Nicira: The Last Billion-Dollar SDN Acquisition?
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Drew Conry-Murray
Drew Conry-Murray,
User Rank: Ninja
3/10/2014 | 5:10:49 PM
Re: Market entry vs portfolio expansion
Thanks for the reply. VMware picking up Cumulus is an interesting idea, but it also sort of goes against the story they've worked very hard to promote about NSX working over any hardware--VMware says that with network virtualization, there's no need to rip and replace the underlay. If VMware owns Cumulus and wants to see Cumulus in the enterprise, it also has to convince the enterprise to buy white-box hardware (even if VMware doesn't sell the hardware itself). I think that's going to be a harder sale than NSX by itself as an overlay for your existing network.

That said, if the white box model starts to get some traction in the enterprise, I suppose I could see a scenario where VMware buys Cumulus and says to customers, "We're here when you're ready to introduce white boxes as you refresh your network hardware."

But even if that's the play, and Cisco wants to get into a bidding war to quash it, I don't see a billion-dollar runup on Cumulus.
User Rank: Apprentice
3/7/2014 | 10:47:40 AM
Market entry vs portfolio expansion
It's tough to justify the ultra-huge valuations when you are talking about filling out a portfolio. But as the article points out, heading into a new space makes larger payouts possible. 

The question is: what companies might use SDN to move into a new space? It's hard to see any really, though Oracle has been playing around the edges for some time.

The other dynamic in the big price tag was companies competing for the acquisition. So is there another company that could see similar bidding dynamics? I would think Cumulus fits the bill. VMW could use Cumulus to drive down HW costs, which allows them to make better traction with Nicira. As long as HW is a requirement and it is priced high, NSX is limited in how much they can price. If they drop the HW costs down, the balance can be spent on NSX.

This obviously creates problems for Cisco. VMW can arbitrarily drop the price of HW and monetize the SW. But Cisco isn't in the same position. A defensive move might be interesting for them. It would also give them a cleaner OS to work forward from.

These dynamics could drive the price well above what the business justifies. A similar thing that happened with Nicira.

Mike Bushong (@mbushong)

User Rank: Author
3/6/2014 | 5:11:05 PM
Talent Costs
I think Drew hit upon one reason VMware was able to justify the Nicira price: Talent. It was the same when Google bought Nest -- unusual talent.

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