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.

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Brocade has been a proponent of Open Flow, the protocol that separates the management of packets in a network from the actual movement of the packets, and thus allows companies to build out networking hardware on commodity boxes instead of expensive switching and routing gear with proprietary operating systems. The company had laid out a strategy earlier this year to use Open Flow-compatible switches, but also planned to build an overlay that would allow a customer to use both Open Flow-enabled hardware as well as their current gear, so customers could avoid replacing their entire networks.

But Brocade is also aware that without some higher-level software and services associated with its switches (or at least contributing to its coffers), it’s going to be stuck making low-end commodity hardware. With Vyatta, which has been trying to push its OpenFlow and SDN strategy for the last two years, it now has an operating system to run on top of its switches as well as services. From a blog post written about the deal:

One of the most exciting things about this announcement is that Brocade is already the leader in Ethernet fabrics, which serve as the foundation for the cloud and simplify the physical infrastructure of the network. Brocade’s Ethernet fabric technologies combined with Vyatta’s software networking solutions offer the ideal platform to empower SDN deployments where flexibility, mobility and rapid deployment are paramount requirements.

Software is eating the networking world and Brocade is rushing up the stack trying to ensure it can deliver some higher-value services. While this looks like the rebuilding of an integrated networking stack with different providers stitching together their wares, Brocade at least has paid lip service to the fact that its gear and software will have to work with products from others in order to keep serving customers. Like VMware, when it purchased Nicira this summer for $1.26 billion, Brocade is mentioning OpenStack as well as it’s ability to work with a variety of hypervisors.

What’s unclear is how far Brocade’s software-defined networking vision will go. The promise of software-defined networks and Open Flow is that you can now build applications that can interact with the network. In earlier interviews, Vyatta’s CEO Kelly Herrel focused a lot on the value of SDN as a way to virtualize networks and reduce the physical challenge of reconnecting cables every time someone wants to move a virtual machine.

Likewise, the virtualization aspect is something Nicira’s president Steve Mullaney has talked up in our conversation last month at Structure: Europe. However, that is just the beginning and doesn’t really even need Open Flow — which is precisely the point.

The cynic in me sees that the goal here seems to be using the idea of software-defined networking and the hype around Open Flow to move the control in the network from the switches to a controller slightly higher up the stack, while making it open in the sense that providers can petition the controller makers for access or integration through an API or through partnerships.

Given Vyatta’s open-source history, I’m not sure if this deal will perpetuate that mindset or if it will create a more open controller platform that lets developers build services that can talk to the networking gear just like it lets the networking gear talk to the application. Not every company will want that, but it is the ecosystem that would provide the greatest opportunity for startups and for disruption.

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Vyatta launched its first product in 2006, but has shifted from a focus on its open-source routing software to delivering software that handles a wide range of networking functions. The company now has more than 1,000 customers and hopes this round of funding will help it expand as networking enters a new phase.

The networking world has changed drastically, thanks to a sharp increase in virtualized servers. Suddenly, the static networking infrastructure no longer works as well when it’s easy for developers to spin up a virtual machine on the fly. All those dynamic VMs, however, still have to connect to the network, as well as a lot of gear, such as firewalls. Plus, policies, such as those associated with HIPAA compliance or security issues all require knowledge of the network.

Kelly Herrell, Vyatta’s CEO, said that in the last six months or so, Vyatta has gone from seeing about 20 percent of its customers interested in its virtualization product to about 50 to 60 percent today. Herrell called it “a head-snapping change.”

Vyatta’s software is an OS that allows a customer to program out its network topology on demand to adapt to the constantly changing underlying infrastructure. Other companies, such as Embrane, are trying to offer these tools, and still more are offering some type of holistic and abstracted network view. Vyatta believes its advantage is that its long history in building networking software helps it rise above the newcomers to the field as well as its many customers that are using its software in their data centers in production environments.

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Chris Marino vCider CEO

Structure LaunchPad startup vCider disguises packets like I disguise zucchini in my four-year-old’s chocolate muffins. Except vCider does it to help companies bridge between different cloud providers while providing a bit less latency and more security that one would with a virtual router.

VCider aims to help companies span clouds while keeping their security and compliance intact by installing software on a virtual machine instance in a cloud and then creating a mesh-like Layer 2 network that the administrator can control. But because it’s in an instance running at Layer 3 of the network, it’s akin to hiding Layer 2 packets inside the Layer 3 tunnels in order to allow for greater control of the network without adding a lot of latency. Using such clients inside each instance is becoming a more common practice as companies CloudPassage also experiment with that — only for security rather than bridging a network.

There are other companies such as Vyatta offering similar services to try to present a unified network view, but they use virtual routers that have their own limitations — namely greater latency and they can introduce a single point of failure.

VCider, which was founded in the fall of 2010, had raised a seed round of about $500,000 from undisclosed investors, according to CEO Chris Marino. It is looking for a Series A funding.

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CommVault: Dell already supplies CommVault software (including de-duplication software) in some of its storage boxes, and accounted for about 22 percent of CommVault’s sales in the last nine months of calendar 2008. With the fight over Data Domain, de-duplication is hot. And storage is clearly an area where Dell wants to buy something.

oDesk: Dell equals low-cost hardware and just-in-time manufacturing, and as a services play, oDesk mimics that philosophy. Need a developer for next week? Through oDesk, Dell could provide a cheap contractor on a just-in-time basis. This isn’t the IBM services model, but it’s quintessential Dell.

ParaScale: This startup makes software that allows companies to build their own storage clouds. This is another way Dell can create a low-touch services offering to customers, rather than get into an intensive, consulting-based relationship with companies that require cloud storage from an outside vendor.

Vyatta: With Cisco launching its own servers, and HP emphasizing computing and switching in its gear, why shouldn’t Dell be bold and acquire its own switching assets? Vyatta is like the open-source Cisco, and combining it with Dell’s servers gives folks low-cost, functional products — something people come to Dell for in the first place.

Palm: I know, I made fun of this last month, and have an idea that Dell would likely grind down the Palm folks with its exacting and less-than-innovative culture, but it’s also a move that could make sense. Perhaps Dell could model this deal on its Alienware acqusition that left the high-end gaming maker a separate subsidiary that didn’t have to deal with Round Rock.

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Vyatta

The investment in Vyatta shows that Citrix is losing ground to the VMware-Cisco Systems colossus. Those two companies are becoming stronger players inside the enterprise data center, both from a server and a networking perspective.

As we’ve outlined in the past, virtualization is going to force networking vendors to change. There were two scenarios that we outlined; one was that networking vendors could shift their business and sell to cloud operators — Cisco is doing that with its unified computing efforts.

The other option was for routers, load balancers and firewalls to run inside the “virtual appliances.” Some believe that the routing, blocking and distribution of traffic can be done well in a “cloud environment.” The Vyatta-Citrix relationship falls under this category. Vyatta sells networking software and hardware appliances to enterprises and service providers. Their products are based on the x86 architecture, which can be virtualized using hypervisors such as Citrix’s XenServer virtualization product.

Citrix is a believer in this trend and it recently virtualized its Netscaler platform as part of its efforts to virtualize network resources. While Vyatta is small, it helps Citrix get into the enterprise routing market. For little Vyatta — well, being part of Citrix’s cloud efforts can’t hurt.

Disclosure: Vyatta founder Allan Leinwand is an occasional guest contributor to GigaOM.

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Many operational clouds still require their customers to corral their own machines, however virtual. Amazon Web Services is a good example of this. To build an application, the operator still needs to do what they do in the real world — assemble servers, routers and switches to make a data center — only this time, they’re configuring virtual servers instead of real ones.

On the other hand, development clouds like Salesforce.com or Google’s App Engine hide the underlying machines, and handle all the networking equipment — virtual and real — on behalf of their customers.

Either model means a big transition for the makers of traditional networking equipment.

Option 1: Virtual appliances

In a cloud world, the routers, firewalls, and load balancers run inside “virtual appliances” — virtual machines pre-configured to route, block or distribute traffic. Cloud users still have to configure and provision them.

Open-source software dominates the virtual appliance world. For load balancing, Pound is one open-source alternative. For firewalling, there’s IPChains; for routing, Xorp. Some clouds already include these components: Cloud builder 3Tera, for example, offers users a catalog of data center components, including many open-source elements, in its default configurations.

Some vendors stand to gain from a move towards virtual appliances. If you want the kind of service and support you’d get from a vendor, Vyatta does for networking what Red Hat did for servers and MySQL did for databases. And while Checkpoint makes equipment, its software-based firewalls are more easily deployed in a virtual environment than many of its appliance-only competitors. The pendulum swings back to software.

If equipment vendors want to target this market, they need to convert their equipment and licensing models to virtual appliances and differentiate themselves based on software functionality rather than on box color or port density. Companies like rPath and jumpbox both specialize in turning traditional software into virtual appliances.

Option 2: Sell to the cloud operator

But what if the cloud handles the network equipment? This is the case if you’re using a development cloud like Salesforce.com or Google’s App Engine, or if you rely on a turnkey cloud like Joyent or Heroku. The networking equipment vendor sells to the cloud operator.

Which is No Fun At All.

Selling to a utility is notoriously challenging. Carrier sales cycles take months or even years, during which margins get squeezed razor-thin. At the same time, the list of requirements grows dramatically. Because clouds buy tremendous amounts of equipment, they have strong negotiating power. And they often build their own management tools, removing the differentiation a vendor’s software provides.

To make matters worse, clouds may need different equipment. Vendors are innovating, of course: Cisco’s new high-end switching platform, the Nexus 7000, seems well suited to this task. Further, the company has had strong carrier sales since its acquisition of Stratacom in 1996.

Some clouds may even find they have the expertise and economies of scale to build their own equipment. By buying directly from chipset manufacturers and using open-source libraries, they can bypass equipment manufacturers entirely.

One way or another, it won’t happen overnight. While the advent of utility computing is sure to change the networking industry, it will be some time before the trend puts a dent in enterprise IT equipment revenues. Less than 2 percent of CIOs surveyed by Goldman Sachs considered cloud computing a priority.

But someday soon, that load balancer you deploy may be a virtual one. That means two big changes for equipment vendors. One, selling licenses instead of boxes; and two, repositioning their sales forces to sell to telcos and utilities.

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