VMware announces plans to purchase VeloCloud

VMware announced Thursday it intends to acquire VeloCloud, a startup making a splash in the software-defined wide area network (SD-WAN) market. The move deepens the rivalry between VMware and Cisco, which purchased VeloCloud competitor Viptela for $610 million in May.

SD-WAN is a new way to develop and launch a wide area network that leverages software-defined networking (SDN) to determine the optimal route to direct traffic to a remote location. While the technology has been commercially available for a few years, its ability to address networking requirements has led to significant growth in the SD-WAN market. According to a recent forecast from International Data Corporation (IDC), global SD-WAN infrastructure and services revenue are expected to enjoy a compound annual growth rate (CAGR) of 69.6% and reach $8.05 billion in 2021.

According to VMware, more than 1,000 customers have embraced VeloCloud’s SD-WAN technology, landing deals with service providers like AT&T, Deutsche Telekom, Macquarie Telecom, MetTel, Mitel, Sprint, TelePacific, Telstra, Vonage and Windstream. Enterprise customers include Bay Club, Brooks Brothers, Devcon, NCR, Redmond, Saber Healthcare Group, and Triton Management Services.

“In the digital era, a new networking approach is required to solve the hyper distribution of applications and data, as we move from a model of data centers to one of centers of data at the edge,” said Pat Gelsinger, chief executive officer at VMware. “At the heart of VMware’s networking strategy is the belief in delivering pervasive connectivity with embedded security that connects users to applications wherever they may be. With the addition of VeloCloud’s industry-leading SD-WAN technology, we will be able to extend the VMware NSX approach of automated, secure, and infrastructure-independent networking to the WAN.”

VMware is seeking to build upon its portfolio of networking parts with the acquisition, which is putting it in direct competition with Cisco. Since Cisco’s number one competitor in the SDN market is entering SD-WAN territory, it may spur an arms race where each company is trying to outmatch the other’s platform. Last week, for example, Cisco announced a new hybrid cloud partnership with Google, which put it in direct competition with VMware Cloud on Amazon Web Services (AWS).

Details of the purchase remain ambiguous as VMware did not disclose terms of the acquisition price. VMware benefits from the purchase in that it gets to acquire VeloCloud’s 1,000 customers. The transaction is expected to close in the fourth quarter of VMware’s fiscal year, which ends in early February 2018.

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