Why VMware is spending $1B-plus to buy Nicira

VMware makes strong software-defined networking play by purchasing Nicira

VMware is a company on the move: its planned $1.26 billion acquisition of Nicira not only brings it into the software-defined network (SDN) market, but should also broaden VMware’s support for open standards and even open source.

Nicira, a five-year old company born out of academic research from Stanford University just like VMware, has been a pioneer in the much buzzed about SDN market. Its acquisition by EMC subsidiary VMware promises to help VMware address customer needs beyond server virtualization and into virtualizing the network layer of the data center.

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“While the price is steep, VMware has historically lacked networking sophistication,” which it gets in spades with Nicira, says Eric Hanselman, networking research director at the 451 Research Group. He sees the all-software networking approach fitting in well with VMware’s hypervisor and private cloud management software, vSphere.

Nicira technology gives VMware an opportunity to do to networking what its virtualization technology has done to servers, says VMware CTO Steve Herrod in a blogpost announcing the deal. Network virtualization is the next logical step in virtualizing the datacenter, he says. While a virtual machine can be provisioned in minutes, setting up the networking can require the configuration of thousands of routers and switches. Nicira addresses this by enabling customers to build a virtual networking layer.

As Herrod describes it: “Nicira’s software-defined networking starts by virtualizing the network, decoupling the logical view of a network from its physical implementation. It does so by creating an abstraction layer between server hosts and existing networking gear which decouples and isolates virtual networks for specific networking hardware, turning it into a pool of network capacity. This enables the on-demand, programmatic creation of tens of thousands of isolated virtual networks with the simplicity and operational ease of creating and managing virtual machines. The resulting business value comes from more agile, efficient, flexible, and robust networking configurations.”

SDN has been one of the hottest topics in networking this year, and 451 Group’s Hanselman says VMware’s acquisition “codifies some of the hype around SDN,” and puts pressure on Cisco. The networking giant has outlined a path to integrate SDN features in its offerings with its Open Networking Environment (ONE), “but this is going to bump up the pressure,” he says.  

From an end-user perspective, that’s a good thing if Cisco is being pushed to add SDN features more quickly and if VMware advances the Nicira technology, says Kyle Hilgendorf, a Gartner cloud analyst. He hears from frustrated customers frequently about the lag that the networking layer can have on cloud deployments.

Meanwhile, Nicira’s ability to work with multiple hypervisors and give customers choice in their cloud offerings is important, too. “Some customers are starting to consider what options exist beyond VMware,” says Hilgendorf. “If they don’t offer customers a way to expand and use other hypervisor formats, that could give them trouble in the long-term.”

VMware’s recently announced buyout of DynamicOps is also a hedge against customers feeling locked in. DynamicOp is a cloud management company that specializes in working across different providers and hypervisor platforms. 

Nicira could also give VMware some credibility in open source given that Nicira employees work closely with the Open vSwitch open source project licensed under the Apache Software Foundation. Nicira also has been one of the main contributors to OpenStack’s virtual networking project named Quantum, which is set to take a more prominent role in the next release of the OpenStack code this fall. VMware has traditionally been seen as a company offering proprietary software that works within its ecosystem, but not as well with competing platforms (though its Cloud Foundry platform as a service (Paas) offering is one recent open source effort).

VMware’s Herrod addressed the issue in the blog: “I can imagine skepticism as to whether we will continue this substantial embrace of non-VMware hypervisors and clouds. Let me be clear in this blog… we are absolutely committed to maintaining Nicira’s openness and bringing additional value and choices to the OpenStack, CloudStack, and other cloud-related communities.”

Martin Casado, CTO of Nicira, was equally deliberate in his blogpost announcing the deal: “The cloud is about openness.  Openness is in our roots, and it will stay there,” he wrote.

Some analysts say they’re curious to see how VMware plays in the open source world. “SDN makes sense on so many levels, but what is interesting about this deal is the fact that it comes from VMware, a company that is rapidly reinventing itself from the ‘evil empire’ of silos and lock-in, and moving to a world that embraces choice – DynamicOps was the start of this, Nicira continues it,” says Ben Kepes an industry analyst and blogger at Diversity, Ltd. “In paying over $1B for the company, VMware is betting a lot on a more open, more heterogeneous and more virtualized future. All indications are that they’re making a smart bet which will pay off royally.”

Network World staff writer Brandon Butler covers cloud computing and social collaboration. He can be reached at BButler@nww.com and found on Twitter at @BButlerNWW.

Copyright © 2012 IDG Communications, Inc.

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