The Ethernet switch market is undergoing a technological transformation in the data center as virtualization changes where and how applications are connected to end users. New network topologies are driving entirely new switching platforms.
Over the next five years, vendors will expand and consolidate as the battle for supremacy in data center networking intensifies. The result is that there has never been a better time for new entrants or a better opportunity for existing vendors to gain share.
Two major trends will forever change the Ethernet switch market: a significant technology shift to 10 Gbit Ethernet for server access, and the emergence of powerful new cloud computing giants such as Google.
Until the past few years, almost all traffic flowed from server to user, commonly referred to as north/south traffic. Virtualized traffic and current applications now predominantly communicate server to server, commonly referred to as east/west traffic. The change in traffic patterns requires networks with fewer layers and higher bandwidth to handle east/west traffic flows.
The cloud will be highly disruptive to the Ethernet switch market. The impact of each type of cloud on the market is unique.
Google shows that a large enough enterprise focused on the data center can create an in-house team, leverage merchant silicon and design houses from Asia, and produce an Ethernet switch that meets its needs. By doing so, Ethernet switch spending moves from the Ethernet switch vendor to the component manufacturer, thus removing some sizeable revenue from the Ethernet switch market. Enterprise spending, which comprises the bulk of the Ethernet switch market, is not affected.
Projecting the likely size of outsourced cloud providers is challenging, but looking at Google, one could tell that the impact on how enterprises purchase Ethernet switches will be large. We believe the impact of cloud vendors moving to in-house switches has the potential of impacting the Ethernet switch market by over $1 billion a year in the next five years.
It is clear that, in five years, data centers will look significantly different from today’s data centers. How users access data centers will be forever changed, as will the way enterprises deploy and manage them. Vendor share and the vendors themselves will look different. The evolution towards 10 GE and large data centers is an opportunity. Vendors that understand and embrace the technology change of virtualized data centers running at 10 GE or higher speeds have the opportunity to see their share of IT dollars increase and improve their market position in the next several years.
An Advanced Research Report from Dell'Oro Group discusses these technological changes and their impact on the market and vendors in detail. --Alan Weckel, Senior Director (http://twitter.com/#!/dellorogroup)
Alan Weckel is an analyst at Dell'Oro Group.