IP VPN Services Virtually Unstoppable

In-Stat/MDR finds that 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.

by ISP-Planet Staff [August 21, 2002]

In a new study, In-Stat/MDR research indicates that 90 percent of surveyed U.S. organizations with more than 1,000 employees are either in the process of deploying an Internet protocol (IP) virtual private network (VPN) or are planning to do so within the next two years.

The Scottsdale, Ariz.-based research firm forecasts that IP VPN service revenues will grow at a compound annual growth rate of 33 percent between 2001 and 2006. In-Stat/MDR reports that IP VPN service revenues are already growing strongly in 2002, with major U.S. service providers expecting increases from 15 percent to 20 percent—to more than doubling of 2001 revenues.

Henry Goldberg, In-Stat/MDR senior analyst said IP VPN service revenues are growing faster than most service providers' other networking services' revenues.

"Various factors like 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, will drive IP VPN service revenue growth strongly in coming years," Goldberg explained.

One of the main barriers that providers must overcome will be the desire of end-users to implement in-house solutions as opposed to using outsourced IP VPN services. In an In-Stat/MDR survey of 436 U.S. end-user organizations, 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.

According to In-Stat/MDR, in order 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.

In its report, titled IP VPN Services: Virtually Unstoppable, In-Stat/MDR also found that:

• Of the organizations surveyed that currently have or plan to use an IP VPN service, 74 percent either use a network-based service or may be interested in subscribing to one.
• Another 72 percent either have 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 also finds that there are a number of important trends emerging in VPN services:

• 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.

The report profiles 13 leading IP VPN service providers, describing their overall service offerings, key service features, sample service pricing, customers, and competitive strengths. Analysis includes a market share estimate for 2001 and a five-year forecast of the U.S. IP VPN services market.

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