Market Analysis – 83112203 – VPN virtual private network managed network services

Market Analysis: Managed VPN Services (UNSPSC 83112203)

Executive Summary

The global market for managed network services, inclusive of managed VPNs, is valued at est. $75.8 billion in 2024 and is projected to grow at a 9.8% CAGR over the next three years. This growth is driven by enterprise cloud adoption and the permanent shift to hybrid work models. The single greatest opportunity lies in transitioning from traditional VPN architectures to integrated Secure Access Service Edge (SASE) platforms, which combine network and security functions to improve performance and reduce risk. The primary threat is the increasing sophistication of cyberattacks targeting network infrastructure, making supplier security capabilities a critical evaluation point.

Market Size & Growth

The Total Addressable Market (TAM) for managed network services is substantial and expanding steadily. Growth is fueled by the increasing complexity of enterprise networks and the strategic decision to outsource management to specialized providers. The market is moving beyond basic connectivity, with significant value now placed on integrated security and performance analytics. The largest geographic markets are 1. North America, 2. Europe, and 3. Asia-Pacific, with APAC showing the highest growth potential due to rapid digitalization.

[Source - Internal analysis based on data from Gartner, IDC, 2023-2024]

Key Drivers & Constraints

1. Demand Driver (Cybersecurity): A sharp increase in the volume and sophistication of ransomware and data exfiltration attacks is forcing organizations to abandon legacy VPNs, which have become prime targets. This drives demand for more secure, context-aware access solutions like Zero Trust Network Access (ZTNA).
2. Demand Driver (Cloud & Hybrid Work): The migration of applications to multi-cloud environments and the formalization of remote/hybrid work policies necessitate agile, scalable, and secure connectivity that traditional hub-and-spoke VPN models cannot efficiently provide.
3. Technology Driver (SD-WAN & SASE): The convergence of networking (SD-WAN) and cloud-delivered security (SASE) is the dominant technology shift. This allows for optimized routing, centralized policy management, and consistent security for all users and locations.
4. Cost Constraint (Skilled Labor Shortage): A global shortage of certified network security engineers is increasing the operational cost for suppliers. This inflates the "management" fee component of contracts and makes outsourcing more attractive for enterprises facing the same talent gap.
5. Constraint (Legacy Integration): For established entities like public utilities, integrating modern SD-WAN/SASE solutions with legacy Operational Technology (OT) and existing MPLS infrastructure can be complex and costly, slowing adoption.

Competitive Landscape

Barriers to entry are High, characterized by massive capital investment in global network points-of-presence (PoPs), complex global regulatory compliance, and the brand trust required to manage mission-critical enterprise traffic.

⮕ Tier 1 Leaders * AT&T Business: Differentiates with its extensive owned global fiber backbone and deep integration with its cybersecurity consulting services. * Verizon Business: Strong in North America with a focus on wireless/5G integration into its managed SD-WAN offerings for failover and primary access. * Orange Business Services: Leading presence in Europe and emerging markets, offering robust multi-cloud connectivity solutions and strong service-level agreements (SLAs). * Lumen Technologies: Leverages its vast Tier 1 internet backbone for high-performance connectivity, appealing to data-intensive industries.

⮕ Emerging/Niche Players * Cato Networks: A pioneer in cloud-native SASE, offering a fully converged network and security stack on a single platform. * Zscaler: A market leader in the security-focused side of SASE (SSE - Security Service Edge), providing a proxy-based architecture for secure web/cloud access. * Palo Alto Networks (Prisma SASE): Combines its best-in-class Next-Gen Firewall capabilities with its acquired SD-WAN technology (CloudGenix). * Aryaka Networks: Offers a managed SD-WAN and SASE solution with a focus on application performance, leveraging its own global L2 network.

Pricing Mechanics

Pricing is predominantly a recurring, subscription-based model. The typical price build-up consists of a per-site fee (tiered by required bandwidth/throughput), a per-user fee for remote access clients, and a management fee that covers monitoring, maintenance, and support according to the selected SLA. Additional costs are incurred for advanced, bolt-on security features like Managed Detection and Response (MDR), Cloud Access Security Broker (CASB), and advanced threat intelligence feeds.

Contracts are typically 36 months, with discounts offered for longer commitments. The most volatile cost elements impacting supplier pricing are: 1. Security Software Licensing: Costs for underlying security technologies (e.g., threat feeds, sandboxing) are rising. (est. +10-15% YoY) 2. Skilled Labor: Wages for certified network and security engineers required to manage the service. (est. +7-9% YoY) 3. Local Access Circuits: The cost of last-mile connectivity from regional telecom providers can fluctuate by geography. (est. +3-5% YoY)

Recent Trends & Innovation

• SASE Becomes Mainstream (Q1 2023 - Ongoing): Enterprises are moving past evaluation and actively deploying SASE architectures to replace disparate point products. Suppliers are responding by consolidating SD-WAN and security service edge (SSE) capabilities into single, unified offerings.
• AIOps for Network Assurance (Q3 2023): Leading providers are integrating Artificial Intelligence for IT Operations (AIOps) into their management portals. This provides predictive analytics to identify potential network issues before they cause outages and automates root cause analysis, reducing downtime.
• Broadcom Acquires VMware (Nov 2023): This major M&A event impacts the market as VMware has a significant SD-WAN (VeloCloud) and security portfolio. Customers and competitors are closely watching Broadcom's strategy for product integration, licensing, and support, creating potential disruption and opportunity.
• Focus on OT/IoT Security (Q1 2024): In critical infrastructure sectors like utilities, suppliers are developing specialized managed services to securely connect and monitor Operational Technology (OT) and IoT devices, which have different risk profiles than traditional IT endpoints.

Supplier Landscape

Regional Focus: North Carolina (USA)

Demand in North Carolina is High and growing. The state's position as a major financial services hub (Charlotte) and a technology/research center (Research Triangle Park), combined with significant public utility operations, drives robust demand for secure, high-performance managed network services. Supplier capacity is Excellent, with all major Tier 1 carriers (AT&T, Verizon, Lumen) having extensive fiber footprints and 5G coverage. The state also hosts a growing number of data centers, providing low-latency connectivity to cloud providers. The favorable business climate and strong pool of technical talent from local universities make it a competitive market for service delivery with no significant adverse regulatory hurdles.

Risk Outlook

Actionable Sourcing Recommendations

1. Mandate SASE/ZTNA Readiness in Next RFP. Issue an RFI within 6 months to evaluate supplier Secure Access Service Edge (SASE) and Zero Trust Network Access (ZTNA) capabilities. This directly mitigates the High risk of technology obsolescence. Prioritize suppliers with a unified platform to reduce complexity and security gaps, targeting a 15-20% reduction in security incident response times by consolidating visibility and control.

2. Disaggregate and Benchmark Service Components. Initiate a benchmark of current spend against a disaggregated model (connectivity vs. security overlay vs. management fee). This addresses Medium price volatility by isolating cost drivers like security subscriptions (up 10-15%). Target a 5-10% cost reduction by negotiating components separately or leveraging competition between pure-play security vendors and telcos in the next sourcing cycle.