What Is Halting: VPN Growth?

In these days of convergence, build ing a wide area network (WAN) is the

dream of every company that has a wide network of offices to look after. The

need for cost-effective point-to-point connectivity that offers speed and

consistency gave way to the popularity for virtual private networks (VPN)

solutions in the market.

A VPN solution typically supports both the Intranet and Extranet services

similar to those supported by a traditional WAN. These solutions have also

gained popularity for their ability to support remote access service.

The key feature of a VPN is its ability to use public networks, like the

Internet, rather than rely on private leased lines. This has resulted in more

and more corporates preferring VPN solutions to leased line connectivity.

Market overview

In the light of the present economic conditions, it may be difficult to put a

definite number on the VPN market projections in India. However the growth in

the VPN equipment and service market is certainly noticeable.

This is evident in the IDC report titled ‘VPN Services and Equipment:

Market forecast and analysis 2001-05’. The report puts the Indian VPN service

and equipment market at Rs 1.68 billion in 2001, which is slated to grow to Rs

12.76 billion in 2005.

The growth is also evident from the VPN revenue turnover recorded/expected by

several players in this space. Convergent Communications India registered a

total turnover of about Rs 21 crore for the fiscal ending March 2001 of which

the VPN equipment business share was about five percent.

For the fiscal 2001-02, Select Technologies targets a total revenue turnover

of Rs 24 crore, with 10 percent revenue share coming from its VPN and security

businesses. Wipro Net is targeting a revenue of Rs 15 crore coming from the VPN

space. This however excludes all equipment revenues.

The huge growth potential can also be gauged by the number of ISPs venturing

into the VPN space to offer their services. Tata Internet Services has expanded

its corporate services and is currently present across 32 cities in India

offering VPN services.

Vertical industry adoption

IDC states that the major segment that would lead in terms of adopting VPN

solutions in India is finance and banking for countrywide branch connectivity.

However, the manufacturing and distribution industry also possesses a high

demand pattern in the market, largely for connecting various regional offices

and online logistics. Nevertheless, government institutions such as the Income

Tax Department and police force are also considered to be the next adopters of

VPN solutions in the market.

Anil Gupta, Director, Business Development and Service Marketing, Convergent

Communications India, points out that banking and financial services are faster

adopters of VPN solutions as they have computerized multi-location presence. The

demand in these verticals are also driven by several other favoring factors in

the country.

Drivers for VPN market

In light of the economic slowdown, today's market is more or less limited to

cost-effective communication solutions, such as VPNs. Though the infrastructure

investments from organizations has slimmed, the VPN market still seems to be

growing.

P Muralidharan, Head-Corporate Business, Wipro Net points out, "IT and

infrastructural investments in general have been getting postponed in the

market. Nevertheless, we expect the market to improve because VPN would add to

the productivity of businesses due to its cost effectiveness."

However, compared to the traditional methods of providing point-to-point

connectivity with equivalent levels of service management, security, bandwidth

and quality of service (QoS), IP-based VPN service potentially provides

significant cost savings. This has resulted in several SME opting for VPN

solutions.

Also the prime driver in the Indian context for the VPNs will be the growing

e-business activities. With the advent of the concept of SCM and CRM, the basic

need to get connected with suppliers and customers has fueled the demand of VPNs

especially in the distribution and logistics companies.

On the other hand, many companies in several sectors are moving away from

centralized hierarchical structures to a decentralized and distributed

structure.

Therefore structural changes within users organization creates considerable

demand for private networking services based on IP and it forms one of the most

significant drivers for IP VPN services in the country.

Factors affecting market growth

All said and done, VPN is not free from shortcomings. Currently in India,

these solutions are going through a second level evolution, but it is still far

away from full blown adoption and implementation in the market. Issues like

security and reliability of network are still being addressed.

Bhagath G, Technical Executive of ZeeNext, echoing a similar opinion says,

"The demand for VPN solutions is largely affected due to the awareness

level, which is low."

Also the legality issues has barred voice/video file transfers through VPN

networks and it is currently limited to data files. However, the traditional

dedicated private networks allows voice, video and data file transfers.

Rajiv U, Head-Marketing, Select Technologies comments, "The actual

growth of VPN will be with the government's initiatives to approve voice and

video over VPN." Sharing the same opinion Anil believes that the legality

issue has lead to several organizations opting for private networks to VPNs,

which has hindered its growth.

Channel participation

There are quite a few SME organizations, which are deploying applications to

improve their productivity for faster growth. These organizations would require

WAN connectivity and the most effective way to reach out to these organizations

spread across the country is through channel partners.

However, issues like training and awareness to deploy such solutions keeps

channel participation at bay. To address these issues, Wipro Net has regular

channel partner training programs designed to meet the requirements of the SME

segment. But by and large, channel participation today is more or less limited

to equipment distribution in this space.

Though the VPN equipment and service market is growing at a fast pace, the

future of channel partners in the VPN space depends on delivering solutions to

the customers requirements.

What one needs to understand is that the driving factor for the popularity of

VPN services has been the reduced communicational cost and point-to-point

connectivity. With the increasing emphasis to address the security and legality

issues by the government and service providers, the demand for these services

will only grow further.

Sunila Paul in Bangalore