VMware Buys Nicira For $1.26 Billion And Gives More Clues About Cloud Strategy

VMware has acquired Nicira, a startup known for its software defined networking technology in a deal pegged at $1.26 billion. It’s an acquisition that has all sorts of ramifications for the ever disruptive enterprise sector of the market.

Nicira emerged out of stealth in February after five years in development. It has been widely considered as a successor to traditional networking technology in its capability to create a software defined environment that can essentially be programmed to change through adjustments in the software. This allows for elasticity and the ability to move data easily. It integrates well with horizontal storage environments by scaling out data over horizontal envioronments. Nicira’s software in effect turns a network into an IP backplane. Hierarchies in physical networks creates bottlenecks. Nicira creates a flat network. Devices connect directly to the switch, allowing for the data to distribute effectively across its infrastructure.

Nicira had $50 million in funding and a blue chip list of clients that include Rackspace, EBay and Fidelity. Its venture backers include Andreessen Horowitz and Lightspeed Ventures, which has won big by investing in transformative data center technologies. VMware Co-Founder Diane Greene is also an investor.

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.

Cloud computing has disrupted VMware as much as any legacy technology company. Nicira helps alleviate the pressure VMware faces in forming a comprehensive strategy to compete with Amazon Web Services and OpenStack, which is fast emerging as a viable alternative for building out cloud environments. It also puts VMware face to face with competiors such as Cisco, which it has deep relationships with.

But there is a certain irony here. Nicira is a significant part of OpenStack. The network interface for OpenStack uses the Nicira API. It means that VMware is now by proxy part of the OpenStack community as part of a longer term play for the networking market.

OpenStack is a federated way to pool various workloads from different cloud environments. Krishnan Subramanian of Rishidot Research said Cloudstack, Eucalyptus and OpenStack will serve as the foundation for federated ecosystems. Nicira fits right into that play with its software defined networking.

In the future, clouds will be defined by big data and services environments, Subramanian said. VMware recognizes that shift as a long term strategy.

“You will need to program the network to fit your needs,” he said.

VMware CTO Steve Herrod said the company believes the future is in software defined networking. There will also be a need for orchestration. That’s where its acquisition of DynamicOps comes into play. Cloud Foundry, its homegrown platform as a service, will play into that future as well. It provides what Herrod calls the “application language of the heterogeneous environment.”