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Summary:

There’s buzz around Silicon Valley that there will be a big announcement made at VMworld next week in Las Vegas. I think Cisco Systems will announce support of VMware virtual machines on their networking hardware. And if I’m right, it will have numerous ramifications, not only for the two companies, but the networking industry overall.

Cisco Systems will support VMware virtual machines on their networking hardware? There’s buzz around Silicon Valley that there will be a big announcement made at VMworld next week in Las Vegas, and that’s my prediction as to what it will be. The integration of virtual machines and networking, which was signaled last year when Cisco invested heavily in VMware just prior to the virtualization company’s IPO, would have numerous ramifications, not only for the two companies, but the networking industry overall.

If my prediction comes true, it would help Cisco remain relevant in the data center, allowing it to do more than move IP packets between servers. It would also entrench the company into the enterprise, distancing themselves even further from the likes of Juniper Networks and 3Com, both of whom have struggled against Cisco to gain some toehold in the enterprise infrastructure marketplace.

And this move would allow Cisco to participate in the server and virtualization ecosystem itself. Organizations that have invested heavily in Cisco infrastructure would be able to expand the lifetime of their equipment by running on their networking equipment any software application that runs in the VMware virtual machine — a set of applications that’s growing every day. Enterprises that want a single vendor to supply both their networking infrastructure and their virtual machine environments, meanwhile, could reap benefits from integrated support. As a benefit to Cisco’s internal operations, this integration would allow them to move into higher margin application support, possibly allowing for easier acquisition integration.

The downside for enterprises that use VMware virtual machines on Cisco hardware is that they’d be unable to leverage the Intel x86 server hardware ecosystem to their advantage. Today, without the VMware and Cisco integration, enterprises buy hardware to run their software applications that have benefited from the large economies of scale in the Intel supply chain. Combined with the effect of Moore’s Law, this has resulted in an excellent price-to-performance ratio for enterprise compute platforms. These performance increases in the server hardware rise in tandem with market demand and volume and are not bound to the high-margin expectations of products like Cisco’s.

So when tied to Cisco hardware, which would have lower volumes than the Intel x86 ecosystem, this solution would inevitably result in higher price and less performance. Cisco has always been a hardware company and this move could tie enterprises into their higher-margin products. Indeed, in some instances, Cisco hardware that performs commodity functionality has been sold at over 40 times the price of commodity hardware that performs the exact same function.

While this is not the Cisco Blade Server that I forecast earlier this year, if this prediction does come true, it will undoubtedly cause additional friction between Cisco and the giants of the server industry, namely IBM, HP and Dell. If enterprises can run applications in VMware on Cisco hardware, it could obviate the need for some servers to exist.

Finally, with this step networking would evolve from being the technology that moves bits between servers to participating in the central role at the heart of the enterprise data center. Competitors in both markets — server hardware and networking — should take note and prepare for further waves of change in the enterprise data center.

Allan Leinwand is a venture partner with Panorama Capital and founder of Vyatta. He was also the CTO of Digital Island.

  1. It seems highly unlikely (although lately pigs do fly, lipstick optional) that cisco is about to compete in the generic server hardware space. And it seems risky to run 3rd party apps on mission critical networking infrastructure.

    What seems more desirable are products geared towards handling the large number of virtual machines – say a virtual switch/router/load balancer that could be deployed alongside a swarm of VMs for granular control of network i/o allocation or machine availability.

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  2. Good sloothing Allan…..you’re very much on target….can you say “1k”?

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  3. I wonder how long it will take Cisco to also start supporting Hyper-V on their WAAS module for branch offices?

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  4. Allan,

    Good to see you surface up once in a while on Om’s site :-)

    Now to the rumor:

    Cisco will indeed declare its much awaited entry into not only the Data Center but also into the Cloud market. Citrix on he other hand, which you will see soon, will use another angle to talk about the same. From the technology perspective it is the deep desire of the likes of Cisco and others to move into the “immediate adjacent markets”.

    Cisco’s move will open up the market for others vendors like Vyatta (which in my opinion with their Virtual Appliances) have more of a chance to be placed whereever in the geographically dispersed cloud (primary, secondary, staging, dvelopment etc), than the others. It will also give more room to the other network vendors, and indeed as other vendors who are proliferating towards the “Complete GDM-aware” model such as the likes of IBM, HP, Dell will feel the heat as well although Cisco may have struggles of its own get relevant in those markets.

    So basically whether Cisco does what it will do or not, one thing is for sure:

    o Market consolidation will accelerate. (Expect bigger M&As)
    o Lots of outsiders too are getting interested in it lately.(Steel Biggies, Investment Firms, etc)
    o More need for open markets will arise, enlarging the pie only more for the Cloud Computing market.

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  5. [...] it be?  I just read this over at GigaOm and I think Allan’s missing the boat.  Now, I’m sure he’s tapped into a lot more [...]

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  6. Allan-
    not a bad try my friend. Unfortunately I can tell you that in the upcoming announcement next Tuesday that well will not be announcing that we are taking VMWare’s Hypervisor and running it on our hardware. Not saying never, just saying that Tuesday we will not be announcing that.

    Nice idea though!

    dg

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  7. I can also confirm that you are off-base with your speculation. I’m under NDA, but you’re quite a bit off base. Secondly, Riverbed has OEM’d VMWare to run on their platform, which is already Intel based, and honestly it’s a pretty boring feature. The need to have a services platform out in the field is a pretty niche market. Thirdly, Cisco runs nothing but iOS on their MIPS type processors they throw in their routers. These processors are ridiculously underpowered to run a virtual machine like environment. In the past, when they’ve deployed technologies that required general purpose CPUs, they’ve put them on a blade (WAAS or Unity Express for example) and allowed easier integration with supplied power and network connectivity from the chassis and ran them on x86 hardware on the blade.

    Clint

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  8. @Ernest Nova – maybe, we shall see on Tuesday. I’m betting on an integration of VMware on the new datacenter switches.

    @Don Draper – thanks and good point. A WaaS module supporting Hyper-V could take a bite out of Riverbed’s marketshare.

    @Tarry – thanks and good thoughts!

    @Douglas Gourlay – okay, what are you announcing? :)

    @Clint Sharp – I agree that the Cisco MIPS CPUs are “ridiculously underpowered” to run a VM environment. This is exactly why I suggested that the aggregation of hardware and software in a Cisco/VMware hardware/software configuration would be painful to folks trying to leverage the economics of the Intel x86 architecture. As evidenced by what you are saying, Cisco has a hard time keeping their processor technology up to date already, so I doubt they would be able to keep pace with the nimble and fast-paced server market.

    Since I am quite a bit off base, I’ll have to assume my prediction is far too ambitious – which is a shame as I think that if my prediction was true it would put Cisco back in the center stage for the enterprise data center…

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  9. Wouldnt it be more likely that Cisco will release something liek the virtual mananageble swtich that will integrate seamlessly into this

    http://www.vmware.com/technology/virtual-datacenter-os/

    We will see no doubt….

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  10. @David – yes, the latest rumors are that the announcement will be a virtual switch for ESX. Here’s a post by Christofer Hoff that seems to confirm this news (http://rationalsecurity.typepad.com/blog/2008/09/vmworld-2008-introducing-ciscos-virtual-switch-for-vmware-esx.html)

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