sales pulse research october 2014 survey 1117...

IT Spending and CAPEX

October 2014

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Results are based on our September / October survey combined with our on-‐going research and analysis. New Survey Format -‐ This survey is the first to use our new format and our effort to include the parJcipaJon of more VARs and System Integrators. Our new format is designed to collect more granular input across market segments and companies. Sales Pulse has been conducJng surveys for nine years. Our surveys have always been designed to be “high touch” and conducted at the field level for a boLoms up view into overall spending trends and market dynamics. Informa@on on Sales Pulse Research -‐ for Qualified IT Sales Professionals -‐ Sales Pulse Research is a technology research firm. We issue a few short surveys throughout the year and share our research with the limited community who parJcipates at no charge. Our research is completely paid for by our investment clients. In return, parJcipants receive real-‐Jme visibility into IT industry trends and their impact on end users, vendors, VARs and Systems Integrators. ParJcipaJon is confidenJal. Our community is limited to those we know personally or by referral and currently includes ~375 sales professionals.

Market segments -‐ Our survey included quesJons on 15 market segments. We have a solid understanding and deep contacts in most of these segments. We have less depth and history in others but sJll believe we can offer meaningful data points. We we are working to add depth in all segments going forward. Benefits of Par@cipa@on:

-‐ Informa@on to benchmark performance against industry peers. -‐ Visibility into Unprecedented Industry Change -‐ to stay ahead of the historic transforma@on that is impac@ng our industry. -‐ A beKer understanding of what services are in growing demand. -‐ Insight into the progress of individual vendors including compe@@ve posi@oning and dynamics. -‐ More knowledge for sales professionals in their role as a trusted consultant to customers, to an@cipate / respond to compe@@ve issues and to allocate company or personal resources. -‐ Our research is also used to assist in career choices and as input into investment decisions.

About this Survey and Results

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The following disclosures are provided to survey parJcipants:

No company confidenJal informaJon is requested or will be knowingly included in any report or communicaJon associated with this research. This research is not an aLempt to gain insight into non-‐public company specific financial data or any other confidenJal informaJon. The focus of this report is market dynamics. Our goal is to gain input across various geographies and industry segments to understand broader industry trends.

ParJcipants: For their input, industry parJcipants receive our reports. This informaJon may help beLer understand the industry and assist with individual job acJviJes, or in some cases job searches. ParJcipants should not provide any informaJon that conflicts with the policies of the company they work for. We welcome your input regarding compeJtors, customer trends, and other market observaJons. Survey parJcipants should decline to parJcipate in the survey if parJcipaJng would violate any confidenJality obligaJon.

Our thanks to all who have assisted with market input and suggesJons. Please call or email with any quesJons.

Disclosures:

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More context, we’re working on it…

Reprinted with permission

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Key Takeaways:

IT Spending - Respondents are seeing a slight improvement in IT spending / growing pipelines as compared to our previous surveys. Segments: ü  The segments that our survey indicates as strong are the same segments that we have been highlighting over the past

three quarters lead by: §  Security §  Cloud §  Wi-Fi §  Big Data and Analytics §  Data Center §  Unified Communications.

ü  Results remain weak for legacy hardware / software, and switching.

ü  Security - The growth in budgets allocated to security appear to be sustainable providing a rising tide that is benefitting all security vendors and expected to persist into next year and likely beyond.

ü  Wi-Fi - this growing market is seeing increased activity in preparation for a boost from E-Rate funds to the benefit of most vendors; some vendors are further along than others with programs targeting share gains.

ü  SDN – in the network infrastructure market, SDN is still causing a drag on spending as many in the market are moving slowly through the evaluation phase. Many anticipate a slow ramp to start in earnest in 2015.

ü  Demand for a wide range of services appears to be accelerating as a result of difficulty obtaining technical expertise.

ü  Storage has seen mixed trends with a number of small companies growing quickly (many of them still private).

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Key Takeaways (continued): Select Vendor Highlights: Confirming Views: ü  Palo Alto – Among the strongest indications for growth of all vendors, however also received some negative comments (discussed within).

ü  Fortinet – Very strong indications for growth; more evidence of success beyond SMB.

ü  Shortel, Ring Central, 8X8 - Strong results for these hosted Unified Communications vendors. ü  F5 – Surprisingly strong strides in security; responses / comments represent significant progress as compared to a year ago.

ü  Linkedin, Salesforce.com, Service Now, Microsoft – Received very high indications in Enterprise Cloud Apps as expected.

ü  Storage – indications of growing strength for small private vendors including Actifio, Pure Storage, Plexxi, Simplivity, Nutanix and for Nimble.

ü  Results for Cisco are generally improving. Mixed marks because they participate in some many segments; continued strength in data center, Unified Communications and storage virtualization.

Mild Surprises: ü  Aruba – Indications for Aruba were even stronger than anticipated. Aruba is the Wi-Fi vendor most frequently noted for gaining share.

ü  Barracuda – Now being seen moving up market; growth from storage solution.

ü  NetScout – Stronger results than expected – we are investigating the market drivers for this.

ü  Alcatel-Lucent – broader recognition of technology leadership in SDN among large enterprise accounts.

ü  Red Hat – Stronger results in multiple segments (server, desktop and storage virtualization).

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Key Takeaways (continued):

Select Vendor Highlights (continued): Outliers and Inconsistencies: ü  InfoBlox – Surprisingly strong results after recent slow growth quarters.

ü  Quantum – Surprisingly strong results verified by recent earnings report.

ü  Violin Memory – Surprisingly strong results; small sample size, further research to understand if they are rebounding.

ü  Aerohive, Cyan – Favorable survey results from limited sample size; follow up research provides mixed views.

More to the story… ü  VMWware – Consistent with our recent update notes respondents see the market for server virtualization maturing more quickly then

expected and Microsoft and RedHat taking share.

ü  FireEye – Strong growth but against very high expectations and some warning signs.

ü  Ciena – Positive indications from improvements in enterprise markets, overshadowed by carrier CAPEX challenges.

ü  Arista Networks – Indications of strong performance in web scale market, challenges in enterprise.

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Predictions, Private Companies to Watch: •  Large OEMs (IBM, Oracle, Cisco, HP) are missing out on growth. They will pursue acquisitions more aggressively. Prime targets

include Splunk, F5, just about all security vendors and most of the early stage Big Data companies. •  The markets for security and Big Data / Analytics are strong and will only get stronger, and likely to live up to the very high expectations of

investors.

•  Growth for the Wi-Fi market will accelerate further vs. some projections for a slow down. BYOD has made replacement of wired access expected instead of debated.

•  New products for end point security will start to mature and this large market will become a lot more interesting as legacy vendors make acquisitions and newer vendor release next generation solutions.

•  Some of the private companies we will be hearing more about in 2015:

•  Big Data /Analytics: WANdisco, MongoDB, Waterline Data Sciences, Trifacta, Data Bricks, Clear Story, MapR, Cloudera, Alteryx, Splice Machine, StackIQ, MetaScale, SyncSoft, Blue Data, Paxata, RedPoint, HortonWorks

•  Security: Bromium, Invincea, Zscaler, Okta, CipherCloud, SilverSky •  Storage: Actifio, Nutanix, Simplivity, Pure Storage

•  Other: Docker, Plexxi, SOA Software, Bracket Computing, Krystallize, Vagrant, Primary Data, Altiostar, Instart Logic, Thousand Eyes, Senoia Systems

VC funding has been at a very high level and we surely missed some important new companies.

We are always interested in your views and predictions as well?

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Overall IT Spending

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•  This presentation is a summary and also a baseline from our new survey format that we will use to provide more metrics and context in our

research going forward. •  Participants are seeing a slight improvement in IT spending. rowing optimism that was indicated in September was tempered a bit as Q3

came to a positive but still difficult close for many.

•  The cause of sluggishness in the near term is attributed to economic uncertainty as well as delays due to technology transitions (Cloud, SDN, NFV, Big Data, Open Source).

•  Longer term, participants note organizational goals to reduce IT spending as a percent of total company revenue.

•  Still, based upon current demand trends, most are optimistic about continued slow growth overall, and higher growth in certain segments.

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•  The segments that our survey indicates as strong are the same segments that we have been highlighting over the past three

quarters.

•  Security remains very strong. Indications are that growth is sustainable as security budgets are getting an increasing portion of overall spend. This rising tide is generally floating all boats, but the transition to next generation technologies is introducing the changing market dynamics that we have been reporting.

•  Other segments of strength include Cloud, Wi-Fi, Big Data and Analytics, Data Center and Unified Communications.

•  Results remain weak for legacy hardware / software, and switching. Storage has seen mixed trends that include a decline in overall enterprise, on-premise demand; growing demand for cloud based storage and for hybrid SSD arrays.

•  We have included selected comments and anecdotes related to this question as well as others at the end of this presentation.

Although many of our survey questions are new, we have asked this question regarding overall IT spending on previous versions of our survey we can provide a comparison via time sequence.

Overall IT Spending (continued)

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5 -‐ Strong Growth (>5%)

4 -‐ Growth (1% -‐ 5%)

3 -‐ Flat

2 -‐ Decline (1% -‐ 5%)

1 -‐ Strong Decline (>5%)

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IT Spending “The move to cloud services continues to stall enterprise upgrades.” “Security spending is accelerating; data center upgrades remain a priority.” “Large enterprises are driving to hold IT spending flat or slightly lower as a percentage of revenue over the long term.” “In the healthcare market, Meaningful Use has driven spending over the past few years. That driver is now coming to an end.” “Technology spending is in a state of “wait and see" and moving cautiously. The effects of Cloud Computing and Network Virtualization are still causing uncertainty.” “Incumbent vendors are being pushed hard for larger discounts.” “Public sector IT spending is tightening overall. Large consolidation efforts in DoD and the Intelligence community will result in an overall decline in net new license and existing support streams. Efforts to consolidate are reducing overall spend and also driving prices down as vendors compete for larger procurements.” “In EMEA, many projects, especially Government, are frozen or delayed due to political uncertainties in the Euro zone, enormous debts of many countries, and potentially with another real estate / property crisis that looms ahead.” “Some companies who adopted cloud are pulling back after disappointment with service and frustration with lack of control over resources.”

Selected Comments

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Switch / Routing / Layer 2 – 3 Market

Key: 1 = Steep Decline 2 = Moderate Decline 3 = Flat 4 = Moderate Growth 5 = Strong Growth

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Highlights: Overall results are consistent with the general view that Wi-Fi vendors are growing and legacy switch/routing is slowing. Comments indicate increased competitive pressure in the wired market. •  Strong showing by Aruba is consistent with our recent research

indicating that Aruba is most often noted as the strongest share gainer in this market. 40% of respondents indicated Aruba in the 1% - 10% growth category while 20% put them in the > 10% growth category. Based upon our experience with our rating scale we do not believe it to provide an accurate indication of reported vendor revenue growth but it does provide very useful correlation to relative growth. Aruba received among the highest rankings in the survey.

•  Ruckus also received indications for gaining share. •  Ubiquity is seen more often, but still not competing for enterprise

business.

•  Results point to weak performance by Extreme, Juniper and Meru, consistent with recent reports and anecdotal views.

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Selected Comments Switch / Routing / Layer 2 – 3 Market “The level of competition has escalated in the switching market; SDN is causing uncertainty; high cost equipment purchases are being delayed.” “Mellanox and Brocade are both executing on strategies to broaden beyond FC and those strategies seems to be giving them small growth this year.” “SDN / NFV is sometimes used as another excuse to delay infrastructure upgrades.” “Loyal end users (and VARs) often provide a cushion for Cisco during industry transition and gives some protection against price pressure.” “802.11 ac adoption continues to pick up driven by BYOD and wired port replacement. School districts are aggressively going after incremental E-Rate funds. Project sizes are much larger than we have seen in the EDU market before.”

Highlights - Switch / Routing / Layer 2 – 3 Market (continued) •  Input from established Aerohive VARs has shown improvement, however this vendors is having trouble ramping up in new

VARs/territories.

•  E-Rate funds are expected to start to flow in April. All Wi-Fi vendors are expected to see some benefit, some are further along with programs to go after this market.

•  Arista received a strong score, but few responses indicated > 10% growth. They received indications of growth from 1% to

10% from 63% respondents. On the surface we would expect a vendor who is growing as fast as Arista to see more indications in the highest growth category. We believe the results are consistent with our research findings that they are seeing strength in very large data centers although growing more slowly in the broader enterprise.

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Security Market

Highlights: We have been providing regular updates on the security market and feedback from this survey is generally consistent with our recent notes. Some observations: •  The average indication for growth for all security vendors in our survey is >3.0,

indicating growth even for vendors who are seen as losing share – consistent with recent reports and other evidence of rising tide lifting all vendors…

•  Growth in the security market appears to be sustainable and not based

upon a refresh cycle. Our research shows that more organizations are increasing security spend as a percent of their IT budget going forward.

•  No surprise that indications for Palo Alto are the strongest, consistent with input that we have received over the past year as well as published reports showing rapid new account gains and growing deal sizes

•  After Palo Alto, the strongest indications for growth are for FireEye and Fortinet. Input for Fortinet has been increasingly positive and in our view, suggests the opportunity for continued outperformance. Research shows they are winning more often based upon advantage in price / performance (not product cycle as some speculate).

•  FireEye also received indications of strong growth. Research indicates they

are seeing more competition in the broader market.

•  F5 is receiving broadening recognition for their progress in the security market and are more often noted for accelerating growth then in the past. They are seen as taking share in the web gateway/filtering market but approaching the FW market differently then traditional FW vendors. They are expected to compete more directly over time.

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Additional Security Vendor Observations: •  Barracuda – Starting to be seen moving up in the SMB market. Their storage solution is driving some of their growth.

•  Check Point – Often noted as losing share, but executing their blade strategy well and growing within established accounts.

•  Cisco – seeing an acceleration for Sourcefire products; still in need of an integrated next generation platform.

•  CyberArk – Best of breed solution; we are receiving indications that their market offers room for growth.

•  Palo Alto – A few negative comments surprised us. In investigating further we have found that other vendors (and channels) are sharpening their competitive messages against Palo Alto. We have not found evidence that this messaging has slowed Palo Alto down, but is a result of the growing threat they are now posing to the rest of the industry. Overall, feedback remains very positive; no evidence yet that the response of competitors is slowing them down. In fact, 40% of respondents indicated growth in the 1% to 10% range; 50% indicated > 10% growth. (This may not seem high as compared to the vendors reported revenue growth but it is very high on the relative scale or our survey.)

•  F5 – Many are surprised how rapidly they have been establishing themselves in parts of the security market. Some note that they can leverage their very strong hardware and packet processing software to become a bigger force in security but need to provide more turnkey solutions vs. requiring complex iRules to define functionality. Their impressive success with a turnkey solution for web filtering is noted by a growing number of VARs.

•  FireEye – Seeing more competition in the broader market but they are benefitting from their leadership in a hot part of the market. They have benefitted from large deals from those who want best of breed but some question whether they can continue their high growth rate as competitors improve their solutions and marketing.

•  Fortinet – Broadening recognition of the favorable price performance of their products; increase in number of VARs seeing growth as compared to previous surveys. Indications of progress also includes a growing list of large enterprises customers.

•  Imperva – Remains best of breed; indications of slow but more consistent growth amid competition from large incumbents.

•  Radware – DDOS solution highly regarded and winning new business.

•  Symantec – Seen as languishing because of lack of innovation. Like Check Point, benefitting from strong incumbency.

This presentation of results is at a high level. As always, we have more detail on all names / trends and look forward to discussing areas of interest to you. We have included selected anecdotes and comment at the end of this presentation

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Security Market “Security is the fastest growing segment of our business.” (12 similar comments) “Security, especially regulated - is seeing strong growth.” (5 similar comments) “Symantec has taken a step back due to lack of product advancements for the SEP solution. “ “Barracuda is growing due, in part, to its storage line of products.” “Fortinet is becoming a more prevalent choice for customers because of their strong performance in bake-offs.” “Radware is still winning new customers for DDoS mitigation and SafeNet is becoming the preferred choice for 2-factor authentication.” “Keep an eye on Bromium. They have potential and are fundamentally different than other endpoint solutions.” “Cisco is seeing an uptick in security driven by accelerating sales of Sourcefire products.” “F5 has been increasingly successful in expanding their presence in the security market.” “Symantec is losing market share a bit, but their name and incumbency carries them.” “Fortinet is seeing strong growth; Check Point is a great product, but there are several contenders in this area that have price advantages.”

Selected Comments

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Layer 4 – 7 Market


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Highlights: •  As opposed to the security segment where overall

market growth is giving all vendors a lift, the Layer 4-7 market is showing modest growth and more mixed execution.

•  F5, InfoBlox and NetScout all received strong scores. Comments and additional research supports the strong view for F5; we are digging deeper to better understand InfoBlox and NetScout.

See vendor observations on next slide.

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Vendor Observations: •  As opposed to the security segment where overall market growth is giving all vendors a lift, the Layer 4-7 market is showing

modest growth and more mixed execution.

•  F5 is executing well on multiple fronts as evidence by their recent healthy report and survey input. Input continues to reflect very loyal VARs as well as end users.

•  The challenges that were indicated for Riverbed were also confirmed in their recent report.

•  Indications for A10 have not indicated growth but we were surprised by just how poor their recent report was. Input has been mixed and like other smaller vendors, performance sometimes varies widely by geography.

•  Radware gets favorable indications in security but is seeing slower growth in the ADC market.

•  Opportunities / challenges that are less clear in this market include those for Gigamon, Netscout and InfoBlox. We consider the very favorable input for InfoBlox as an outlier that warrants further research. Survey results are surprisingly positive considering their recent uneven performance. 67% of respondents indicated > 10% growth. InfoBlox consistently gets favorable comments for their products and support but previous research has shown difficulty broadening their customer base.

•  Gigamon – Input has been consistently positive on the quality of their solution, but mixed on growth trajectory. Considering their recent report and recent research input we believe they will see continued growth but it is likely to be lumpy.

•  NetScout – Input was surprisingly positive. Possibly due, in part, to our expanded list of participants. We are investigating further.

(for additional updates see recent notes on Riverbed, F5 and Gigamon)

Layer 4 – 7 Market

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Highlights: The messages that came through most clearly from participants in the storage market include: •  Overall demand is soft in the enterprise market as

end users shift some spending to the cloud.

•  Smaller, private vendors are seeing the most growth, including Actifio, Nutanix, Pure Storage, Simplivity and Tintri.

•  Among public vendors, Nimble was consistently recognized for strong growth; growth has slowed for NetApp.

•  Input on Quantum has been improving as compared to prior periods.

•  In the “Other” category, Violin Memory was mentioned a few times as seeing improving demand. We are digging deeper…

(see recent notes on for additional updates on Nimble and NetApp.)

Storage Market

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Storage Market “Storage companies providing scale-out solutions with Ethernet / iSCSI connectivity, are winning. The ease of entry and upgrading with these base capabilities seem to be what the market wants (over IO rate and protection level).” “Enterprise Data Center Storage spend is moderate - market confusion with Cloud and Flash hype is starting to settle down” “Buy versus rent debate continues.” “Companies are learning where Flash storage works well - and where it doesn't. This market should begin to consolidate as price/performance leaders gain market share.” “Violin Memory is executing better and seeing growth.”

Selected Comments

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Storage Virtualization Market


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Highlights: •  The storage virtualization market is an area of growth

and a number of incumbent vendors have viable offerings. Cisco, HP, Microsoft, Red Hat and VMware all received consistently high marks for their progress.

•  Hitachi, IBM and NetApp, vendors who had early

storage virtualization products, are now seen as laggards.

•  Although we have followed the storage virtualization market in the past we have not had included specific survey questions. We are now working to follow changing dynamics in this market more closely.

•  InMage and Quantum were mentioned in the Other category as growing.

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Unified Communications and Collaboration Market

Highlights: •  As compared to previous surveys, input on the Unified

Communications and Collaboration market remains strong.

•  Microsoft continues to be the standout, with Lync, providing Instant Messaging, Voice and Video Conferencing, and integration with Microsoft’s other product suites.

•  Cisco, along with Microsoft continue to take share from Avaya.

•  Cisco has shifted their strategy to provide more integration with Microsoft Lync vs. competing head on.

•  The move, especially by SMBs, to hosted VoIP / hosted UC is very strong to the benefit of 8X8, Shortel and Ring Central.

•  Feedback on Polycom’s software and product direction remains positive but participants see further pricing pressure on video conferencing.

•  Sonus, AudioCodes and Plantronics also continue to benefit from growth in UC (see recent notes on Sonus and AudioCodes).

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Big Data and Analytics Highlights: •  Although we have been following this segment for the past three years,

from a survey perspective we have a small sample size.

•  Strong overall scores in this growing segment with Hadoop focused companies leading the way, along with Tableau and Splunk.

•  Legacy vendors Tibco and Teradata receiving low scores.

(see our note of 10/21/14 following the Strata Hadoop Conference)


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Enterprise Cloud Apps Highlights: •  Although we have followed the Enterprise Cloud Application market we

have not previously included specific survey questions about most of the vendors. We consider these initial survey results as more of a baseline then the results in some other segments that we have followed more closely.

•  It is no surprise that there are overall indications for strong growth in this market and that our survey results show the strongest results among the vendors who most would expect.

•  Comments indicated that some large enterprises have had negative experiences with public cloud. Despite very strong growth, we are hearing of a pull back in some areas as organizations have experienced reduced service quality and control as compared to in-house operations.

•  Where we have added value in the past and expect to in the future for this segment is in exploring specific areas of demand where our contact base offers visibility. Examples have included last year’s survey and research targeting LinkedIn, some specific research on CalladusCloud and Jive, and feedback regarding enterprise trends for adoption of Microsoft 365, Salesforce.com and Oracle.

•  As a follow up to our survey last year that was specifically focused on Linkedin, incremental input indicates continued strong progress in the recruiting market and success increasing page views based upon following experts, but we are still not seeing much evidence of strong adoption of Sales Navigator. Our target market includes very active users of Linkedin and, anecdotally, more report moving to paid subscriptions.

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Highlights: •  As the leader in server virtualization, VMware

receive a surprisingly low score in this segment.

•  This indication is consistent with our recent research indicating that the Server Virtualization market is maturing more quickly than many expect and VARs are seeing a decline in revenue, specifically for VMware.

•  Recent releases from Microsoft and Red Hat are viewed as robust and fully featured.

•  Some organizations are adopting Microsoft and Red Hat solutions to reduce their overall cost and dependence on VMware. They still view VMware and their solutions favorably but increasingly see it as an area where they have choices and can optimize their investments.

•  The data center continues to be a bright spot for

Cisco.

•  Docker is gaining momentum and the market is gradually getting a better idea of where it fits.

(see our recent notes on VMware, Docker, Red Hat)

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Server / Application Virtualization Market “Hyper-V in its latest iteration, is truly ready for prime time in the enterprise. Expect large companies to leverage their Microsoft Enterprise Agreements and migrate workloads to Hyper-V to reduce licensing spend overall, replacing VMware with HyperV since they already pay for it..”

“Cisco's relationship with EMC is in significant jeopardy. Note VCE shift and EMC JV with Lenovo. Sales this year may not be affected, but late 2015 and beyond may decline.” “This market continues to grow and evolve as enterprise acceptance of server virtualization increases. VMware does not seem to be gaining as quickly as MSFT and RHT - partially law of big numbers, partially due to shifting buyer from enterprise to CSP/MSP.” “Docker is still test & dev only. Citrix/Zen seems to be losing momentum. OpenStack (while not server virtualization itself) is driving the open source hypervisor conversation towards KVM (away from Zen). OpenStack will negatively affect Citrix more than VMW unless Citrix rapidly changes strategy.”

Selected Comments

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Network Virtualization and/or SDN

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Highlights: •  One of indications that stands out most to us is the increased

recognition received by Alcatel Lucent / Nuage in this market. We have reported for some time on the technical strength of Nuage’s SDN solution and advantages it offers for integration into legacy networks. This product strength has not been broadly recognized due to ALU’s lack of enterprise incumbency. Attention has been mostly focused on Cisco, VMware and others. We are following to see if they can monetize their product strength.

•  VMware and Cisco both get strong recognition. Many participants made comments regarding how early it is in this market and the current effect is to stall revenue vs. driving it. Revenue is expected to start to ramp in 2015.

•  We have highlighted feedback that has indicated that at this time, claims of growing adoption of VMware’s NSX is based more on bundling of licenses then on real deployments. Bundling and leveraging incumbency is the smart marketing approach for VMware but indications so far, are that NSX is immature.

•  We were surprised by the high score received by Private company Plexxi. They appear to be gaining more credibility in the market.

•  Brocade continues to get high grades for ease of implementation and management of their VDX products. Also more evidence of success with their Vyatta solution.

(for more see our recent notes on Cisco, VMware, Cumulus and Alcatel Lucent)

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Network Virtualization and/or SDN “Ciena is making progress on their NFV/SDN strategy in conjunction with Brocade. Rev benefit will be next year.” “Growth in this entire space is lifting all boats %-wise. Since last year's rev was so small, everyone is growing double or triple digits.” “Plexxi seems to have a lot of momentum and support as an alternative DC fabric to Cisco, Juniper and Arista. The benefit is broader than just SDN functionality. “ “Cumulus has smart founders and a big strategy. They need a big h/w partner and/or they need to hitch their wagon to OpenDaylight or OpenStack. “ “Brocade's acquisition of Vyatta seems to be finally bearing fruit and is under strong product management.” “Network Virtualization will finally start realizing more a more meaningful revenue ramp in 2015.”

Selected Comments

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Desktop Virtualization


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Highlights: •  Desktop Virtualization is another market that we have

followed but not previously included specific survey questions. We consider these initial survey results as a baseline and will be following in more depth.

•  Comments indicate disappointment with growth in this market.

•  Input was surprisingly strong for Red Hat. Red Hat also received strong scores in the other segments of our survey where they participate.

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Desktop Virtualization Market “Desktop Virtualization has been around for 15+ years and is feeling the pressure of commodity pricing.” “Dell is executing well and gaining share by leveraging their acquisition of Wyse.” “VDI will continue to grow as part of companies mobility strategy. All 3 major players (Citrix, Microsoft and VMware) continue to enhance their offerings – pricing pressure is increasing as many deals come down to who can provide functionality for the best price.” “The VDI market is in decline.”

Selected Comments

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Mobile Device Management (MDM) Highlights: •  This is another segment that we have

followed but not surveyed before. We are starting with a relative small sample size.

•  Scores and comments for Airwatch/VMware were among the strongest for any vendor in our entire survey.

•  Results were impressive for Mobile Iron.

•  NQ has been more successful in international markets and we believe is performing better than indicated but likely does not have as much of a presence to our participants.

•  It is easy to kick Blackberry when they are down.


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Mobile Device Management “Airwatch holds the leadership position in market share and features/$.” “Microsoft's EMS is maturing and is starting to see growth.” “Mobile Iron has a solid offering but is experiencing significant competitive and pricing pressure.”

Selected Comments

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Data Center Services Highlights: Data Center Services is another segment that we have followed but not previously surveyed. Our sample size continues to grow. •  Amazon, IBM/Softlayer and Rackspace received

favorable indications as expected.

•  CenturyLink received some notable positive anecdotes/comments.

•  General input on Akamai has been improving over the past four quarters.

•  Internap received higher ratings than we anticipated. We are investigating further to see if it is an result of our small sample size or improved execution/performance.

•  Microsoft Azure was omitted from this version of our survey. It will be included going forward.

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spr Optical Communications Equipment Highlights: •  Based upon survey input and our non-survey research

efforts our view is that optical spending has not been a top priority for service providers, except for selected projects. Some believe that optical will see renewed focus as vendors provide more integrated software (SDN) features and carriers are determine their next generation architectures.

•  Many of the favorable comments received for Ciena were from participants in the enterprise segment. Their favorable results are consistent with recent input indicating that they are increasing their selling efforts in the enterprise market and having success. Business from Tier 1 carriers is a larger determinant of Ciena’s success. We have provided recent updates on our view of Ciena’s overall progress based upon our non-survey research.

•  Huawei and BTI Systems received positive recognition in the other category.

•  Although it is based upon a relatively small sample size, Cyan’s high score was surprising to us. We are digging deeper…

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Telecom Infrastructure Highlights: •  Responses were fairly light for this market segment. We

also believe that the complexities of the telecom infrastructure market, especially for larger vendors like Alcatel-Lucent, Cisco and Ericsson are not well captured in this type of survey. We provide on-going updates on telecom CAPEX and vendor dynamics in our non-survey research.

•  It was interesting to see input on Calix and Infinera received strong scores. Their improvement was confirmed by their recent reports. We are digging deeper to better understand how sustainable this momentum is.

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What are the characteristics of growth in your business in 2014? Please estimate the growth rate for the following products and services that you may offer.

Highlights: •  In our view, the striking observation from input on the

growth of services offered by VARs is 1) the overall strong growth of services and 2) the large number and diversity of services that that participants see as growing.

•  A number of participants commented on difficulty finding expertise. This scarcity is helping drive the demand for services but also challenging services organizations as they try to grow their organizations to meet demand.

•  As seen on the graph, the fastest growing services include: Resale of Cloud Services / Brokerage, Hosting, Managed Security, Hosted Unified Communications and Big Data / Analytics.

•  Although Resale of Cloud Services / Brokerage received a strong ranking, comments indicate that there is still quite a bit of uncertainty among many channel partners for the delivery and support of Cloud Services.

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Highlights: Responses to this question were very mixed. Overall, we believe that comments reflects disruption and fragmentation that the industry is going through. We received positive indications for a wide variety of vendors including HP, Alcatel-Lucent, Cisco, F5, Red Hat, Ciena, Aruba, Ruckus, and Salesforce.com, however they were not consistent enough for us to provide a ranking or to have high positive or negative conviction for. We were impressed with the loyalty that many VARs express for the vendors that they work with.

Question: Considering the major transitions in the industry (Cloud, SDN, NFV, OPEX vs. CAPEX), are there vendors who you see as doing a notably good job of working with channel partners to address changing market needs? or a poor job? and why?

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Impact of industry transformation on VARs Highlights: The most commonly selected response to this question was “Challenging channel partners to adjust their strategies”. Some see less opportunity, others see more, but the clear message is disruption and the challenge of addressing market change. spr

Select Comments: “Some vendors have always had a hard time sharing maintenance revenue with VARs. The stakes are higher with the shift to more subscription revenue and some vendors have not adjusted well.” “VARs are getting into CSP/MSP services to capture the revenue they are losing from reduced Capex spend.” “Colo providers like Peak, QTS, Equinix, are all moving into IaaS.” “This is SONET in the mid 1990's -- it's going to happen but AT&T, VZ, the rest of the SPs now have ALL the power and they know how to call the shots.” “Arrow and Avnet are creating white-label clouds and managed services for their channel partners. Their services will likely be adopted by many of the mid-market VARs.” (comments continued on next slide)

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Technology Trends

Select Comments – Industry Transformation on VARs (continued): “SIs are more likely to be brokers or value-add providers on top of clouds in some cases in a white-label fashion.” “With the advent of cloud solutions, products are increasingly marketed direct to the customer reducing opportunity for VARs and systems integrators.” “It is still unclear as to who will be driving the market, and how SI's and VAR's will be working with both vendors and end customers to deliver services.” “The accelerating move to open source and commodity hardware is disrupting most vendors and channels.” “SPs need brokers to grow the market and those who make more effective efforts to develop real channels have the opportunity to gain share.” “Most vendors know they need to leverage the channel to meet growth objectives. The quality of execution varies widely.” “Some who understand customer needs and are moving quickly to provide solutions are doing a good job. Others who are trying to adapt existing products to address the need are not because these efforts provide partial solutions at a higher cost.” “Smaller Vendors seem to be more nimble to move to the Monthly SaaS Model.”

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Technology Trends

Reasons for Order Delays Highlights: •  As may be expected participants are not seeing

significant deal delays in the areas of high growth such as Big Data / Analytics and Security.

•  Some delays continue to be attributed to technology transition. Comments indicated delays to network infrastructure projects due to uncertainty of the value and direction of SDN and NFV.

•  Delays are also attributed to challenges in rolling out new technology that is not mature. This includes transition to some cloud services, SDN and complex Big Data projects.

•  Comments indicated reallocation of budgets to projects that were seen as more mission-critical / higher priority. Investment is shifting away from legacy hardware and software. The projects that are benefitting are in the areas of Big Data / Analytics, Security, Open Systems and in many cases Hybrid Cloud.

•  Some saw delays attributed to lack of technical

expertise and resources vs. financial restraints. This is consistent with other input on the growing challenge of finding and retaining technical expertise.

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Technology Trends

Comments: “Wireless Cloud Services, either Public or Private” “API Management” “A breakdown of the $250B MSP market into reasonable sub-segments.” “4G IP Wireless and Carrier WiFi Infrastructure equipment and Enterprise Network Security (Appliances).” “You are on the hottest topics out there... one that would make sense is to see what the SoC makers are doing for Data Centers which are the next Central Offices!” “Cloud versus SaaS versus local hosting.” “The timing and growth of IoT as a % of cloud services $$$.” “Glad you're looking into charts and useful visualizations of the data received. That's a big help.” “The shift in most used end device, mobile phone, tablet, or desktop PC, etc…” “Channel transition especially with regard to distributors moving into more direct sales.” “More topics regarding SI's/VAR's and the trends those service providers are experiencing. (i.e. How service providers are adapting to changes in providing different services, is this eroding margin etc.)” “The evolving role of Big Data.” We have implemented some of these suggestions in our new survey and plan to include more going forward. Thanks for your help!

Question: We are working to make the data that we collect and analyze as useful to you as possible. Are there any other questions, topics or trends that you would find helpful?

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Technology Trends

Overall, comments were mixed with many indicating a flat hiring environment ~50%) and some seeing slow growth. The strongest messages however are: •  Hiring is strong for selected skills - Big Data, DevOps, Security, Open Stack, Mobile App Dev, Automation, etc.). We have

heard of a growing number of cases where candidates have multiple offers in these areas.

•  The big OEMs (HP, Cisco, IBM, …) continue with layoffs but also hire in selected areas.

•  There appears to be a pick up in hiring by small and medium size technology companies.

•  Also hearing examples of companies managing sales activities more tightly. In some cases it appears just the normal process of companies maturing, adding layers of management and increasing the number of “commit” conference calls.

•  Input also indicates that some companies are managing quotas and associated earnings more closely. In some cases, companies are making an obvious effort to reduce commission expense. In the cases of early stage companies there seems to be more evidence of investor expectations for growth that are unrealistic, or at least very aggressive.

•  Companies are managing payouts for comp plans by adjusting quotas more closely, sometimes making quarterly.

•  VARs and SIs often provide a lower salary and broader range of payouts with a more open high end. We are hearing less changes to management of commissions among VARs and Sis.

•  SEs - Most comments are that SEs in our industry are relatively well paid and that companies that take care of SEs are well rewarded for their efforts. Although sales reps take more risks and get more glory (and blame), we continually hear evidence that the expertise and credibility that strong SEs bring are critical to not only winning business but to anchoring vendor / end user relationships.

Hiring Trends and Compensation:

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Technology Trends

Selected Comments: “Hiring increasing in Cybersecurity now and likely through 2015.” “Organizations are still cautious, but hiring is picking up slowly and broadly.” “Tech hiring has picked up lately, probably getting ready for Q1 2015.” “There will be a continued move of IT support resources from enterprise IT shops to SPs with initially an uptick is jobs with hyper-competition but eventually a decrease in overall positions if Cloud delivers on its promise of more efficiency.” “Flat, continuing re-alignment of resources to right shore / right cost for delivery functions.” “Strong market for experienced programmers, both here and abroad: Eastern Europe and India.” “Integrators are seeing a decrease in product sales and an increase in technical resources (consultants, etc.)” “Seems like IT hiring is still strong. Vey tough to get a good engineer under $120K.” “Flat for now, except anything relating to GRC, those skills are increasing in demand (Gov, Risk, Compliance).” “Hiring is flat for full time employees, increase in contractor supplied resources.” “Cloud-based organizations hiring extensively. Older, more established license software orgs still hiring for specific markets and niche products, but not with the intensity of cloud vendors.”

Hiring Trends and Compensation:

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Technology Trends

Question: In your response to our questions regarding IT spending what is your estimate of the annual IT spending revenue that your view is based upon (please answer in USD, please note if other in the comments section)?

Information on survey participants

Size of VAR and/or participant’s market spr

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For more informaJon contact: Williams C. Hay Tom Morphis 404-‐229-‐4995 404-‐217-‐7626 [email protected] [email protected] Copyright 2014, Sales Pulse Research, LLC ® All rights reserved. Important Disclosures: Facts and the other informaJon contained in this report have been obtained from public sources considered reliable but are not guaranteed in any way. No independent confirmaJon of the truth, correctness or accuracy of the informaJon presented has been made by Sales Pulse Research, LLC. This report is published solely for informaJon purposes and is not an offer to buy or sell or a solicitaJon of an offer to buy or sell any security or derivaJve. Sales Pulse Research, LLC accepts no responsibility for any loss or damage suffered by any person or enJty as a result of any such person's or enJty's reliance on the informaJon presented in this report. Opinions and esJmates expressed herein consJtute judgments as of the date appearing on the report and are subject to change without noJce. Employees of Sales Pulse Research, LLC may from Jme to Jme acquire, hold or sell a posiJon in the securiJes menJoned herein in this report. All of the recommendaJons and views about the securiJes and companies in this report accurately reflect the personal views of the analyst(s) of Sales Pulse Research, LLC. No part of analyst's compensaJon was, is, or will be directly or indirectly related to the specific recommendaJons or views expressed by the research analyst. No part of this document may be copied, photocopied, or duplicated in any form or other means redistributed or quoted without the prior wriLen consent of Sales Pulse Research, LLC. The informaJon contained herein has been obtained from sources believed reliable but is it not necessarily complete and accuracy is not guaranteed. ConfidenJality NoJce: This transmiLal is a confidenJal communicaJon or may otherwise be privileged or confidenJal. If you are not the intended recipient, you are hereby noJfied that you have received this transmiLal in error and that any review, disseminaJon, distribuJon or copying of this transmiLal is strictly prohibited. If you have received this communicaJon in error, please noJfy the sender immediately by reply and delete this message and all its aLachments, if any.

Thanks for your input and help. We are happy to provide more information on trends, companies or industry segments that you may have specific interest in.

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