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Necessity is the mother of VPN invention


Necessity is the mother of 
VPN invention

Enterprises’ rapid adoption of technology once considered a luxury is forecast.

by Sean Kelly, Associate Editor

The virtual private network (VPN) is fast becoming a necessity, and not merely a luxury, for enterprises. VPN—which utilizes public networks and managed IP networks to securely transmit data—is experiencing rapid growth among a variety of organizations. Whether it is an increasingly mobile work force that needs a secure connection to the corporate headquarters system, small companies wanting to connect satellite offices or major businesses seeking more secure transactions, VPNs are a growing and important component to enterprise networks across the board.

VPN technology creates tunnels—encrypted data communications sessions—across the public Internet. “The old way was to have expensive dedicated connections from site to site,” notes Christopher Harvey, CTO of NovaStor, a Simi Valley, CA, prepackaged computer software developer. The savings over private networks, coupled with customer acceptance of the encryption technology to guard the connections, has made the VPN more palatable for businesses. “VPNs, in general, are part of mainstream corporate America,” states Harvey.

“It’s good to see VPN become mainstream, instead of being a novel, exotic technology,” says Elliot Zeltzer, manager of telecommunications and network services for Volkswagen of America/gedas USA, the IT subsidiary of the European automaker.

Recent studies indicate a burgeoning market fueled by enterprises. Infonetics Research, San Jose, CA, reports that VPN hardware revenues reached $835 million in 2000, with VPN software revenues growing 121% and more than one million VPN-enabled routers being shipped. The firm forecasts a 275% increase in worldwide VPN service and product expenditures in the next four years, from $12.8 billion in 2001 to $48 billion by 2005.

Insight Research, Parsippany, NJ, predicts the data VPN market will triple in two years, from $2.53 billion this year to $7.25 billion by 2003—a forecast vendors and enterprises say is not far off the mark.

“The current base, especially in IP VPN, is not very high,” says Richard Moore, executive vice president of marketing and product management for Orchestream, based in London, U.K., which develops software—including IP VPN—for service providers. “It makes it much easier to double or triple.”

“In the second half of 2000, we saw very strong acceleration of VPN deployment,” says David Flynn, vice president of marketing for NetScreen, Sunnyvale, CA, which makes VPN and firewall products and solutions. “We are seeing substantial growth and some very large scale VPNs deployed through the first half of 2001.”

He credits low-cost broadband deployment for remote users and offices as one major growth factor. “To securely communicate back to the corporate environment, you need to have VPN running on top of it,” he notes. “A year and a half ago, 80% of our business was firewall deals, with 20% having a significant VPN component. Now, 80% of our deals have very strong VPN components.”


With VPN’s overall growth, industry insiders see a shift toward managed (or network-based) VPN, in which the technology is available through service providers and carriers.

The VPN market was originally the domain of larger enterprises that could afford the technology. The development of managed VPN, however, is catching on with smaller and midsize businesses, which want the technology minus the private network expense or the complexity of running it.

“We’re going to see a dramatic shift in the next few years toward providers,” says Moore, with simplicity being a major draw. “Today’s enterprise network environment has many access types (such as remote users) coming into their customer premises.”

Managed VPN, notes Moore, “basically consolidates all that, running over IP onto a single network access point. That’s carrying all converged infrastructure out of your network—and the service provider takes the pain of configuration and linking of other sites together off your hands.”

Alonzo Ellis and Rich Brazeau of Imperito Networks, a Santa Clara, CA, managed VPN service provider, contrast its simpler and quicker setup procedures with that of an enterprise-based system. Brazeau, Imperito’s director of product marketing, says that companies wanting VPN first must sign up on the company’s website; receive setup instructions via phone; get issued automated e-mail notices to the enterprise’s remote users; and set up those clients by clicking on a link.

Ellis, Imperito’s CTO, reviewed installation of an enterprise network, including a truck rollout, hiring of consultants for configuring the network, and issuing data certificates and public keys. Ellis further factors in possible mistakes by end-users having to follow complex instructions to get added to the VPN—adding further delays. “End-users are not network or security savvy,” he notes.

Ellis recounts other factors that are drawing midsize businesses to managed VPN. Decreasing VPN costs make its adoption more palatable. Heavy media play on Internet security problems, and legal issues like consumer privacy, also make midsize businesses consider VPN. “This makes a managed service a natural fit,” he says.

Debate ensues, however, over managed VPN’s expected dominance. “Network-based VPN is going to win,” Moore affirms, “certainly within a decade. However, there are some enterprises that would have a very strong control mentality and not want to outsource.”

Larger enterprises with their own VPNs, however, may look to managed VPNs to extend their systems. “They’ve had VPNs in place for quite some time,” Brazeau says. “They’re looking to replace what they have, to take them to the next level.”

NovaStor, in fact, recently turned to Imperito to extend its enterprise VPN-based system, according to Harvey. “We had to manage the system at a central location. You could not extend it,” Harvey recalls. “Now, I can extend the system to encompass new servers or individual users. For mobile workforce end-users, managed VPN allowed us to extend the architecture to individuals.” Management is also simplified—giving him one less headache.


The recent development of network-based VPNs, however, may cause some enterprises to hesitate before riding it as the next wave of the future.

“Managed VPN is going to be very successful—however, it’s still in its infancy,” Flynn observes. “Numerous carriers attempted to deliver such services the last few years. I don’t think any of them have been particularly successful or profitable yet.”

Flynn notes, however, a strong potential market for managed security service providers. “Their whole business is doing managed VPN and firewalls, and maybe managed intrusion detection,” he says.

Zeltzer says Volkswagen of America/gedas USA will be sticking to its own VPN. “The VPN is too strategic to outsource,” he says. “If we went to a service provider, we would end up having to rip out the VPN infrastructure.” Zeltzer says his company bought two top-end concentrators several years ago for $60,000. “It was not a huge investment, relative to the costs savings we derived. Our remote access services costs dropped 70%.”

Zeltzer predicts that many large companies will stay with their own VPNs. “The Fortune 500 and 1000 will build it themselves for the most part. The small end of the midmarket is where you’ll see a lot of companies competing for that managed service space.” He also looks for consolidation or: a shakeout in the managed VPN market. “About three years ago, there were two or three providers. Today, there are 100.”

While there are questions about the VPN market’s future shape, it is certain to be bigger, as businesses seek secure links for remote users, fueling demand for both managed and enterprise-based VPN—and the equipment to make them work. “At the end of the day, it is just as many products sold,” Flynn says. “They both need the same technology.”


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