It took a while for HP to realise acquisition might be a good way to revive its fortunes in the WLAN market, but the favourable reaction to the announcement of its plans to buy Aruba Networks for $3bn shows that most people think it made the right decision.
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The deal to purchase Aruba Networks - which comes less than three years after Cisco significantly strengthened its hand in the WLAN market by snapping up Meraki - sets the scene for a major battle in the networking arena.
A sign of the increasing competitiveness in the WLAN market was Extreme Networks’ announcement that it was targeting Aruba and HP customers with a 50% off deal for its Secure Mobility with Analytics for the Private Cloud product.
The company said it was offering Aruba and HP customers “a strong and stable alternative with proven and long-standing wired and wireless integration, application analytics, advanced policy administration and over-the-air security, that is managed from a single interface”.
Buying Aruba Networks will come as welcome news to HP’s Networking division, which has been flagging recently and reported an 11% drop in sales for the vendor’s first quarter.
HP has been unwilling to comment on the acquisition beyond pointing to CEO Meg Whitman’s statement at the time of the deal, when she claimed combining Aruba’s wireless mobility with HP’s switching portfolio would enable it to “offer the simplest, most secure networking solutions to help enterprises easily deploy next-generation mobile networks”.
Aruba CEO Dominic Orr described the deal as giving both companies “a tremendous opportunity to become an even greater force in enterprise mobility and networking. This transaction brings together Aruba’s best-of-breed mobility hardware and software solutions with HP’s leading switching portfolio. In addition, Aruba’s channel partners will have the opportunity to expand their businesses with HP offerings”.
WLAN market growth
There’s no doubt the WLAN market is an important market to be in, even if the rate of growth has slowed in recent quarters. IDC’s latest worldwide quarterly WLAN tracker found the enterprise segment grew steadily in the fourth quarter of 2014, increasing by 7.4% over the same period last year, but added it had been subject to “a pattern of incremental growth rate decreases”. IDC estimated the enterprise WLAN market grew by 8.5 % for the full year in 2014, “significantly lower than the gains seen in the past few years”.
The top four WLAN vendors are Cisco, Aruba, Ruckus and HP. Cisco’s market share was just over 48%, giving it a dominant share. A strong clue as to why HP decided to purchase Aruba was provided by the WLAN growth figures for both businesses. While the other three vendors in the top four of the WLAN market grew revenues, HP’s were down by 15% in 2014 and its market share fell from 5.4% in the fourth quarter of 2013 to 4.3% at the end of last year. Aruba, by contrast, had a very strong performance in the fourth quarter, increasing revenue by 29%. The company’s market share also increased, rising to 11.8% from 9.8% in the fourth quarter of 2013.
Rival vendor Ruckus also outperformed the overall WLAN market, growing revenues by 15.7% year on year and increasing market share from 5.7% in the fourth quarter of 2013 to 6.2% at the end of last year.
The acquisition has been described as “a smart and bold move for HP” in a briefing note from market research company Gartner, which predicted combining the second biggest wireless networks campus-switching vendor with the second largest WLAN vendor would create a global rival to Cisco. Gartner also suggested that bringing in “respected executives from Aruba” to HP in key leadership roles could accelerate market opportunities.
But the market research company warned it was critical that HP had a dear integration strategy and investment protection offerings for its current WLAN solutions and to adjust its services to offer comprehensive global support for the joint Aruba/HP offering. HP should ensure the sales forces were integrated in 180 days of the deal closing and that a “clearly articulated short-term and long-term integrated product and support strategy” was in place. Gartner advised HP customers and partners to immediately discontinue any WLAN projects based on current HPN access points and move toward the Aruba product family instead.
Market reacts to uncertainty
The deal is likely to disrupt Aruba’s channel and OEM relationships with other mainstream networking vendors such as ALuE, Arista, Brocade, Juniper and Dell.
Gartner predicted Aruba’s OEM vendor partners would be forced to seek out alternative WLAN partnerships in the next two years, possibly involving Aerohive, Xirrus or Ruckus. It also suggested existing enterprise WLAN customers of Dell, Juniper, Brocade or ALuE should consider moving their WLAN supply to HP — or at least re-evaluating their WLAN vendor when they refresh their present infrastructure.
Shane Buckley, CEO of Xirrus Wi-Fi Networks, believes the impact of the acquisition on the Wi-Fi market will be significant. “Since Aruba also OEMs its products to HP competitors such as Dell, Brocade and Alcatel-Lucent, the acquisition creates as many questions for them as it creates for current HP and Aruba customers,” he says.
That uncertainty is also being reflected in the channel, he claims, revealing that Xirrus has been approached by a number of distributors and top-tier VARs, all of whom are reviewing their options in the light of this news. “We welcome all those who fit well into our channel ecosystem,” says Buckley.
But Ian Kilpatrick, chairman at Wick Hill Group, thinks the deal is a positive step for Aruba and its channel partners. “While many competing vendors are no doubt rubbing their hands at the potential for fear, uncertainty and doubt during the period before and after the transaction goes through, it could well be that this is more seamless than the competition hopes”.
He adds that the takeover is a strong investment in mobility which should come as no surprise as mobility and securing mobility have been major growth areas.
Kilpatrick highlights 802.11ac as a game changer: “WLAN performance can now rival LAN performance, but with greater flexibility. While there are objections — security, of course, being one — take-up is on an accelerating curve, and the channel is a key element in driving this growth.”
Roger Hockaday, EMEA director of marketing at Ruckus Wireless, says the deal reflects that, as the enterprise wireless LAN market has matured, organisations, their employees and customers have increasingly come to rely on Wi-Fi infrastructure. “It’s no longer a niche technology and has become a strategic solution for organisations whose employees and customers rely on always being connected,” he comments.
He points to service providers in the telecoms sector seeking to incorporate Wi-Fi into their offerings. “Cable operators, in particular, have been aggressive in doing this, to reduce customer churn and improve revenues,” Hockaday observes. “Mobile network operators have also been aggressive in this, as they look
to use Wi-Fi to offload cellular data in high-density locations.” He believes HP’s acquisition of Aruba is a “powerful validation of the growing and strategic importance of Wi-Fi”.
Gareth Green, general manager, international at Aerohive, argues the acquisition could have significant ramifications for the Aruba and HP channel. “With a high number of overlapping products and multiple operating systems in play, the potential for confusion is high, which means Wi-Fi and network specialist resellers may reconsider their current portfolio choices,” he says.
Data crucial to mobile benefit
And he expects many vendors to be affected by the takeover. “It will come down to the success of the different companies’ strategies, vision and execution to best exploit the void this will leave,” he claims.
“It will be incumbent on the independent, network-agnostic vendors to innovate and push Wi-Fi forward. While robust, cost-effective and secure connectivity is still in huge demand due to the seemingly unstoppable rise in connected devices, Wi-Fi is also evolving and being used for more diverse means,” says Green.
Cisco refuses to comment directly on the HP/Aruba acquisition, but Sarah Eccleston, director of enterprise networks and IoT at Cisco UK & Ireland observes that, while some companies seek to bolt on wireless to their existing portfolios, “mobility remains at the core of our networking business”. She stresses that Cisco has been delivering unified wired, wireless and cloud-managed platforms to customers and partners for years, “and will continue to do so”.
Partners look at mobility beyond infrastructure only – because it spans multiple facets of the enterprise
Sarah Eccleston, Cisco UK & Ireland
Describing mobility and WLAN as key initiatives for IT and line-of-business leaders, Eccleston warns: “It’s not just about connectivity and access to Wi-Fi, but what you can do with a connected device and the contextual data, to make the right business decisions, increase revenue and create a better user experience.”
She adds that, in addition to connectivity, organisations and users expect wireless to be fast, high-performing and the gateway to access personalised services. Eccleston believes there are huge mobility opportunities that span infrastructure, software and services for channel partners. “With the current market demand for mobility and new solutions that build services on top of products and applications, partners will benefit from high-margin and recurring revenue,” she says.
“This results in growth and new business opportunities. Partners look at mobility beyond an infrastructure-only perspective because it spans multiple facets of the enterprise - the infrastructure, security, technology -to deliver comprehensive solutions for the business, from employees (B2E) to consumers (B2C).”
Ruckus’s Hockaday notes that wireless is growing as a strategic necessity for many organisations. “This year will see the introduction of a number of key technologies that will drive change at an ever more rapid pace. This includes the next generation of 802.11ac (data rates of nearly 7Gbps), Hotspot 2.0 (Wi-Fi roaming) and the introduction of new cloud services to enable easier customisation of WLAN services, such as location-based services and network analytics,” he says.
Aerohive’s Green concurs that there is “a fantastic opportunity for the channel to offer additional services from the cloud”. He says network-centric partners who understand the challenges mobility creates for customers, have to recognise that “Wi-Fi will need to be part of their offering, and a part that they will need to select for their customers - not one that is dictated to them. Most value-added resellers want to offer best of breed, and long may that continue”.
Hockaday predicts that industry consolidation “will open more opportunities for leading Wi-Fi vendors and their channel partners to service a broader range of businesses with Smart Wi-Fi solutions”.
He believes Wi-Fi vendors should work closely with their channel partners to ensure products “are readily available and that customers have a choice of resources to help them understand, specify, acquire, deploy and operate associated applications into the correct environments”. It’s also important to have “targeted programmes that provide channel partners with the relevant tools, information and support to enable them to successfully grow their businesses”.
Unlike wired networks, he argues, WLAN “is one of the few areas of networking where the design and capability of the equipment makes a big difference to the experience of the user”. Whereas a 100Mbps switch always delivers 100Mbps, it’s possible to dramatically improve the performance of a wireless network within the access point. Better signal-to-noise ratios and greater receiver sensitivity help to pick up weak signals from mobile devices. Focused and directed radio from adaptive antennas provide a faster connection at greater range.
Hockaday urges channel partners seeking to integrate WLAN into their product portfolio to “look for the best technology to deliver the optimal solution to their customers”. Unsurprisingly, it’s not HP or Aruba technology that he’s referring to here.
What does HP think of the prospects for the channel in the WLAN market? Immediately following the deal’s announcement, Antonio Neri, leader of HP’s Enterprise Group, wrote a blog post claiming that the combined companies would “create a leader in enterprise mobility” and arguing Aruba’s specialised sales, marketing and channel model would complement HP’s networking business and broad go-to-market reach.
“Our intention is to bring together the best of both HP and Aruba technology to offer the most robust WLAN solutions available,” he states. Neri claims the simplified, converged solutions would also be “easier for our channel to sell”. The question that will need to be answered over the next few months is how many Aruba and HP partners decide to stick with their existing solutions and how many start looking for different technology?