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With the acquisition by VMware, Nicira generated significant buzz in Silicon Valley and the media. For our readers, here's a summary of the news and analysis thus far--we'll keep this updated as we see more on the wire. Feel free to contact us at [email protected] for any that we may have missed.

SDN Community Response

We've personally spoken with a number of SDN  thought leaders and asked for their responses to the VMware acquisition of Nicira. We'll update the list below as we speak with other thought leaders. It's clear that this is a high-point for the SDN revolution/evolution and certainly validates the market need for network virtualization solutions.

  • Jayshree Ullal, CEO, Arista Networks
    "It’s exciting to see the return of innovative networking companies and the appreciation for great talent and technology. Software Defined Networking (SDN) is indeed disrupting legacy vendors. As a key partner of VMware and co-innovator in VXLANs, we welcome the interoperability of Openstack, Nicira and VMWare controllers with Arista Extensible OS. It validates the open and programmability aspects of our EOS."
  • Guru Parulkar, Director and Board Member, ON.LAB, Chair, Open Networking Summit
    "It is a strong validation of SDN and the network virtualization space. Nicira was the first company and a leader in SDN space, and it is very heartening to see it get such a good valuation. This is an indication of what we can expect going forward. I see significant changes in the horizon in how we build networks, with software playing a much bigger role and there are huge implications for the industry structure. Nicira lives the Silicon Valley dream -- create disruptive technology, show its market potential, and realize the value. And what is important is that Nicira has done it in the networking space after many years of drought. It is great for all of networking."
  • Phil Porras, Program Director at SRI International, and lead in the FortNOX secure controller project
    "This acquisition suggests the potential for accelerating the integration of VM management and network control in ways that could influence designs for host orchestration, security, fault recovery, and cloud management for years to come. At the same time, I wonder how the acquisition by VMware will impact the contribution of new and innovative work to the open-source community."
  • Brent Salisbury, University of Kentucky, SDN Blogger at NetworkStatic
    "Nicira did its civic duty when they open sourced Open vSwitch and upstreamed the data path into the Linux Kernel. The OVS community will hopefully absorb the development void left behind. While a decrease in competition is rarely good for the consumer, the upside is this arguably gives some validation to SDN as the proper disruption to drag networking software out of the stone ages or more precisely, IBM in 1980. We can't blame people for wanting a yacht, if anyone earned it, it's McKeown, Casado, Shenker and Co."
  • Greg Ferro,  PacketPushers (a popular and respected resource for network engineers)
    "I take the view that this heralds the transition from public cloud to private clouds. Public clouds are limited in terms of features and functions and this leaves the cloud solution for Corporate & Enterprise unsolved and that market is orders of magnitude larger by revenue and profits to the vendors. VMware is developing the networking capabilities to provide the features that Enterprises need. At the same time, Nicira give VMware an opportunity to grow the public cloud by attaching the OpenStack and open hypervisors with the existing relationship to OpenvSwitch. Finally, don't forget that Nicira has people who can "move the needle" on standards and technology. Up until now, VMware hasn't had networking skills to be a leader. Nick McKeown, Scott Shenker and others are able to build standards and lead industry initiatives and I think that this is possibly more important that anything else. Nicira's product is valuable, but the people really are the differentiator."
News Roundup

And here's a selection of mentions in the media and blogsphere--the coverage is growing and we'll try to cull out only the interesting ones as they come out. Check back over the next few days as we will keep this page updated.

Nicira is the pioneer in software-defined networking, but it is important to note that they are also the leader in network virtualization for heterogeneous hypervisor and cloud environments. They are major contributors to the networking capabilities of other hypervisors (via the Open vSwitch community) as well as to the “Quantum Project”, one of the key subsystems of OpenStack. I can imagine skepticism as to whether we will continue this substantial embrace of non-VMware hypervisors and clouds. Let me be clear in this blog… we are absolutely committed to maintaining Nicira’s openness and bringing additional value and choices to the OpenStack, CloudStack, and other cloud-related communities.

Six months ago, I wrote a blog post called “The Future of Networking” about Nicira Inc., a company that I said would turn the data networking market upside down. Today, VMware arrived at the same conclusion and acquired Nicira for $1.26B in cash. Since Nicira only recently shipped its first production ready systems, this acquisition may stun observers. However, those who fully understand the depth of Nicira’s technology and the implications of the combination of Nicira and VMware will recognize the brilliance of VMware’s move.

Last week, Allwyn Sequeira — the chief technology officier and vice president of security and networking at VMware — held a briefing with a handful of reporters to discuss “software-defined networking,” the term that encompasses the sort of software offered by Nicira as well as other software tools that make it easier to configure computer networks. When we asked whether VMware intended to build a network controller akin to Nicira’s, he did not answer directly, but he did acknowledge that VMware did not offer anything that exactly comparable to the software.

VMware will pay $1.05 billion in cash and $210 million of assumed unvested equity awards for Nicira, a Palo Alto, Calif.-based startup that has lured high profile talent away from Juniper and Cisco(NSDQ:CSCO), including Alan Cohen, Cisco's former vice president for enterprise and public sector, who is vice president of marketing at Nicira.

VMware will pay $1.05 billion in cash, plus assume responsibility for $210 million in stock awards that Nicira had given its employees. Privately held Nicira had raised about $50 million from a list of early investors that includes venture capital firms Andreessen Horowitz, Lightspeed Venture Partners and New Enterprise Associates

Nicira had been running in stealth mode for quite awhile; I got to reveal its plans to the world last February. The deal amounts to a nice payoff for Nicira’s investors including Andreessen Horowitz, Lightspeed Venture Partners and NEA, as well as VMware founder Diane Greene and venture capitalist Andy Rachleff.

Balkansky lead VMware's crucial vSphere product and is now leading the company's push into cloud.
He explained two key points:

  • VMware was already creating similar technology to what Nicira was doing. By buying the company it gave itself a big shortcut to own this new multibillion market.
  • Cisco has been put on notice, but has also been given a big opportunity to create great new hardware

BI: Big Switch is another open flow company and it has been around for a little while longer. Why did VMware buy Nicira instead of Big Switch?
BH: Nicira is a radically better product and they are very different -- they are not the same product. Nicira's product has far bigger implications than Big's Switch's product. Nicira's product basically comprehensively solves the problem of separating the physical network form the logical network. There's no other product that does that, and does it at scale, validated at customers' sites.

Most companies are still using traditional network gear from Cisco Systems and Juniper Networks; such products are not tailored for virtualized computer systems. But Herrold told CIO Journal in a meeting June 13 that software-defined networking represents  ”the big change needed for virtualizing the data center,” which reduces the number of applications running in silos that need to be managed separately. “The cost of running data centers is high because of application silos.”

Three weeks, two acquisitions — DynamicOps and Nicira — and a lot of talk about freedom of choice. What gives, VMware?

The answer is simple: VMware sees the writing on the wall, it knows acting like a dictator won’t work in an IT society that craves democracy. Half of the story around VMware’s rumored cloud computing spin-out focused on the need for the company to focus on its core virtualization business in order to fend off advances from the likes of Microsoft, Citrix, OpenStack and others. Most experts agree that embracing those competitors is VMware’s best chance to blunt their attacks.

While VMWare provides virtualization of servers and computers, Nicira makes software that provides virtualization of networks. Nicira, founded in 2007, changes networking from a mainframe model of expensive hardware to a software model, Andreessen says. “(Nicira) validates the idea of software-defined networking,” Andreessen says. “It creates a new industry for networking software. There’s all kinds of benefits for customers. It’s much easier to deploy a network. It pulls a lot of the logic from the routers and switches to the software.”

Justifying the high price being paid for a start-up without an established business, Paul Maritz, chief executive of VMware, said: “Being an early leader in these emerging spaces is incredibly important.” Buying the company was of “utmost strategic importance” to VMware, a group worth $38bn, he added.

Analyst Trip Chowdhry with Global Equities Research said that while the move provides a way for VWware to broaden its virtualization efforts into software, the price it's paying for the young company raises troubling questions. He said the offer suggests "that we are in a valuation bubble," mentioning a previous big-ticket purchase that another valley giant recently announced. "This purchase is as irrational if not more irrational than Facebook buying Instagram for $1 billion," Chowdhry said. "VMware should not be throwing shareholders' hard-earned money at unproven companies with unproven concepts. What's the business model here? I don't know, do you?" Strategically, Chowdhry said, the acquisition does make sense. "But when you pay a billion plus, that tells me you've lost your senses," he said. "And that's very scary."

In an interview with me today, Ben Horowitz said that VMware has bought an option on the future of the networking market. He said he asked himself some times during Nicira board meetings about selling the company, considering the fact that it is so young. He said they made the decision considering that being part of VMware gives them a great chance to being the biggest networking technology in the world. He said the market is expected to be $37 billion to $40 billion in size over next few years.

I'm no financial wizard, but paying $1 billion+ for Nicira would be like going to your local convenience store and paying $100 for a coke. Very smart guys and a good vision, but I can't imagine there was more $50 million in real revenue (though I'm sure the pipeline was pretty phat). The whole SDN market can't be much more that $100 million. Brocade does over $2 billion in revenue, has over a half billion in cash and has a market cap of just over $2 billion. Is Nicira's vision, revenue, and SDN image really worth half as much as Brocade?  

Nicira has a ""team of all-stars" for networking. In a real sense, VMware is acquiring not only a real product that works for cloud networking, but also a team of people who can identify technology, determine needs and then develop products to fill the need. Not inconsequentially, people like Nicera founder Nick McKeown and others have been at the root of many networking advances in the last decade. The talent acquisition must be a significant attraction for VMware, as it got not only people who can write code, but also people who can change the networking market with new standards, ideas and technologies.