It has been revealed that the virtual server software maker VMWare has agreed to purchase startup Nicira for $1.05 billion in cash and $210 million in equity shares. The deal still needs to be approved by regulators but the acquisition by VMare has made it clear that the company believes that the technology that six month old Nicira is developing is the future of networking.
VMare currently produces software that allows businesses to run different operating systems on a single server. This has revolutionized the server industry and has given companies more options to save money and make their servers efficient. Nicira looks to do the same in the networking sector by creating a software defined network. What this means is that the company has removed the networking software from the routers and switches and put it on computers. Now companies can get the networking ability without being tied down by the hardware. Nicira gives businesses the ability to cut costs and also have more options in how they manage their networks.
Nicira and its technology are still in their infancy stage and the market for their products is not expected to surpass $100 million in revenue for 2012. However, the potential the software driven network seems to be huge and will threaten current manufacturers of hardware. Companies like Cisco couple their software with their hardware, forcing companies to purchase both at the same time. This means that companies cannot change the software on the hardware and this causes difficulties in setting up and running large networks for corporations. This model is being threatened by Nicira’s software based solution and may in the future cut into the competitive networking market.
Nicira does not have a threatening market share but does have several heavy weight clients including AT&T and eBay. The purchase from VMare indicates a gamble the company is willing to make on the future of networking and in what it believes will be a disruptive technology.