8/10/2004 -- Dont look now, but VPN services is one of the hottest segments in all of networking, with total revenues that reached $18 billion in 2003, according to U.K. researcher Infonetics Research.

As if thats not enough, Infonetics researchers say, VPN services growth will continue to grow at an aggressive rate, nearly doubling by 2008 -- when theyre expected to reach $30 billion.

Another up-and-coming market segment is security services, which posted $3.1 billion in total revenue for 2003. Infonetics says that increasing global demand for security services should drive that market to $7.7 billion by 2008.

The upshot, says Infonetics analyst Jeff Wilson, is that service providers are taking notice. Most service providers, from ISPs to rural ILECs to large IXCs, sell managed VPN and security services, and those that dont now are looking to, because managed VPNs and security are a great way to boost revenue with a high margin service, said Wilson, in a statement.

As a result, Wilson says, the general security field and the (once distinct) VPN
services field are now converging. The distinction between VPNs and the general security field is blurring. Most service providers offer both managed VPNs and security services, and can build solutions that seamlessly blend VPNs with a variety of security technologies.

Theres already a correlation between the two, according to Infonetics: for every $1 spent on VPN products, roughly $10 dollars are spent on VPN services

Wilson and Infonetics say that the VPN services market of today will undergo a large-scale transformation over the next four years. For example, right now, unmanaged services account for 59 percent of of VPN service revenue, followed by network-based services and managed CPE services. This will change by 2008, according to Infonetics, which says that network-based service revenue will increase during that period.

Similarly, while IPSec is today the dominant VPN technology (followed -- at a diminishing rate -- by MPLS, MPLS/IPSec, and SSL, respectively), that will change by 2008, when IPSec revenue is expected to drop proportionally, benefiting all three technologies.

In 2004, the majority of security service revenue came from device management services, but by 2008, service revenues derived from active monitoring could begin to challenge device management. -Stephen Swoyer