Cisco Systems Wednesday said it will fully acquire its software-defined-networking-focused spin-in Insieme Networks as it looks to grow its SDN prowess and fend off competition from rivals including VMware.
Cisco's acquisition of Insieme comes as the companies unveiled their SDN strategy, anchored by their new application-centric infrastructure (ACI), at a launch event in New York Wednesday.
"We are announcing today that Cisco is acquiring the remaining minority interest in Insieme, and I would like to welcome the founders and entire Insieme team to Cisco," said Rob Lloyd, president of development and sales at Cisco, during the keynote address Wednesday. "It's going to be quite a ride together."
The CEO of a top Cisco and VMware enterprise partner, who did not want to be identified for fear of alienating either company, said Cisco's Insieme acquisition is an admission that the company is playing catch-up to VMware's NSX SDN offering.
"Cisco realizes they missed this one and they are going to scramble and put all the resources into it that are necessary to catch up and be where they need to be," the CEO said. "In fact, they are attempting to leapfrog VMware with a more application-centric offering. The challenge for Cisco is they have major gaps in application knowledge. There is a tremendous opportunity here for solution providers that understand how to interface and interoperate with disparate apps and infrastructure."
Cisco already holds an 85 percent ownership stake in San Jose, Calif.-based Insieme and has made repeated investments in the company, including $100 million in April 2012 and an additional $35 million in November 2012.
Cisco said the maximum potential payout to acquire the rest of Insieme is $863 million, based largely on the revenue achieved by the sale of Insieme products.
Insieme's management team includes Mario Mazzola, Prem Jain and Luca Cafiero, who are well-known for being involved in previous Cisco spin-in ventures, or companies that are funded by Cisco and headed by Cisco-associated engineers, with the idea that those companies eventually will be bought out completely by Cisco.
Cisco has taken this spin-in approach before with startups including Andiamo Systems, a storage networking company, and Nuova Systems, whose core technology became Cisco's Nexus switch after its acquisition by Cisco in 2008.
The details of Cisco's SDN play with Insieme came to light Wednesday. At the heart of its SDN strategy is ACI, a new fabric-based data center architecture.
Cisco is positioning ACI -- which is supported by Cisco's new Application Policy Infrastructure Controller and new Nexus 9000 switches -- as the next evolution beyond the SDN technologies already on the market today.
"The concept of software-defined networks is really interesting because it talks about programmability, flexibility, etc.," said Cisco CEO John Chambers during the keynote. "But as you really look into it, how you use software-defined networks is just one element that is part of your underlying strategy."
Namely, Cisco claims ACI is a more holistic, reliable and scalable alternative to software-based overlays, a common type of SDN deployment that involves running a separate, software-based layer on top of existing network infrastructures. The overlay concept has been pioneered by Cisco rivals ranging from startup Big Switch Networks to virtualization giant VMware, which rolled out NSX in August.
ACI has a 75 percent lower total cost of ownership compared with software-only overlays because it eliminates a "per VM tax" and reduces power and cooling costs by as much as 15 percent, Cisco said Wednesday.
Cisco also said ACI can cut application deployment times from "months to minutes" and provide real-time visibility into both physical and virtual infrastructures.
STEVEN BURKE contributed to this story.
PUBLISHED NOV. 6, 2013