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Are VPN prices headed down?

The virtual private network market is booming. The VPN market is so hot, makers of consumer-oriented products may enter the business-class market and drive down prices.

With the virtual private network (VPN) market worth billions of dollars, some consumer-oriented hardware companies such as Linksys and D-link may start biting into the VPN business of the market leaders, Nortel, Sonic Wall, Cisco and Checkpoint.

Jeff Wilson, executive director of Infonetics Research, a San Jose, Calif., firm that tracks high tech market trends, believes it is only a matter of time before the makers of so-called commodity VPNs start to gain momentum in the small to medium business market.

If that is the case, customers who now pay tens of thousands of dollars for an average VPN installation, could see prices tumble just as they did in the personal computer and peripherals markets. But some users of business-class VPNs are skeptical that commodity VPNs have much to offer them.

VPN prices compared
So-called commodity VPNs are available for about $200 to $500, and are made by companies whose products traditionally share retail shelf space with the likes of mouse pads, ergonomic keyboards, and packs of floppy disks.

Business-class e VPNs range in price from $2,000 to $5,000 per component.

Such networks have become wildly popular for business use in recent years. A VPN uses encryption to securely connect two networks privately over the Internet. The technology is more secure than a dial-up connection and cheaper than buying a dedicated communications line.

The VPN market was worth $3.4 billion in hardware and software products, while VPN services accounted for $19.6 million last year. It is booming even in the present tough market.

"When you look at the product market overall it's grown quarter over quarter, every quarter since we started counting it in 1999. Most quarters it?s been double-digit growth, although in the last few (quarters) it's been low double-digits. We've been in the teens every quarter, which is healthy growth for a multi-billion dollar market," said Wilson.

Wilson said the strength of the market in tough times is due to heightened security concerns, and the ability of VPNs to substantially reduce the cost of building networks compared to leased lines.

Others eager to share the action

This market strength might lead some of the consumer-oriented companies into the enterprise space, said Wilson.

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Best Web Links on virtual private networks
"Many of the commodity vendors are looking at adding high-end gateways, because their low-end business has been so good like ZyXEL. I wouldn't be terribly surprised to see a commodity vendor or two re-spin into VPN/security vendors. The hardware and software are available off the shelf, so it wouldn't be terribly hard for them to build high-end products," said Wilson.

Linksys corporate marketing strategist, Karen Sohl said the company wants to eventually be able to compete with companies like Cisco and Nortel for the medium business market.

"Basically our focus right now is small to medium business and small home office. We want to own these markets and build infrastructures for us to expand our product lines to include higher end networking solutions and more managed products. We are making customer relationships through small home offices, small business, and value added resellers, which gives us the inroad to expand our product offerings and service/support to meet the needs of larger companies," said Sohl.

Jim Slaby, senior industry analyst with the high tech consulting firm, Giga Information Group of Cambridge, Mass., said he doubts commodity vendors will be able to compete with the big names on their home turf, due in no small part to security and interoperability issues currently associated with commodity VPN equipment.

Slaby said that many of the people who currently use commodity VPNs are technophiles who have purchased the equipment for their home offices, which is where this technology belongs.

"Infonetics analysts said that we really think that these guys are going to grow at the expense of some of the established VPN gateway vendors, Cisco, Nortel, CheckPoint. That' really where I said, 'wait a minute these are two separate markets.' I don't really see the low end vendors eating into enterprise class VPN gateway market share," said Slaby.

Wilson agrees that when it comes to VPNs, Nortel, Cisco, and the like are still the tallest horses at the trough, and consumer-oriented companies won't hurt their business, at least for the immediate future.

Customers skeptical

Meanwhile some VPN customers say commodity VPNs are not ready for prime time yet and they will stick with the more established products and service providers.

Paul Slosberg, technical operations engineer at Paraexel, a medical research firm in Waltham, Mass., said that a commodity VPN was out of the question for his enterprise.

"The 200 dollar range router/firewall can do some filtering but the security is low and not acceptable for our business. We use SonicWall because it interoperates with our Cisco gateway and it allows for excellent security, it also lets us set up dedicated secure communications with our outside clients at a reasonable cost," said Slosberg.

Marty McCann, MIS manager for FoilMark, a medium sized manufacturer of metalized foils in Newburyport, Mass., said that when it was time to upgrade his VPN he decided on a service provider to do the dirty work. McCann was faced with connecting multiple locations across the country, and an off the shelf do-it-yourself VPN wasn't going to cut the mustard.

"Most of the separate hardware devices like Linksys boxes require you to connect to them via a PC, and then go through a series of configuration steps to set up. The OpenReach (VPN) configuration file can be downloaded from anywhere via the Web and copied to a floppy. The installer has to do nothing other than put the floppy in the drive and power up. This makes it very convenient for remote installations,"

Even though Slaby's company doesn't focus on the small to medium business market, he said he would recommend a managed VPN solution like McCann implemented at FoilMark to other small to medium companies.

"We'd say maybe you ought to consider one of these emerging VPN providers that are non-facilities based. We're talking about companies like OpenReach, Fiberlink, Virtela, and some of these new players. They will run your VPN over any number of ISPs, and will provide you with the hardware and manage it on your behalf at a nice low cost," added Slaby.

Slaby says that there will always be users who will try and make the most of the cheapest technology, but that in the end you get what you pay for.

"There will always be people who are penny wise and pound foolish. Was a Yugo really a good investment? Probably not in retrospect, but that didn't stop lot's of people from buying them at the time," said Slaby.

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