The global network security market is on track to reach $38 billion by 2029, growing at a 10% annual rate, according to a report from Dell’Oro Group.

The surge is being fueled by cloud-first security strategies, hybrid work environments and AI-driven solutions, with cloud-based network security expected to account for more than half of all market revenue by 2026.

“Enterprises are voting with their wallets,” Mauricio Sanchez, senior director of enterprise security and networking at Dell’Oro Group said. “For decades, network security was dominated by hardware appliances.

He added while they still hold a majority share today, the stronger growth is clearly with software-based and cloud-delivered solutions.

The report noted the transition away from hardware-based security is accelerating as enterprises move to virtual firewalls, security service edge (SSE) and web application firewalls (WAF) to secure their networks.

Virtual firewalls are projected to grow at a 15% annual rate, while SSE revenue is expected to surpass $11 billion by 2029, reflecting a growing preference for scalable, cloud-native security models.

According to Sanchez, cloud-based security solutions offer greater agility and scalability compared to traditional on-premise security infrastructure.

“There’s no way to deploy a hardware firewall in the public cloud — it has to be software or virtual,” he said. “Cloud-based solutions go even further because they eliminate the operational burden on enterprises. If a company needs more capacity or features, they can scale instantly without hitting the limits of physical appliances.”

Another key driver of adoption is the financial model. Traditional CapEx-heavy security infrastructure, which requires large upfront investments every five to seven years, is being replaced by an OpEx model, allowing companies to spread out costs.

“For many enterprises, the ability to pay for security as a service rather than making a huge capital investment is a game-changer,” Sanchez said.

SSE, Zero-Trust Fueling Market Growth

Security service edge (SSE) is rapidly gaining traction as organizations rethink their security architectures. SSE consolidates cloud access security brokers (CASB), zero-trust network access (ZTNA) and secure web gateways (SWG) into a single cloud-delivered model, replacing traditional VPNs and perimeter-based security.

“Companies are turning to SSE to strengthen security in a cloud-first world,” Sanchez said. “It plays a crucial role in zero trust strategies by ensuring that only the right users and devices get access while blocking threats across hybrid work setups and cloud applications.”

Artificial intelligence (AI) is emerging as a key force in cybersecurity, helping organizations detect threats faster, improve analytics and automate responses.

AI-powered security solutions are reducing false positives, allowing IT teams to focus on real threats instead of sifting through excessive alerts.

“AI is reshaping security operations by spotting unusual activity in real-time and easing the workload on IT teams,” Sanchez noted. “Vendors are heavily investing in AI-driven security upgrades, both to keep up with evolving threats and, frankly, to drive more revenue through new product offerings.”

However, while AI is transforming security tools, its broader impact on network security architecture and spending is still evolving.

“If I had to read the tea leaves, there’s a massive opportunity ahead,” Sanchez said. “As enterprises dive deeper into AI, they’ll face a whole new set of security challenges, driving demand for innovative solutions.”

Challenges Transitioning to Cloud Security

Despite the advantages, shifting to software-defined and cloud-native security comes with challenges, with enterprises often underestimating hidden costs, such as cloud infrastructure expenses for running virtual firewalls.

“Some companies don’t realize that deploying software firewalls means paying for the underlying cloud costs — compute, storage and networking aren’t free,” Sanchez cautioned.

Additionally, cloud security solutions require a different approach to network architecture.

Traditional security appliances were largely transparent to a company’s network routing, but cloud-based security actively integrates into the network topology, requiring coordination with IT teams.

Metered pricing is another concern: Many cloud security solutions charge based on usage, which can lead to unexpected costs.

“If enterprises don’t closely monitor how much data they’re pushing, they may be in for an unpleasant surprise when the bill arrives,” Sanchez said.