After two years of trying to figure out what OpenFlow was and how it might change networking for the better, 2012 was when the promise of OpenFlow morphed into software-defined networking, which was later co-opted into network virtualization. Things are still heating up, but let’s look at where we’ve been.

Guido Appenzeller (left) and Kyle Forster of Big Switch

This was the concept of SDN. Under that title, the physical hardware of a network was abstracted from the virtual machines and applications running on the network. Sometimes OpenFlow might have a hand in this and sometimes it won’t.

Instead of commodifying the router, these companies added a layer of software between the networking gear and the application, generally known as the controller. Some of these were open source, some provided APIs for the accessing the underlying networking gear and some did not. The point in SDN was that once you had this virtualization, it became possible to link your network to your application. Depending on whose controller you used, this process was easier or more difficult.

Dante Malagrino, Co-Founder and CEO, Embrane; Jonathan Heiliger, General Partner, North Bridge Venture Partners; Martin Casado, Co-Founder and CTO, Niciria
(c)2012 Pinar Ozger pinar@pinarozger.com

With that framework in mind, here are the notable deals in the networking world in 2012.

Oracle buys Xsigo: This deal, which was announced in July, wasn’t really an SDN deal. Xsigo has really tried to grab ahold of the SDN banner with its marketing, but it was about the virtualization at the hardware and port layer. Xsigo’s hardware (plus fabric) make it possible to plug storage and networking cables into a Xsigo box and then allocate those physical resources without a network engineer having to get involved. Oracle buying Xsigo fits with its proprietary hardware plans and less with any sort of Oracle SDN play.

Nicira’s CTO Martin Casado

Brocade buys Vyatta: Vyatta is another company that tried to give itself an SDN facelift. In this case, Brocade, the company better known for making switching hardware took the bait (or was simply merciful), and said it would buy Vyatta while the company was making the rounds trying to raise another round of venture capital. Brocade can use Vyatta’s networking software to move up the stack and possibly provide a more modular approach to SDN that allows customers to piece together Broacde’s hardware and software if they so choose (but they won’t have to choose both as they might in a Cisco or Arista decision).

Cisco to buy Cariden for $141 million: In November, Cisco purchased a network mapping and optimization company that has recently adopted some SDN features (and marketing). For Cisco, buying Cariden made sense because it delivered the type of controlled network virtualization ecosystem that posed no danger to Cisco’s router business, but allowed Cisco to sell SDN services and applications to its service provider customers. Meanwhile, Cisco this year also announced its own controller layer and an API to let applications talk to it (but not the underlying Cisco gear.)

Juniper to buy Contrail for $176 million: Finally, last week Juniper said it is buying Contrail, a startup in the SDN space that had only launched a day or two prior to the acquisition announcement. The deal came just a few months after Contrail had received $10 million in funding from Khosla Ventures, with Juniper participating as a strategic investor. Contrail’s technology centers around rethinking where the controller would sit in a virtualized network and how those pieces work together. It had a great team and good-sounding tech, but few real customers.

The year isn’t over and it’s possible one of the myriad networking startups funded this year, such as Big Switch, Pluribus Networks, Pica8, Plexxi and/or Cyan might end up getting bought before we close the books on 2012. But even if that doesn’t happen, I’m comfortable saying this is the clearly the year SDN has sold out and networking has really broken out.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• The promise of SDNs in the enterprise
• Cloud computing infrastructure: 2012 and beyond
• The promise of software-defined networking

Steve Garrison, VP of product marketing at Pica8 said that the startup already has 85 customers in the web scale and financial services markets testing its products. Several of those customers are using its gear in production, including Chinese search giant Baidu and Yahoo Japan. Customers can select their switching hardware from a selection of vendors that currently include Quanta and Synnex (the goal is to add more commodity switch makers over time) and then license the Pica8 PicOS software.

The Pica8 software works with Open vSwitch, but is designed to work with the specific Pica8 switches provided by this select menu of vendors. Garrison envisions a buyer being able to choose gear from a drop-down menu when ordering, and then build out a custom system that will then scale using the Pica8 software. Applications and machines that support Open vSwitch will integrate directly with Pica8 software and since the boxes will all support OpenFlow, it’s possible that the overall system will be as open as a custom-built system with those goals in mind.

Since Pica8′s founders’ background is in the commodity hardware-building business, it understands the model associated with selling programmable gear that does exactly what webscale buyers want. The caveat is that buyers must rip out their old gear and replace it with new gear to use the Pica8 software. The customer then pays for the boxes and licenses the software to run them. Basically, low-cost hardware is the carrot that gets customers to buy into the software.

Another stealth mode startup targeting this market is Cumulus Networks, which was built by ex-Cisco executives. Garrison admits that it is early days for true software defined networks, but he expects the technology to have a big impact in the year ahead.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• The promise of SDNs in the enterprise
• The promise of software-defined networking
• Takeaways from the second quarter in cloud and data

These giants are deconstructing the server, rethinking the data center and building new databases. And they are also rethinking how they build out networks. To that end several companies have latched onto the concept of software defined networks to help build an abstracted and programmable layer on top of the physical networking gear. This gives systems administrators more flexibility, but it doesn’t help with another problem that many data center providers face, creating faster equipment that can carry their escalating traffic.

This is where Plexxi, a Cambridge, Mass.-based startup sees its opportunity. It has built what it calls a switch, but is actually an entirely new type of networking gear aimed at delivering a lot of traffic between racks of servers as fast as possible. Plexxi also offers Plexxi Control, management software that runs on commodity hardware and routes traffic around the network. Inside the Plexxi “switch” are optical components normally found inside telecom gear. Plexxi has designed the first networking gear for the data center that uses optics instead of electronics to solve the networking bottleneck.

Each switch has 32 10-gigabit-Ethernet capable ports and can be connected to other Plexxi switches. For now the company has tested deployments of its gear supporting 10,000 servers, but Plexxi CEO and CTO Dave Husak assures me it can scale bigger. It will have to. For example, Facebook, a potential customer, is estimated to have more than 150,000 servers. The Plexxi gear allows for the network to become essentially flat — a rack of servers talk to the box and the boxes have the speed and capability to talk directly to each other. Instead of hierarchies or trees — software running on the switch tracks where virtual instances have moved and routes traffic to them over this single layer. This speeds up the networking and simplifies the gear supporting the network.

Plexxi has done something unique in its box worth looking at. It has replaced the traditional electronics networking with optics, which boosts speed but also reduces costs and power draw. To keep costs in line it buys off-the-shelf components and strips them down to the essentials. While the transceivers and equipment inside telecom networks cost thousands of dollars, Plexxi’s entire box sells for $64,000 in part because it did away with things like line cards and amplifiers that telcos use to boost the distance an optical signal can travel.

Using optics inside the boxes and connecting the boxes directly together in a flat network also eliminates a lot of cabling and additional electronics that both add costs and increase the power consumption. Husak told me the Plexxi switch draws milliwatts per port. The latest switch from Arista draws 5 watts per port.

Husak is a veteran on the networking world, remembering how the switch replaced token ring and other networking architectures in the 90s. Now, twenty-some odd years after the first switch was unveiled, Plexxi is poised to remake networks again with an entirely new systems architecture and design. It has almost $50 million in funding and has been building this switch out since 2010. This is a company unafraid of taking on Arista, Cisco and other giants in networking in a quest to re-imagine the data center of the future.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Infrastructure Q3: OpenStack and flash step into the spotlight
• The promise of SDNs in the enterprise
• Cloud computing infrastructure: 2012 and beyond

VMware’s Herrod discussing the software-defined data center at Structure.

VMware’s planned acquisition of Nicra for $1.25 billion represents the evolution of networking beyond the hardware-dominated point of view that has sustained the industry for decades. On the same day Cisco said it would cut 2 percent of its workforce,VMware said it would spend roughly 20 percent of its cash buying a networking startup with around 100 employees. Those two seemingly unrelated moves are actually signposts in the journey to networking’s future.

Even as Cisco was detailing its restructuring, VMware punched it in the gut with this purchase, essentially telling its longtime partner that it can stick around for the ride but it will have to stay in the trunk. Meanwhile, the bevy of startups that have identified themselves as part of the software-defined networking zeitgeist are thrilled by the valuation and the events this deal will set in motion.

The clouds guys versus the switch guys.

Facebook’s vanity-free server.

The data center is changing, brought about by the needs of companies like Google or Facebook building out massive data centers and by the stresses and opportunities created by server virtualization. These things are changing the types of gear put into data centers as well as economics of IT. If you are Facebook or Google, every dollar you spend on compute needs to produce a dollar of revenue, which is why both spend so much time developing optimized low-cost computing for their workloads. At the same time, data centers and IT infrastructure requires huge amounts of hardware, and the customers of that hardware want simplicity.

The story is similar for cloud providers, but they also have a greater variety of workloads running on their systems and a greater variety of hardware. Tied to the rise of the cloud is also the looming irrelevance of enterprise computing and, with it, specialty enterprise gear.

In networking, this plays itself out in the rise of companies such as Arista, which offer high-performance boxes made with merchant silicon. Or in the forms of Cumulus Networks or Pica8, both startups seeking to disrupt the hardware side of networking with simpler boxes and a fabric to pull them all together. Those fabrics would run underneath a Nicira controller, making these hardware components complimentary to the emergence of the software-defined data centers. At the core, these value-adds are in the software, not in the hardware.

A similar shift has occurred in the server market as it matured. Server vendors gradually saw their hardware margins erode as their boxes became more commoditized and their manufacturers begin competing with them. The server business is realigning to meet the needs of webscale and cloud computing. VMware, along with many venture capitalists and entrepreneurs, is betting that same shift will occur in networking.

Who controls the control points?

Guido Appenzeller (left) and Kyle Forster of Big Switch

As Kyle Forster of Big Switch, a rival startup to Nicira, explained to me, there have been two ways of attacking the problem in the networking world — from the point of view of the hypervisor or from the top-of-rack switch. Forster says Nicira and his company both started in the middle and Big Switch has drifted over to the hardware top-of-rack side, while Nicira tended to drift toward the hypervisor. That makes the VMware buy a perfect match, but it also highlights where the lines may be drawn when it comes to the future of networking.

The future is still open for a switch-centric vision (with most of the value still tied to software running on that switch), but it underlies the fact that the fights here are about where the points of control — and profits — are in the data center. And no one really believes it’s about the hardware as a stand-alone box. Even companies like Cisco or Juniper that still sell big boxes are investing in software. Their boxes are packed with software that drives up the cost and complexity associated with their gear. But as Facebook’s Frank Frankovsnky and just about everyone I spoke to for this story notes, the data center of the future is getting pulled apart.

This means the hardware is less complicated and disaggregated, but also that the software running on that hardware will be tied together using orchestration layers. The money will be made by selling services tied to those orchestration layers. Maybe you buy a hypervisor or controller that already has what you need, or maybe those who own those control points parcel out deep access to them via partnerships and licenses that will net the owners money or influence. Probably, it will be a mixture of both.

VMware provides that orchestration layer for servers while Nicira is the one providing it for the logical layers of the network. The hardware startups mentioned earlier are providing it for the physical transport of the bits around a data center. That leaves room for other startups at the higher layers such as Embrane, Varmour, LineRate Systems and others.

So who is the next SDN buy?

Dante Malagrino, Co-Founder and CEO, Embrane; Jonathan Heiliger, General Partner, North Bridge Venture Partners; Martin Casado, Co-Founder and CTO, Niciria
(c)2012 Pinar Ozger pinar@pinarozger.com

Dante Malagrino, the CEO of Embrane, said this deal is exciting not just because of the incredible valuation (although, as the CEO of a startup, that’s plenty exciting) but because the deal validates the model of a disaggregated and software-based approach to networking. “VMware is sending a very strong signal to HP, Brocade, Cisco and soon-to-be-former partners, all of which have been fairly active and vocal about networking as hardware,” Malagrino said. “The network is the fundamental ingredient of the software-defined data center and VMware is absolutely acknowledging that.”

However, Malagrino noted that Cisco or Juniper and other hardware-focused players shouldn’t be counted out. Perhaps that’s because he thinks that his startup is a good potential acquisition target, noting that to counter the Nicira and VMware duo, the hardware guys can hedge their bets by buying services that play on top of this software defined data center. There’s also Cisco’s spin out of Insieme, its stealthy attempt to address some of the networking needs of scale-out data centers.

However one slices it, the VMware-Nicira deal was a high-water point for the myriad networking startups out there trying to bring the old way of networking into today’s cloud and webscale world. And this deal won’t be the last. When asked if anyone has tried to acquire Big Switch, Co-founder and CEO Guido Appenzeller said, “We’ve been asked, but we haven’t returned their phone calls so far.”

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• The promise of SDNs in the enterprise
• The promise of software-defined networking
• Cloud computing infrastructure: 2012 and beyond

One is the rise of merchant silicon that can deliver the performance of custom chips made by the likes of Cisco and Juniper but at a lower cost. Another is the rise of software-defined networking, which separates the physical network infrastructure from management of that network. Finally, networks are getting bigger, and doing so faster, which is creating pressure on systems adminsitrators to find a way to scale their networks faster and buy the gear more cheaply.

Pica8, a two-year-old startup that spun out of server maker Quanta last month, hopes to become the anti-Cisco by pushing networking gear made on merchant silicon available from Broadcom, Marvell and Fulcrum. The promise of cheaper boxes is enough for some folks, but James Liao, the CEO of Pica8, has a more disruptive plan — to build software for the white-box networking gear and then open that up to the industry as a whole. It’s taking one step further the vision of Arista, which began in 2008 and puts its own software on top of boxes it builds using merchant silicon. And in the process, Pica8 will shave away at industry margins.

Liao wouldn’t disclose the price of the Pica8 boxes, but sources say they will run from 20 percent to 60 percent less than gear from Cisco, Force10 or others. Already, Pica8 has customers, including NTT communications and Baidu, as well as a strategic partner in Quanta, which is making the Pica8 boxes. Pica8 will also work with another Taiwanese or Chinese white-box maker to deliver its software to another vendor.

Liao would like to work with more, but with 15 engineers and himself, he’s strapped for resources. To help, he’s hoping to complete a $5 million round of funding in a few months that will help the company expand.

The new networking trend

Networking has been somewhat of a black box for businesses for years. The boxes contained proprietary chips known as ASICs that were able to handle the speeds required to send packets around a network, and used proprietary software that required specialized skills to program. All this specialization made networking both pricey (for customers) and profitable (for providers). But about two years ago, the chips from providers like Broadcom and Fulcrum, which Intel bought, began to match that quality and performance of the specialized ASICs made by Juniper and Cisco.

And with those chips came an opening for a change in the network. Arista picked up on it and began selling boxes built on the commodity silicon, while Google built its own switches using merchant silicon as well. With these cracks in their chip business, it became possible to build boxes that didn’t require a multi-million-dollar chip investment inside. From there, it becomes a question of software.

Commodity hardware opened up the chance for a vendor like Arista to differentiate with its software. But with OpenFlow controllers and companies like Pica8 pressuring the proprietary software running on networking gear, many companies are seeing an opportunity to get in on the ground floor of a revolution. Pica8 hopes to be one of those startups, and with backing from Quanta, which itself is disrupting the server business, it’s one to watch.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• WAN design for the cloud age
• The promise of SDNs in the enterprise
• The rise of M2M security challenges