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Investors Buy Into SDN, Will Customers Follow?
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  • Investors Buy Into SDN, Will Customers Follow?

Investors Buy Into SDN, Will Customers Follow?

FP Archives • February 3, 2017, 00:08:01 IST
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Some major tech cos are starting to pursue software-defined networking that market research firm IDC says could generate annual revenue of $3.7 billion within just three years.

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Investors Buy Into SDN, Will Customers Follow?

As Superstorm Sandy bore down on the East coast last year, companies with datacentres in its path needed another location fast. But moving computer servers is tricky, and usually planned over days or weeks.

Enter a new technology: software-defined networking, or SDN. Such urgent data moves could now be done within a few hours. Investors, including some of the world’s biggest technology companies, are buying into the start-ups behind SDN, a technology that allows users to substitute some of the most complex hardware functions in server switches with software. SDN is still relatively small, generating around $300 million in annual business in a $30 billion networking industry. Customers are not yet sure how to make the most of its flexibility.

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But established operators such as IBM Corp, Cisco Systems Inc and Microsoft Corp are starting to pursue a technology that market research firm IDC says could generate annual revenue of $3.7 billion within just three years.
Cloud software maker VMware Inc made its move last July, snapping up Nicira Inc for $1.05 billion. Cisco, Oracle Corp and Juniper Networks Inc have also bought SDN companies in the last year.

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Private-equity firms have backed companies such as Embrane and Plexxi, while Intel Corp and Goldman Sachs have invested in Big Switch Networks.

SDN allows the control functions of datacentre switches to be run separately from the servers they manage, allowing much more flexibility in the control of computer networks. “For 30 years we’ve sold the physical box and the software, and the vendors don’t allow you to buy one without the other,” said John Vrionis, partner at venture capital firm Lightspeed Venture Partners, which is backing Embrane and Plexxi and is a former investor in Nicira.

With SDN only coming of age in the last two to three years, standards vary between vendors, holding back large customers who don’t want to be tied to one supplier. But the entry of the big players has brought a determined drive for a common standard.

Cisco is most tied to hardware networking equipment, putting its business most at risk from SDN, but analysts say it is keen to dominate this technology too.

“There will be other vendors, but I think Cisco will be the main beneficiary for the next couple of years,” said Justin White, an investment analyst at T. Rowe Price. The firm is Cisco’s sixth-largest shareholder. “For enterprises, the most logical approach is probably to stick with someone like Cisco.”

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Calling Mom

SDN is expected to allow companies to build networks that need less human intervention and are easier to modify and update. “People want to automate their solutions,” said Lauren Cooney, Cisco’s senior director of software strategy.

“They want to automate the ability to create, for example, policy for different sets of users so that they don’t have to go back in and be running around and setting that manually.”

Mother’s Day is an example cited by Gartner analyst Akshay Sharma to describe the benefits of SDN.

Currently, phone carriers have to deploy equipment that sits idle most of the year to handle spikes such as the one day a year when everyone wants to call their Mom. “What if you could elastically tune the network that prioritises all those voice calls?” said Sharma.

Using SDN, that capacity can be more easily redeployed to other uses on less heavy call days.

Experts agree that SDN has yet to take off. Sharma sees it passing a tipping point by 2015, and most agree the next 12 months are crucial as the industry works on common standards.

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Cisco, IBM and some other companies, including Juniper Networks and Citrix Systems Inc, have come together to form a standards consortium called OpenDayLight.

Confusion Factor

“One of the main challenges that enterprises have in being able to adopt software-defined networking more fully is that they are confused,” said Embrane Chief Executive Dante Malagrino. Malagrino said his firm, rather than supporting a wider standard, was working with each customer to meet its needs without disrupting existing technology.

Malagrino, an ex-Cisco employee, set up Embrane in 2009 and has raised $27 million from two rounds of fundraising. He said the company was receiving a lot of venture capital interest and would possibly raise more funds in the next 12 months.

The competing SDN systems mean that some investors have held back, waiting to see which players come out on top. “It definitely looks like SDN is interesting, but it’s a few years away from being mature enough for corporations to adopt it,” said Rich Parower, manager of the Columbia Seligman Global Technology Fund.

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Customers, too, are still unsure how to capture SDN’s benefits. A third of participants in a recent Cisco survey said that “they’ve seen an actual SDN deployment as often as they’ve seen Bigfoot, Elvis or the Loch Ness Monster”.

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