencies. BYOD Explodes, IT Rethinks the Network The consumerization of IT and the resulting proliferation of BYOD and mobility in the enterprise have led to rapid adoption and expansion of enterprise networking across all verticals. Mission-critical applications are now more easily available on mobile devices such as smartphones and tablets. The enterprise must adapt to the reality of these changes with an overarching enterprise mobility strategy that enables users to access any application at any time. Having a BYOD policy is not enough; IT must truly rethink every part of the network to allow for pervasive connectivity to cloud applications such as Office 365 and salesforce.com. This increased reliance on the network elevates its position within IT infrastructure network intelligence becomes strategic to the business rather than just a "cog in the machine." Increased Enterprise Networking Deployments in Distributed Settings Enterprise-grade network deployments are not just for carpeted enterprises, manufacturing plants, and large healthcare and educational facilities any longer. Recent trends in mobility, consumerization, industry regulation, and vertical-specific use cases have led to a sharp growth in enterprise networking deployments in distributed settings within retail, hospitality, healthcare, and K 12 education. Enterprises within these verticals often are distributed anywhere from multiple neighborhoods within a city to multiple continents. At the same time, these enterprises tend to have one centrally located staff team (or even member!) managing the entire network, which may have little ability to personally touch all the branch locations. Additionally, these enterprises often need to scale quickly, with little preexisting infrastructure and space for equipment. 2014 IDC #247738 2

IT Is Getting Leaner Perhaps a lasting consequence of the recent financial and macroeconomic upheavals is leaner IT staff across all verticals. As mentioned, many distributed enterprises have one centralized IT staff at headquarters. Frequently, there is no networking expertise among branch staff to provision, troubleshoot, and perform other necessary installation, maintenance, and upgrade tasks for the network. Some branch locations may also lack the physical space to accommodate more traditional networking equipment. Furthermore, in enterprises with many branch locations, extending wireless access to myriad locations greatly compounds the cost of network deployment. For these cases, there are inherent cost savings in deploying a cloud-based network. For one, there is no initial capital investment for a controller and investment is reduced for wiring. In addition, plug-and-play-type installations (and the lack of controller configuration) reduce labor costs and downtime. Web-based troubleshooting and upgrades further contribute to an overall lower cost of ownership. Increased Prevalence of Cloud-Based Applications and Services Cloud-managed WiFi belies the prevailing trend in enterprise IT of "everything as a service." As mentioned, the success of applications such as Salesforce and Microsoft Office 365 has brought subscription-based IT service delivery into the mainstream. These subscription-based services support the trend of IT getting leaner as they shift IT spending from capex to opex, which can be advantageous for many enterprises. This provides the impetus for some enterprises to upgrade their networks. Moreover, the momentum behind cloud applications at large has made a compelling case for having the network delivered over the cloud to realize the same opex advantages. WLAN Managed Services Opens the Door for "As a Service" Model The proliferation of WLAN platforms, the variety of applications traversing enterprise wireless networks, and the need for robust security have created significant operational challenges associated with WLAN management. Subsequently, many small and medium-sized enterprises that lack the inhouse technical expertise to plan, design, operate, and manage a secure WLAN infrastructure have turned to managed service providers as a way to transfer the cost of WLAN management while leveraging the expertise of a third party. While traditional premise-based managed network services providers such as AT&T, IBM, and Verizon have dominated the market, the "as a service" cloud WiFi service model is being enabled by a number of cloud-managed WLAN vendors. These companies are enabling channel partners (value-added resellers, systems integrators, telecom providers, etc.) to build an as a-service managed services model that focuses on simplicity and greater opex savings than a do-it-yourself or traditional premisebased management model. In addition to recurring management and monitoring service fees, channel partners also have the opportunity to provide additional value to enterprises through a variety of support and professional services like help desk, integration, installation/deployment, network assessments, RF planning, and site surveys. While many of these offerings are optional, additional spend in these areas will vary by industry and depend largely on the use case for the cloud-managed WiFi service. 2014 IDC #247738 3

The Benefits of Cloud-Managed WiFi The factors just covered have led to a growing number of cloud-managed WiFi offerings. Perhaps what first comes to mind when discussing cloud-managed WiFi or cloud-managed networking are wireless architectures such as the ones offered by Aerohive (distributed WLAN control managed in a private cloud environment) and Cisco Meraki (distributed WLAN where all control functions reside in a public cloud). Vendors such as Aruba, ADTRAN, Xirrus, and AirTight Networks have also made strong entries into this market recently. Increasingly, given the uptake of cloud solutions, vendors are introducing ways to enable cloud management of both traditional wired and wireless networks. Although this will not completely displace traditional networking, cloud-managed networking will remain a growing market force. Automated Provisioning and Configuration One of the most noted ease-of-use benefits of cloud-managed WiFi is the ability to offer automated provisioning and configuration. In the cloud WiFi space, certain vendors are able to ship "preconfigured" APs to remote branch locations; all that staff at these locations have to do is plug in the AP. From there, the AP downloads the information it needs, discovers its network, and is fully configured. Generally, this happens in a matter of minutes. Having the control plane situated in the cloud allows for these and similar innovations when it comes to automated provisioning and configuration. Easier to Manage and Troubleshoot Remotely As mentioned, cloud-managed WiFi provides immense advantages to centralized IT managers who are responsible for networks that are widely dispersed geographically. With control and management centralized in the cloud, a network manager who is asked to troubleshoot a problem 2,000 miles away can do so from the network management interface instead of having to travel to fix the problem (which is impractical and expensive) or having to hire someone in that location to do it (which is more practical but still expensive). The ease of centralized management and troubleshooting makes it easier to standardize the network as concerns about local ability to work with certain vendors and products dissipate. In the case of WLAN, with intelligence residing in the cloud (or distributed among APs), there is no single point of failure, reducing downtime and the risk of a network outage. Scalability In a networking environment with physical controllers and switches, the costs of network expansion are step variable (i.e., additional costs are incurred incrementally till the point where existing controller and switch architecture is exhausted). Then there is a large investment in a new controller with the potential for expensive, unused extra capacity. With cloud-managed WiFi, scaling costs remain linear. There are no additional large capital investments that serve as a bottleneck to scaling. In tight economic times, CIOs and CFOs alike can breathe easy, knowing that the network can expand at the rate it needs to while most likely avoiding additional large capital investments. 2014 IDC #247738 4

FUTURE OUTLOOK Cloud computing has shifted the paradigm of enterprise IT from being hardware driven to service driven. As more enterprises seek new ways to optimize existing resources and build capacity at the network edge, expect to see the rise in cloud-managed WiFi adoption continue for years to come. The advantages of cloud-managed networking should continue to be most pronounced for distributed enterprises, but cost efficiencies and a paradigm shift toward opex-only spending will give pause to more traditional networking customers to consider the cloud for wireless deployment and management. IDC sees the market for cloud-based WLAN infrastructure growing faster than the market for controller-based WLAN for 2011 2018. Similarly, the market for managed services related to cloudbased WLAN will grow in concert with the hardware market over the same period (see Table 1). TABLE 1 Worldwide Cloud-Managed WLAN Infrastructure and Managed Services Revenue, 2011 2018 ($M) 2011 2012 2013 2014 2015 2016 2017 2018 2013 2018 CAGR (%) Infrastructure 71.4 144.1 334.0 516.4 769.2 1,081.9 1,418.6 1,721.7 38.8 Growth (%) NA 101.9 131.8 54.6 49.0 40.6 31.1 21.4 Managed services 24.6 37.5 88.6 136.5 242.8 351.0 542.8 765.4 53.9 Growth (%) NA 52.9 136.0 54.1 77.9 44.5 54.7 41.0 Total 95.9 181.6 422.6 652.9 1,012.1 1,432.8 1,961.4 2,487.1 42.5 Growth (%) NA 89.3 132.7 54.5 55.0 41.6 36.9 26.8 Note: Services includes spend on professional and support services. Source: IDC, 2014 Opportunities and Challenges IDC sees a number of opportunities and challenges for cloud-managed WiFi across all enterprises. Opportunities "As a service" model. Cloud-managed WiFi infrastructure provides a platform for enabling a cloud-based consumption model for WLAN services. 2014 IDC #247738 5

Modularity providing flexibility in scaling and upgrading. The cost and effort of deploying a new controller or other large piece of physical equipment will not stand in the way of adding capacity. Challenges Cloud datacenter (and connectivity) can be a single point of failure. While a datacenter failure that causes a cloud network outage is very unlikely, given the redundancies cloud providers have put in place, it is a concern and sometimes a barrier to the adoption of cloud technologies for business-critical functions. Cloud connectivity failure can impact certain management and control functions in remote networks. Culture change is required when shifting from traditional networks. In many organizations, the networking staff is split between "wired experts" and "wireless experts." Converging the network in the cloud will mean that network managers and support staff may need to step out of their comfort zones and learn more about areas of networking that are unfamiliar to them. Developing expertise in the channel around professional services and security is a challenge. Organizations should focus on building strong channel programs to enable partners to sell and support cloud-managed WLAN services. ESSENTIAL GUIDANCE Cloud-managed WiFi will continue to emerge and grow as a viable architectural option for several types of enterprises. The reasons for this growth are related to significant IT trends such as ubiquitous BYOD and mobility, the proliferation and increased acceptance of cloud applications, and lean IT. In detail: BYOD and enterprise mobility are changing the landscape of enterprise network deployments. Network engineers must rethink their deployments to ensure that they are more pervasive than ever before. Distributed enterprise deployments in the retail, hospitality, healthcare, and education markets are seeing more need to deploy robust wireless networks than ever before. Cloud-managed WiFi, with its central manageability, smaller physical footprint, and linear scalability, is a good potential option for these enterprises. Despite growth in IT and networking needs, many enterprises are operating in an environment of relative austerity. Cloud-managed WiFi's opex orientation can provide a conduit for network expansion in the era of smaller investments. Cloud-managed WiFi is a solution that can provide pervasive coverage with high levels of application visibility and availability, solid network security and compliance, and the flexibility to incorporate future services and applications as network needs change. LEARN MORE Related Research Cloud Management Maturity: A Work in Progress (IDC #246452, February 2014) 2014 IDC #247738 6

Worldwide Enterprise Communications and Datacenter Networks 2014 Top 10 Predictions (IDC #246585, February 2014) Worldwide Enterprise WLAN 2013 2017 Forecast (IDC #244929, December 2013) Market Analysis Perspective: Worldwide Enterprise Communications Infrastructure, 2014 (IDC #245053, December 2013) Gigabit WiFi Is Coming to the Enterprise with 802.11ac: What Enterprise IT Needs to Know (IDC #244208, November 2013) IDC MarketScape: Worldwide Enterprise WLAN 2013 2014 Vendor Analysis (IDC #243354, September 2013) 2014 IDC #247738 7

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