7 thoughts on VMWare's $1.26B bid for Nicira

SAN JOSE – It's Gold Rush time in California again thanks to VMWare’s proposed $1.26 billion acquisition of Nicira Inc., a startup pioneering software-defined networking. There’s no doubt there’s gold in them thar hills, but it’s too early to tell how much and who will drag the bullion to the bank.

I have seven observations after spending a good chunk of last week hearing commentary on the deal. In short, there is gold here, but how much is a matter of some debate. There’s pressure to jump in the stream with engineers among the first getting wet. Expect some industry realignment before we are done. Cloud computing plays a substantial role. And there are more loose ends here than in a stack of denim at a Levi’s factory.

First some background.

Software defined networks (SDNs) take network jobs run in protocols supported by router and switch ASICs and turn them into server apps. The goal is to shorten the time and effort it takes to set up and manage networks.

Stanford University got the ball rolling on SDN with its Clean Slate program in 2002. By 2007, three of the leading thinkers in the field were creating a vision of software-defined networks, an anti-protocol interface called OpenFlow to implement it and a company called Nicira to create the software products based on it.

The people and their ideas were compelling enough to attract $50 million in venture capital. Late last year Nicira announced its Network Virtualization Platform along with five customers for it–AT&T, eBay, NTT, Rackspace and Fidelity Investments.

Meanwhile VMWare, grown big and hungry as a supplier of virtualization software for servers, has been trying to extend its reach into the cloud. Bigger rivals such as Hewlett-Packard and IBM were threatening to eat its lunch. So VMWare snatched up Nicira and the Gold Rush began.

1. This is real

A Verizon technical manager said he has seen the glinting metal of SDN and it passed his test.

“If we continue to build networks the same way we have and project our growth into the future, it becomes an untenable business model,” said Prodip Sen, who heads a dozen-person advanced architecture group for the carrier.

“With SDN, I can separate out parts of networks, introduce new services faster and assess costs to each piece that provides a given service,” said Sen at the NetEvents Americas conference in Miami last week. “If I cannot do that, I can’t plan my business properly,” he added.

So Verizon is working with Hewlett-Packard and Intel to create a set of SDN test labs. The trio created some proof-of-concept demos last year. Now they are working on new ones based on real user scenarios with plans for field trials next year.

In this way, SDN is part of a broad effort to expand from pushing bits to owning business processes. “We are moving away from managing devices to managing services, and operators are trying to figure this out,” said Greg Gum, chief marketing and business development officer for equipment provider Telco Systems.

In a blog, Nicira investor Ben Horowitz pitches SDN as part of a 30-year change of era in communications, making the process of setting up and running networks easier and more open.