VMware acquires Nicira and continues push for SDDC – The Who, What & Why of the Transaction

If you are in the IT world, you have probably heard that in late July 2012, VMware acquired the startup Nicira. VMware agreed to pay 1.26 Billion for the startup. If you are like me,  you probably googled Nicira to get a better understanding of who Nicira was and what they did. More importantly, why VMware acquired Nicira? In the last few months, we have heard repeatedly from VMware and it’s executives that the Software Defined Data-Center (SDC) is their strategic direction. VMware obviously recognized the value of Nicira and importance of bringing Nicira’s technology into their stable.

With only 1200 Twitter followers and very minimal info on the web besides their company website, I have tried my best to provide a good understanding of the who, what and why of this acquisition. At this point, I choose not to comment on whether this was the right move on either side or whether the price paid was a fair one. One thing which I found rather odd is that in April 2012, (YouTube video below)  Nicira executives clearly stated they did not plan to sell anytime soon. I guess 1.26 Billion can make you change your mind!

Who is Nicira

Located in Palo Alto with approximately 100 employees. 50 Million Dollars were raised to get this startup off the ground.

Martin Casado, Nick McKeown (Stanford) and Scott Shenker (UC Berkeley) founded Nicira in 2007. Steve Mullaney joined Nicira as the founding CEO in 2009.

Much of the initial work and invention originated with Martin’s work at Stanford, where Nick and Scott were his doctoral advisors. Some of the critical innovations of the founding collaborators were the invention of OpenFlow, Open vSwitch, and the development of the Open Networking Forum. All of these continue to contribute to the industry.

What does Nicira do?

“Nicira virtualizes the network, unlocking the full value of compute and storage virtualization. Our customers are the leaders of their industry segments, including the world’s largest cloud providers, enterprises and government agencies. Our network virtualization platform forms the foundation for our customer’s next generation cloud data centers and provides a competitive advantage that dramatically increases business velocity and operational efficiency.

We have delivered the industry’s first network virtualization platform, a distributed software suite that creates scalable, fully featured, isolated virtual networks that are completely decoupled and independent from the physical network. Our solutions works across any network and are compatible with any server hypervisor. Nicira’s open, programmable approach not only delivers Layer 2 and Layer 3 networking, it also supports layer 4-7 services within virtual networks.”

How does Nicira work?

Click for a VIDEO which helps understand how Nicira works. - http://bit.ly/RIq52h

Here is a great YouTube VIDEO I came across where a discussion between Rackspace and Nicira execs took place. Take into consideration, this was published in April 2012. - http://bit.ly/RIq8vb

Why did VMware acquire Nicira?

I wish I could say or why not… The obvious answer is that VMware realized the importance and market opportunity surrounding Software Defined Networking (SDN). Who better to explain this than the man himself, Dr Steve Herrod - VMware CTO explains it in his blog!

My Point of View

Based on what I heard from the Nicira exec team earlier this year, VMware obviously sweetened the pot for Nicira to sell. At first it didn’t sound like a lot of money, but looking at it a little closer, VMware paid 1.26 Billion for Nicira, which had approximately 2 dozen customers and had only been actively selling for 1 year. Here I am once again being hard on Vmware, but I must ask this question? With all of VMware’s development power more importantly customer reach, it seems like the only way for them to grow is through acquisition of products. http://bit.ly/QxZvF3. Looking back at past strategic acquisitions which were supposed to be game changers for VMware; in my opinion they are still just a virtualization company. Yes VMware assists in enabling Cloud, but that is where it stops. The problem I see, is that it is difficult for a sales force to understand all these moving parts. How does it all fit together? Do customers really understand all this? The Nicira execs and people are what made this company. Can VMware retain them? History says they cannot.

Thank you.