InformationWeek

January 5, 1998

VPNs Set To Take Off

The promise: lower telecom costs and improved links to partners, remote users

hile virtual private networks made their way onto many an IT department's schedule in 1997, this is the year when they'll start paying off in the form of lower telecommunications costs and improved links to partners and remote offices.

The market for VPN products, systems integration, and network services, valued at $204 million in 1997, is set to take off in 1998 and subsequent years, reaching $11.9 billion in 2001, according to Infonetics Research Inc. Why the enormous potentia l? VPNs, which establish secure data communications tunnels within existing public and private Internet Protocol links, are standards-based, reasonably priced, relatively easy to set up, and promise tangible returns on investment.

The Automotive Network Exchange, due to go live in the second quarter of this year, will let thousands of companies in the auto supply chain swap CAD files, E-mail, and other information. The auto industry expects ANX to cut its costs by about $1 billion a year, or roughly $70 per car made. ANX could ultimately involve as many as 40,000 companies that have a stake in manufacturing, financing, and insuring cars and trucks.

Other industries are following the auto companies' lead. WIN Connect, a VPN formed by the World Insurance Network in London, is backed by the four leading U.K. and U.S. commercial insurance brokerages: Sedgwick Group, Willis Corroon, J&H Marsh & McLennan, and AON Corp. These brokers buy and sell insurance policies that were initially sold to companies and individuals by insurance underwriters.

Networks used previously by the brokers and underwriters to swap data on reselling policies to investors and reinsurance companies limited them to certain products or geographical areas. WIN Connect now covers a broader range of products and connects tens of thousands of desktops around the world at the four brokers and at insurance underwriters such as Cigna Corp. The goal for 1998 is to bring dozens of insurance policy underwriters on board, says WIN Connect CEO Tom Brown.

The Federal Home Loan Bank in Dallas plans to have all 700 member institutions in five states hooked up to its VPN by September. About 85 members connected so far can submit loan and money-transfer requests over the Internet.

Previously, member institutions were connected to the bank over costly toll-free dial-up links, which offered no encryption and only password protection, says chief operating officer Terry Smith. The other secure alternative, private lines, is also too expensive. A V PN is both inexpensive and secure.

Reuters America Inc. expects that the VPN it's developing will cut annual telecom costs for its 250 salespeople in half, to $45,000. VPNs are also attractive to global organizations that either can't get adequate telecommunications in remote countries or have to pay through the nose for it. Deckers Outdoor, an outdoor apparel and equipment maker in Santa Barbara, Calif., expects to save more than $10,000 a month on just one three-way international link by choosing a VPN rather than leased lines.

Booz, Allen & Hamilton, a consulting firm in McLean, Va., is turning to a VPN to support the expansion of its remote locations over- seas. While the company has its own dial-up access points in 60 countries, it went with a VPN service from UUNet Technologies for its reliability and ubiquitous access. "It provides local dial locations where we could not get a private connection," says Daniel Gasparro, the firm's chief technologist.

Gasparro also says the VPN will be more reliab le than some of the firm's private links in developing countries. The VPN also lets its consultants piggyback on their clients' networks without having their own account, saving the cost of setting up a separate connection while bringing the firm closer to clients. "You are able to work more collaboratively," says Gasparro.

But savings and ubiquity aren't the only benefits. Chief operating officer Smith says Federal Home Loan's VPN will improve productivity. Before, if members wanted to move money, they had to talk with a person at the end of a phone line. With the VPN, requests can be conducted electronically. "Using this network takes a lot of people off the telephones so they can focus on value-added services," Smith says.

Security is a major issue for many organizations. VPN technology not only let the Kansas Department of Revenue set up an electronic application between its Topeka headquarters and two regional offices in about a week, but the application is also secure, says Dave Timpany, network pla nning manager with the state. "If we wanted to get something as secure as this VPN, we'd have had to go with private circuits," he says. Kansas is now evaluating how it can leverage VPNs for other departments, Timpany says.

There's no lack of vendor interest in delivering VPN solutions. All the major internetworking vendors offer VPN capabilities in their WAN switches, and firewall vendors have also implemented the technology. Most of the major telecom carriers and Internet service providers will either roll out VPN services or expand current offerings next year. More than a dozen security vendors, including Axent, Frontier Technologies, New Oak Communications, and RedCreek Communications, offer hardware and software that support VPNs. Major software vendors such as Microsoft and Novell are expanding support for VPNs in their next-generation operating systems.

Hurdles To Clear
Several VPN technical hurdles remain, however-and not all of them are expected to be cleared in 1998. For one thing, the re are a jumble of VPN specifications. Three primary ones have emerged: IPSec, the Point-to-Point Tunneling Protocol, and the Layer 2 Tunneling Protocol.

If a company plans to build a VPN-based extranet, it must make sure that the systems it buys support the same specification as the systems its partners buy. For example, the auto industry's ANX organization requires its participants to use systems that comply with IPSec, a specification backed by the Internet Engineering Task Force. PPTP was developed by Microsoft, while the Layer 2 Tunneling Protocol combines PPTP with the Cisco Systems-developed Layer 2 Forwarding spec.

Industry experts say no single spec will win out. "There will be choices," says Michael Howard, president of Infonetics Research.

Such a choice lets customers pick the VPN systems that best meet their needs. But it also means IT managers will have to do their homework to ensure the systems they and their partners implement will work together. The extra work will likely be worth it , customers say, since it will pay off in lower telecom costs, WAN links that spans the world, and closer ties with suppliers and customers.

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