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VMware to buy Nicira for $1.26B in a strategic leap of faith

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Nicira’s CTO Martin Casado

VMware (s vmw) will shell out $1.26 billion in cash and an assumption of existing equity to buy Nicira, a company that has built software to do for networking what VMware has done to virtualize computing. That’s a lot of money, especially when you consider how few production-level implementations there are of the software-defined networks that Nicira is building.

Nicira was created five years ago and has raised $50 million from investors that included Diane Greene, an original founder of VMware. It makes controller software that helps free the act of moving data and packets around a network from the constraints of networking hardware  — an increasingly tough problem inside highly virtualized and webscale data centers. As I explained in a story on its launch (it was titled, “Meet Nicira. Yes, people will call it the VMware of networking”):

Nicira is one of several companies attempting to solve the problem that Greene helped create when she co-founded VMware to push hypervisors and virtualization. Once servers were virtualized, it created an easy way to separate computing from the physical infrastructure. The benefits of server virtualization were more-agile compute infrastructures — a developer would spin up a server in minutes as opposed to waiting days for approvals — as well as consolidating IT. Storage followed, but holding the whole virtualized infrastructure effort back was networking. Like a bird with its wings clipped, IT was tethered to the physical hardware by networking.

Nicira has plenty of paying customers including eBay (s ebay), AT&T (s t), Rackspace (s rax) and NTT, but it’s unclear how many of these are running Nicira’s controllers in their production environment. With this purchase, my sense is that VMware is paying big money to get in on this space because its collaborations with Cisco (s csco) have failed to deliver on a true solution for many of its customers, and it can’t afford to be left behind as the wave of interest and eventual spending on software-defined networking hits a peak.

In a blog post covering the deal, VMware CTO Steve Herrod explains that Nicira will fit in with VMware’s vision of a software defined data center — although the specifics of that vision have yet to be unveiled. And it’s true that if we consider how Nicira customer Calligo is using the Nicira controller, it fits within what I would think of as a software-defined data center — essentially a pool of compute resources that are tied together with software and where the physical hardware can reside in different data centers and pulled up for use as needed. The whole process is programmable and automated.

In pushing this model, VMware was always going to have to sign partnerships to deliver the software-defined networking elements, because its own VXLAN option was more of a an encapsulation scheme than a true separation of the networking logic from the hardware pushing the bits. By buying Nicira, VMware has chosen a software-defined networking vendor that plays with open protocols such as Open Flow, but is still focused on keeping a proprietary edge to its business. That’s a similar strategy that VMware seems to be pursuing as well.

The deal is expected to close during the second half of this year. The deal includes approximately $1.05 billion in cash plus approximately $210 million of assumed unvested equity awards.

8 Responses to “VMware to buy Nicira for $1.26B in a strategic leap of faith”

  1. Mark Sandstrom

    How about high performance network applications/contracts?

    Can these ‘soft’ networks deliver hard QoS guarantees, incl. strict adherence (at ~microsecond intervals) to minimum available bandwidth and maximum latency, jitter, packet/data-loss rates?

    While operational benefits of abstraction (manageability, flexibility) are well known, the performance guarantees still need to be met for many high revenue services — and these performance requirements keep getting more challenging for many realtime oriented applications.

    How do the abstraction layers (on top of commodity hardware) impact the performance?

  2. With everybody else falling asleep at the network switch, VMware and Nicira have cornered the virtual server market and thus became indispensable to cloud-based services.
    But up to now these two had at least each other to compete with. This has assured both strong development in virtual controllers and servers as well as fair pricing.
    Now, however, the two are about to become one. With everybody else lagging far behind, they will be able to not only monopolize the virtual server market, but also annihilate the old hardware-based switches from Cisco and company.
    “So what,” you say. “Survival of the fittest.”
    Not so fast.
    With the Cisco hardware obsolescence will come a dependency on virtual controllers and servers. This is not bad in itself since they streamline the setting up and maintenance of networks.
    But it can be bad if the virtual controllers and servers take hold to the exclusion of everything else.
    Aside from the inherent monopoly in this, we will also have a dependency on a networking platform — which though efficient, economical, and ingenious — has nonetheless not been around long enough to warrant a complete reliance on it.
    A go-slow approach, therefore, might be in order and the Justice Department perhaps ought to look at all the ramifications before it gives its blessing to VMware to buy Nicira.
    Besides, the two companies have already worked out the necessary protocol to coexist in networks — without being the same entity.
    Staying that way might be better for all of us for the time being.

  3. Sean Patrick Tario

    Very interested in hearing from those actually using Nicira as to its ability to deliver what it claims. There’s also got to be some massive deal that’s closed or about to close for them to justify a $1.2B purchase no?

  4. Aakanksha Upadhyay

    This is great news! However, there is a correction above with Martin’s picture. He is the CTO of Nicira not CEO as mentioned above. :)