Cloud Flare(s) on IPO

The Important

  • The IPO of companies like Zscaler, and today Cloudflare, highlight two important trends: cloud computing and network-as-a-service
  • Digital transformation makes public/private/hybrid cloud assets mission-critical across more industries than before.
  • From a new growth perspective, security is increasingly less interesting as an appliance and more interesting as a network [service].

Cloudflare

Today, Cloudflare (NET) executed its initial public offering raising over USD 500 million with a valuation of over USD 4 billion. For the first six months of 2019, Cloudflare generated USD 127 million for a loss of USD 37 million.

Cloudflare primarily positions with a security emphasis, for example (DDOS) mitigation, it also has other offerings and capabilities including content distribution network (CDN), domain name server (DNS), “smart” routing, load balancing, video streaming, analytics, platform API & developer program, and integration with many popular cloud providers.

While Cloudflare may resist being categorized as an SD-WAN solution, it is not hard to see how it could evolve there, especially for data center/cloud to data center/cloud communications.

!94 points of presence give Cloudflare a global presence. With a global network, Cloudfare is able to address performance concerns as well as security concerns. Performance concerns are addressed through smart routing, CDN, and DNS. This combination of security capabilities and network performance improvements is perhaps an example of what the networking industry has been referring to when it talks of “network as a service”. Cloudflare also has a new VPN service it is has introduced.

So while Cloudflare leads with security, it is an interesting company to watch in terms of the impact it may eventually have on networking.

Digital Transformation

Previously discussed, there are two fundamental consequences of cloud: customer experience and operations excellence. Digital transformation is driven by these two market forces, and what the hyperscalers have demonstrated can be done.

Cloud Services Create a New Customer Experience Reality
“Businesses cannot afford to underestimate the impact large cloud titans such as Amazon, Dropbox, SalesForce and…
medium.com

As a result of this inflection, web-assets / web-presence is no longer a necessary evil, it is increasingly a critical cog in a value chain. Websites must be protected from attack. Cloud shifts new growth in the broad, high unit volume, security landscape, to cloud assets. End device, of course, remains important, though even their network-based security services will eat some portion of that opportunity. No doubt there remains high-performance use cases where a large on-premise chassis is required.

Network-as-a-Service (NAAS)

SD-WAN/SD-BRANCH are increasingly characterized by integrated security. A situation is emerging where networking-first companies are integrating security into network services, and security first companies are integrating networking into security services.

Being network-based has at least two important value propositions. One is having a globally distributed network to increase the performance of traffic. Second, collecting security-relevant data from as many distributed points within a network, and within the network of service customers, so better/faster analytics and inference sharing can be performed. The power of a network is significant in both networking and security.

Chess Board

Cloudflare positions itself directly against the solutions of Cisco, Juniper Networks, F5 Networks, Check Point, Palo Alto Networks, and Riverbed. In one video on their website, Cloudflare even takes a Cabletronesque poke at Cisco — brave!

Are there security appliance companies that should acquire Cloudflare? Yes, there are some that need a play like this, but valuation is currently expensive, and could be dilutive — which would worry some companies.

Are there communication service providers that should acquire Cloudflare? Yes. More optimal for a CSP that has a global vision/brand, but this may be an even better play for a CSP than a box vendor because it involves managing a network.

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