IP VPN services to snowball

IP VPN service revenues will grow at a compound annual growth rate of 33 percent between 2001 and 2006, according to In-Stat/MDR.

In a recent survey of 436 U.S. end-user organizations with more than 1,000 employees, 90 percent of those surveyed are either currently deploying an IP VPN or planning to do so within the next two years, the research firm discovered.

IP VPN service revenues are already growing strongly in 2002, with major U.S. service providers expecting increases of 15 percent to more than 100 percent over 2001 revenues, the firm states. In fact, IP VPN service revenues are growing faster than most service providers' other network services' revenues, including frame relay and ATM, according to In-Stat/MDR.

Driving IP VPN service revenue growth in coming years are the migration of frame relay/ATM service users to IP VPN services; the gradual gain in market share of outsourced services vs. the in-house approach; heightened focus on security when communicating across the Internet; and projected economic growth, In-Stat/MDR found.

The outsourcing decision, however, is the main barrier providers must overcome. In the In-Stat/MDR survey, 91 percent of current VPN users implemented in-house IP VPNs, with the majority doing so because they believe they have more control over security. To increase market share, "service providers need to develop more effective strategies to convince end-users of the benefits of outsourced IP VPN services and overcome any concerns that they have about implementation of security," the research firm states.

But security may not be the only issue concerning enterprises, according to Infonetics Research Inc., an In-Stat/MDR rival.

"The current carrier disaster will stimulate (CPE-based) VPN sales because VPNs can be used to create resilient, cost-effective, carrier-independent WANs and extranets," Infonetics states in its recent report on worldwide VPN and firewall hardware sales. "As more large carriers experience financial troubles, users will see VPNs as a good way to get around their dependence on individual carriers."

On the service feature side, meanwhile, 72 percent of the In-Stat/MDR survey respondents have either implemented priority classes of service or are interested in subscribing to this option. There is also strong interest in bundling firewall and other security services, such as virus protection and intrusion detection, with VPN services, In-Stat/MDR found.

This trend has already taken root and is growing in CPE-based VPNs. Infonetics expects worldwide VPN and firewall CPE revenue to hit US$3.6 billion in 2003, up 24 percent from this year. 2002 will be about flat compared to 2001's $2.77 billion worldwide market for VPN and firewall CPE, Infonetics says.

Some other trends that will drive IP VPN service revenue growth, according to the In-Stat/MDR survey:

- Enterprise IT staffs are being pushed to reduce costs in the slow economy, and IP VPN services allow them to collapse multiple networks with different access circuits down to one access circuit to a single service.

- Almost all leading IP VPN service providers either currently offer or plan to offer at least one network-based VPN service.

- The barriers to becoming a VPN service provider are dropping, as companies develop innovative business models to offer service without having their own networking facilities.

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