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Wednesday, August 06, 2008

SMB Demand for IP VPN Managed Services

The need for network connectivity will drive U.S. small and medium business (SMB) to spend heavily on IP VPN managed services over the next five years -- with annual revenues rising from less than $2 billion last year to more than $6.5 billion in 2012, according to the latest market study by Light Reading.

"The SMB market is the next great networking frontier," says Charles Carr, research analyst for Light Reading. "Presently, the total U.S. managed IP services market is split between two networking solution types -- within the IP VPN market, the SMB sector is clearly a sweet spot for service providers and is projected to grow at a compound annual rate of 28 percent, versus only 12 percent in the large-enterprise space through 2012."

SMBs that have relied on legacy Frame Relay services need more robust and flexible connections to remain competitive, Carr notes. SMBs need the flexibility and scaleability of a more robust networking solution, such as the MPLS/IP virtual private network. For this reason, SMBs represent a clear and attractive market opportunity for providers of managed IP VPN services.

Key findings of the market study include:

- Service providers now consider managed MPLS/IP VPN network solutions critical to a winning strategy in the U.S. SMB markets.

- Indirect marketing/sales channels will dominate service provider's go-to-market strategies and currently account for the majority of managed IP VPN sales in the SMB markets.

- The biggest challenges facing service providers are setting expectations through SMB education and developing a cost-effective long-term partnership with SMB customers.

- New network deployment in the SMB markets is now entirely IP-based VPN, which will dominate network revenue generation in SMB by 2009.