Why Is F5 Networks’ Future Growth Threatened By Cloud Based Vendors?

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F5 networks‘ product annual revenue growth has averaged 6% in the past three years. Going ahead, we expect F5’s product revenue to grow at an average rate of approximately 5%. This is a sharp decline compared to F5’s product revenue growth of 29% between 2010 and 2012. The tepid revenue growth estimate for F5 is indicative of the challenges faced by the company in the evolving landscape of the Application Delivery Controller (ADC) market. One important factor that led to the evolution of the ADC market is the emergence of cloud-based services, which threaten F5’s ADC market share going ahead. According to Gartner, F5’s market share declined from 49% in 2014 to 47% in 2015. In this analysis, we discuss in detail how F5’s market share is threatened by cloud-based vendors.

F5 Networks Needs To Compete With The Offerings of Cloud-Based Vendors

F5 is facing competition not only from new entrants in the ADC market, but also from native cloud-based service providers. Traditionally, ADC vendors have focused on helping customers manage applications in their own data centers. However, as more and more applications are now being deployed in Cloud data centers, ADC vendors are increasingly focused on evolving their support for applications on the cloud. Consequently, traditional load balancing companies have to compete with the offerings of cloud vendors.

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Consider the example of Amazon (NYSE:AMZN), which uses elastic load balancing (ELB) to distribute the incoming application traffic across multiple Amazon EC2 instances in the cloud, for applications using Amazon web services. Although F5’s load-balancer is customizable and is built on high-performance hardware, Amazon’s ELB is a bit different and it completely abstracts the hardware. The plus point for an Amazon ELB is that it wipes out the hassle of installing and customizing a dedicated hardware for load balancing, which is a must in case of BIG-IP based products. This goes in line with the emerging user preference for having light-weight and low-cost applications that are easy to maintain.

For the reasons cited above, we can expect cloud-based load-balancers to command a larger percentage of the application delivery controller market in future. This can have a negative impact on F5’s revenue growth too.

For information, please refer to our complete analysis for F5 Networks

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