Today, news broke that VMware bought startup Nicira for $1.26 billion. We got venture capitalist Ben Horowitz on the phone to explain why this young company — that only came out of stealth mode in February — was worth that much money.
Horowitz was on the board of Nicira, and his firm, Andreessen Horowitz was an investor.
Nicira makes a product called the Network Virtualization Platform (NVP) built on open source technology called OpenFlow. Nicira co-founder Martin Casado developed OpenFlow as part of his PhD at Stanford, and his two legendary Stanford professors, Nick McKeown and Scott Shenker, became Nicira’s co-founders. The company also quickly grabbed some impressive customers including eBay, AT&T, NTT and Rackspace.
VMware/Nicira are going after the $37 billion data networking market, particularly new data centres being built with cloud computing, says Horowitz. With OpenFlow, they have a good chance to grab a lot of it.
BI: Nicira is definitely a hot startup with very important technology, but it only just came out of stealth mode in February. Why do you think its worth $1.26 billion?
BH: The kind of proper way to look at it … there’s only kind of one option you can buy that makes you the leader in data networking for the next 20 years. There’s only one new company and that’s Nicira. It’s a very big market and they were by far the best company.
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.
BI: Why would VMware buy Nicira and not Cisco?
BH: The company, the technology and where it was on the market, very arguably, was much closer to VMware than to Cisco in the sense it is an extension of what VMware is doing with their cloud strategy. There is no cloud networking product that gives you ‘cloud networking.’ Nicira is fully in that cloud market. The networking market outside of the cloud arena, where people are building cloud infrastructure, just doesn’t really say anything about it.
Then technologically, from a programming standpoint, there are more distributing computing guys than networking guys, so it very much fits with VMware, more so than with Cisco.
BI: Nicira’s products definitely make some of Cisco’s high end products obsolete. Would you agree with that?
BH: There’s certainly some kind of competition and certainly some future competition.
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