The global data center interconnect (DCI) equipment market is projected to exceed $6.4bn by 2022. Two clear stories in the DCI market emerged in 2017: the cloud services market became much more competitive, attracting capital investment dollars, and purpose-built DCI transitioned from a product future to a solid revenue-generating segment. Internet content providers (ICPs) will continue to go after the cloud services market aggressively in the period 2018–20, driving DCI capacity and network extension growth. ICPs will continue to globalize their core businesses, driving more subsea DCI growth, and 4K video rollouts will drive DCI growth for communications service providers (CSPs). In the longer term, 5G rollouts will amplify all data center and DCI trends, extending networks and driving bandwidth growth. Bandwidth growth is a certainty, but individual vendor revenue growth is not; the DCI market is intensely competitive, and in the past, ICPs have in some cases bypassed the system vendors. Beyond US borders, most CSPs have a strong position in the DCI market in their territories. CSPs continue to build multiservice networks that serve DCI. Our forecast for the overall DCI market is strong at an 11.4% compound annual growth rate (CAGR) to 2022, outpacing the overall WDM market which is projected to grow at a 4% rate. Ovum forecasts the purpose-built DCI market to grow at a 49% CAGR as the market moves toward solutions that are designed and purpose-built for DCI.
ICPs have turned the purpose-built DCI market into an extremely competitive technology race. Their objective is to use a best-of-breed solution while it remains best of breed, switching when a new one takes the best-of-breed mantle. Vendors will strain to keep pace, but there is a long game afoot. Vendors that can execute effectively on this recurring pattern over the long haul will grow stronger.
For vendors, there is no rest for the wicked, nor for the virtuous; they must keep the long game in mind. The winning vendors will have parallel transmission development tracks running with shorter intervals between product releases. Managing dual or multiple development tracks will be challenging but essential to stay in the fight in the long term.
Vendors need to find avenues to trusted partner status with ICPs. The ability to meet unforecasted short-lead-time orders is one way in which vendors can endear themselves to their ICP clients.
DCI solutions for the CSP community will need to meet the multiservice requirement and will require a path to 5G.
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