Well, the Insieme Networks folks have been payed off. The startup showed just how important it was, as Cisco announced today that was aquiring Insieme for $860 million as part of the launch of its new Nexus 9000 product portfolio and the vision of Software Defined Networking (SDN) that Insieme helped develop.

This is known as a “spin-in,” as Cisco was the 84% owner of Insieme already. But what it really is is Cisco's SDN coming-out party. Cisco and Insieme today announced an entirely new software platform called Application Policy Infrastructure Controller (APIC) that will be rolled out as an upgrade in Cisco's Nexus switch line, which targets data centers. This is a big deal because Cisco is feeling the heat from number of startups including Arista, which yesterday launched its powerful new data-center switching products.

There was always the assumption that Cisco would buy Insieme, but the price paid for Insieme indicates just how important Insieme's products are to Cisco's future. Cisco had invested $135 million in the startup and owned 84% of it prior to today's acquisition.

The consensus, so far at least, is that it just may have worked. Cisco today gained enough cred to fight off the wolves of SDN for another day.

“It's a bold vision,” said Zeus Kerravala, principal analyst with ZK Research, his own firm. “What they want to be able to do is create a single point of management for the entire data center.”

APIC is a “controller” that can coordinate the connections between the Nexus switches and other hardware elements on the network in an “application aware” fashion. Cisco calls the entire approach the Application Centric Infrastructure (ACI). That means that a network manager can use software to program network elements to gain a more sophisticated understanding of how applications and traffic are using the network. For those of you in the know, this is the vaunted “separation of the data and control plane.”

Still don't know what that means? It's a strategy to create a separate software brain that can control and manage many different pieces of hardward in a multi-vendor network, as the Rayno Report outlined in our How and When of SDN.

With hype on SDN building in the industry, Cisco has been under pressure to roll out its vision of an SDN software architecture that competes with the likes of VMware, which bought startup Nicira for this very reason, and other startups such as Arista and Big Switch. As part of this announcement, Cisco lined up a number of high-profile network partners to back the effort, which will guarantee interoperability with the hardware and software. These partners includ BMC, CA Technologies (CA), Citirix (CTXS), EMC (EMC), Embrane, Emulex, F5 Networks (FFIV), IBM (IBM), Microsoft (MSFT), NetApp (NTAP), Panduit, Puppet Labs, NIKSUN, OpsCode, Red Hat (RHT), SAP (SAP), Splunk (SPLK), Symantec (SYMC), VCE and VMware (VMW). On that note, Cisco may have accomplished its mission.

In a corporate blog post, Cisco John Chambers calls the move transformational. “Our new approach – Cisco Application Centric Infrastructure – is going to reduce the time it takes to provision, change or remove applications from months to minutes,” wrote Chambers.

APIC will ship as a software upgrade to certain Nexus 9000 switches in 2014, Cisco said. In addition to announcing the entire APIC strategy, Cisco's shipping several Nexus switches: The Nexus 9396PX, a fixed-configuration switch with 48 10-Gb/s ports and 12 40-Gb/s ports; the Nexus 93128T, with 96 10-Gb/s ports and eight 40-Gb/s ports; and the Nexus 9508, a modular, eight-slot switch.

Another important part of this announcement is that Cisco is moving aggressively into “merchant silicon” -- or off-the-shelf chips developed by manufacturing partners. In the case of the Nexus 9000 product family, it uses Broadcom Trident 2 merchant silicon to provide 10 Gigabit and 40 Gigabit Ethernet switching.

Of course, Cisco critics immediately had some things to jump on. First of all, the full software package will require an upgrade and will not be available until June of 2014. It raises the question of whether this is just a stall tactic to keep people from switching to VMware or startups before Cisco's got an actual product.

Another critique: Craig Matsumoto at SDNcentral reports that Insieme is using a software overlay protocol, virtual extensible lan (vxlan), to achieve the goals of policy-based switching. This comes after the company had previously criticized this approach, writes Matsumoto.

However, this point might be overwrought. Even though Cisco is using VXLAN, the technical implementations are said to include extensions that treat it slightly differently and allow provisioning at the network hardware layer. Kerravala says Cisco implemented the VXLAN protocol to provision at the networking layer, which makes it different than many software overlays.

“Besides, all virtualization is an overlay,” says Kerravala.

More importantly, Kerravala says, what Cisco has announced is an SDN strategy that is practical for its customers, offering them better management tools to save money on operations while preserving the installed base. And there is plenty of time, says Kerravala.

“Customers are willing to wait because Cisco has as huge installed base,” says Kerravala. “Most companies are still in an exploratory phase of SDN. According to my research, 85% of companies are still in the learning phase of SDN. Customers are still struggling to know what to do with it.”

Other analysts and networking experts lined up behind the event, calling it crucial. “ACI is the most significant SDN product strategy that Cisco has released to date,” wrote Greg Ferro, a networking expert in a blog post on Network Computing.

The APIC and ACI framework is important, says Ferro, because it does not depend on a specific operating system (OS), thereby “opening up” Cisco's hardware, while also maintaining backward compatibility with Cisco's older platforms.

In summary, Cisco made enough of a splash today to cast doubt on the SDN hype coming from the startup community -- playing its Fear Uncertainty and Doubt (FUD) quite well.

But what did the market thing about it? Shoulder shrug. The announcement wasn't exactly a barnburner among investors. Cisco's shares traded up modestly on the day, up .22 cents (1%) to $22.38.

WMware Inc. (VMW) also traded up $1.13 (1.4%) to $81.65.

So maybe what this announcement does is push SDN forward in a practical way for the entire networking community.

(Disclosure: The author holds no position in Cisco stock but he does own VMware (VMW).)