VMware is perhaps the best example of this phenomenon. No longer is the company positioning itself as simply a pioneer of server virtualization, but rather it is now betting its future on the broader software-defined data center. VMware dominates the server-virtualization market (its technology lets a company run hundreds of virtual servers on one physical server). It’s no surprise, then, to see VMware accelerate its R&D schedules and M&A activity to extend its technology portfolio to also seize the infrastructure and storage markets that are up for grabs in the new software-defined data center.

In a major bid to own the leading infrastructure play in the new software-defined data center, VMware last summer acquired software-defined networking pioneer Nicira for $1.26 billion. That is a staggering sum that becomes even more impressive when one considers that, by most estimates, Nicira was generating less than $10M in sales. As part of its strategy to bite off a small piece of the emerging software-defined storage space, VMware also recently acquired Virsto for an undisclosed sum.

The rationale behind these acquisitions comes into clearer focus when you consider the larger opportunity posed by the software-defined data center. As data center workloads increasingly become virtualized, it makes sense that VMware, which already enjoys a market cap of more than $30 billion, look for ways to increase its role in managing the broader data center infrastructure.

So, with all of this in mind, what actually makes up the Software-Defined Data Center — and which companies stand to gain the most in each area?

Components of the Software-Defined Data Center

The concept of the software-defined data center revolves around making the three major infrastructure components of a data center (compute/server, networking and storage) more flexible, more automated and less dependent on the underlying physical hardware. The idea is to create a pool of available resources that can automatically adapt to changing workloads and ensure that the right resources are available whenever and wherever needed. When you look at the compute/server space, virtualization forever changed the way applications are deployed, and the dominant force behind this is VMware. While VMware has established itself as the market leader in server virtualization, offerings from Microsoft, Citrix and Red Hat are beginning to carve out sizable market share, as well. With almost 70 percent of workloads today running on virtualized servers according to IDC, this is certainly the most evolved component of the software-defined data center to date.

Networking

In the wake of the Nicira deal, along with major announcements from Cisco, Juniper and other networking giants, software-defined networking has become perhaps the next focal point of the software-defined data center discussion today. While not as mature as the server/compute side, the software-defined networking market is expected to grow; IDC predicts from $360 million in 2013 annual sales to $3.7 billion by 2016.

Cisco, which has long dominated the networking market and has a valuation of over $111 billion, has started to face new competition from startup companies like Nicira and Big Switch Networks, which designed their products for today’s virtualized IT environment. To go after this market, Cisco has invested $100M in a “spin-in” company called Insieme Networks. Cisco clearly views software-defined networking as one of the most significant technologies to emerge in decades.

Storage

The last component of the software-defined data center is storage, which is not coincidentally the trickiest part of the equation. The storage layer has traditionally been the laggard of the data center, and most venture capital firms have feared investing in startup storage companies due to the stronghold on the market enjoyed by technology giants like EMC, NetApp, HP and IBM. This has changed in recent years, however. The rise of virtualization and, more recently, cost-effective flash technology, has spurred a storage renaissance — today, storage is one of the hottest markets for venture investors.

The increased investment sexiness of storage helps explain the success of Fusion-io, which created a new memory tier based on flash technology. The company went public in June 2011, and is valued at more than $1.5 billion. Because of the huge impact of flash technology, some of the big legacy storage vendors have been looking for acquisitions to help modernize their product portfolio. Last summer, EMC acquired XtremIO for $400 million dollars to add flash to its own storage portfolio. However, flash is just one component of software-defined storage.

Flash is a very disruptive technology that has paved the way for dozens of new entrants into the storage market, but flash by itself doesn’t address the complexity and data management issues created in virtual environments. Most major storage vendors created their product architectures before virtualization even existed, meaning they were originally built for a physical world where application workloads were discrete, known and predictable. Indeed, many of the new storage startups have continued using the same architectures, albeit with faster flash storage rather than spinning disks. The problem is that the software-defined data center is possible only with virtualization. And adding new layers of software on top of these legacy architectures is an inefficient way to deal with the problem.

The move to the software-defined data center is the major technology shift of this decade, just as virtualization was in the 2000s and the Internet was in the 1990s. Like those previous shifts, there is a wealth of new opportunities for companies both new and old. It will be interesting to see how everything plays out — and, rest assured, this race has a long way to go.

Dr. Kieran Harty is a co-founder of Tintri Inc. and serves as its chairman and chief executive officer. Harty served as an executive vice president of engineering and R&D at VMware, and has more than 15 years of engineering and management experience with high tech companies. Before VMware, he was vice president of R&D at Visigenic/Borland and chief scientist at TIBCO. Harty has a PhD in electrical engineering from Stanford University and a master’s degree in computer science from Trinity College Dublin.

Other investors in the round include Kernel Capital and ACT Venture Capital (two Irish VC firms) and Enterprise Ireland, a government-backed development outfit. Cloud software company VMware is also an investor.

FeedHenry specializes in providing a cloud-based platform-as-a-service for developing and deploying mobile applications aimed at large organizations. It also runs what it describes as a “backend as a service” that helps get mobile apps working with existing enterprise applications. Its partners include Rackspace, Telefonica, Hewlett-Packard and VMware’s open source platform service, Cloud Foundry.

It’s also a would-be rival to Parse, the mobile development firm that was acquired by Facebook last month.

Sales were up 6 percent to $5.39 billion, about $30 million below the consensus of $5.42 billion. Earnings per share were 39 cents, a penny off the expected 40 cents.

Never fear, though. EMC says it will still meet its guidance for the fiscal year. It still expects to earn $1.85 a share on sales of $23.5 billion. In the meantime, it will buy back $1 billion worth of stock this year.

EMC shares fell by 2 percent in pre-market trading.

Meanwhile, VMware, the cloud computing software company in which EMC is a majority shareholder, is getting whacked this morning on disappointing outlook. It reported earnings yesterday. VMware said it now expects sales in the range of $1.21 billion to $1.24 billion, below the consensus view of $1.25 billion. VMware shares are falling in pre-market trading. As of 8:45 am ET, the price was $71.51, down $4.19 or 5.5 percent.

You can’t say you weren’t warned. IBM’s first earnings miss in eight years certainly had all the appearances of a big red flag about the IT industry generally, and hardware sales specifically. Now we have to see whether or not Big Blue turns out to be an accurate read-through for NetApp and Hewlett-Packard.

Shares fell 6.8 percent to $70.80 after hours as the company lowered its full-year revenue guidance and offered weak estimates for the second quarter. Through the close, the stock has fallen 20 percent since the start of the year.

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The Pivotal group — which includes VMware’s Cloud Foundry application platform service, EMC’s Greenplum data analytics software and other products — will create its own equity aimed at “potentially” attracting strategic acquirers, EMC Chairman and Chief Executive Joseph Tucci said, though he cautioned such goals are far away and could change.

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Basically, it comes down to subbing out all the proprietary hardware that’s used to build up a network and instead setting all the parameters for how you run a network in software that’s running on commodity hardware.

Well, as the networking industry starts to get its head around all this, the time has come to set some standards. Standards-setting is a kind of nuanced, political process that can take years and requires the patience of a diplomat.

Today we heard an interesting shout in all this from Dell. The computing giant, which also has a small networking business, said it has aligned itself with the Object Management Group, a.k.a. OMG, and has proposed a working committee that would set standards around software-defined networking. The committee’s first meeting will be in April.

So, what does OMG do? It’s a nonprofit organization whose task forces set out to get everyone working on the same page, so that different systems from multiple vendors can work together. Dell is a member, as is Hewlett-Packard, which has its own sizable networking business. IBM is a member, too, though there’s no word on whether or not it will join this task force.

One company that probably won’t: Cisco Systems. And there’s a reason for that. Cisco has its own standards-setting effort under way. It’s code-named Daylight, and is supposedly going to be announced at the Open Networking Summit in Santa Clara in April. Some critics say Cisco is trying to make its proprietary technology central to it.

I may be wrong, but it seems that a cold war is breaking out over software-defined networking. It may not matter. Dell’s networking business is relatively small, and this could turn out to be something of an insurgent effort. Then again, there are a lot of people who think the whole idea behind software-defined networking is intended specifically to go against the idea that networking gear should be proprietary, which is exactly what Cisco has specialized in for years.

Anyway, the politics of setting standards are always confusing and deeply technical. But the fact that this process is getting under way at all is an interesting development around the whole SDN trend, and bears watching.

The venture arm of the world’s biggest chip company joins other investors — including Goldman Sachs, Index Ventures, Khosla Ventures and Redpoint Ventures — and brings the total amount of capital raised to $45 million.

Remember, software-defined networking (SDN) aims to do to networking gear what virtualization companies like VMware have done to servers. In the same way that one server can be virtualized into many, all with different configurations, the point of SDN is to make networks as easy to spin up, configure and expand as virtual servers in the cloud, all of it done via software. VMware, for its part, is in the game via its purchase last year of Nicira, the first SDN company I ever heard of.

The idea is considered a metaphysical threat to established networking companies, specifically Cisco Systems; analysts, specifically J.P. Morgan’s Rod Hall, have worried that Cisco isn’t ready to meet the threat.

I had a quick chat with Guido Appenzeller (that’s him in the photo above, at the left of president and co-founder Kyle Forster), and he said that Intel, which does make some specialized networking chips, sees some alignment of interest with Big Switch in the future of SDN.

As I noted before, Big Switch’s approach has a lot of industry support. Its partners include Juniper Networks, Citrix, F5, Dell, Microsoft and Palo Alto Networks.

Earnings per share were 54 cents, compared with an estimate of 52 cents; sales were $6 billion versus an expectation of $5.98 billion. But its outlook for 2013 missed expectations. Earnings will be $1.85 a share this year, short of the $1.90 analysts were expecting, on expected sales of $23.5 billion.

EMC also announced plans for a corporate restructuring that will include a reduction in force, though it didn’t say how many people will be affected. The plan will be completed by the end of the first quarter of the year. EMC said it expects to take an $80 million charge for restructuring costs.

It also said that VMware, the software unit of which it is a majority shareholder, will also restructure in order to streamline its operations. It expects to take a charge in the range of $70 million to $80 million to reduce personnel. It said yesterday that job cuts could reach 900. Another charge said to be in the range of $20 million to $30 million will cover costs associated with exiting certain lines of business.

EMC shares fell more than 4 percent in pre-market trading to $24.10. Shares of VMware are down more than 18 percent to $80.36.

VMware has cut its federal tax bill in the past three years because the company conducts the majority of its international business through Ireland. In the three-year period ending in 2011, the company’s tax bill fell despite its revenue rising 86 percent and its pretax profit more than tripling. In fiscal 2011, its U.S. tax rate was 4 percent.

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Image copyright Johannes Kornelius

By all accounts, server virtualization adoption has been extremely successful. One look at VMware’s revenue numbers and there’s no doubting this fact. In the early 2000s, the predominant question that many in IT asked was, “Why should I virtualize?” Today, the predominant question you’ll hear is, “Why can’t the servers be virtualized?”

The rise of self-service IT

We’re going through a similar paradigm shift today with self-service IT. Internal business units want the breadth of services and speed of provisioning that they can get outside of the firewall through cloud service providers like Amazon Web Services. In response, forward-thinking IT departments have been changing their traditional role into one that looks more like a service provider and have begun offering a full menu of solutions to their constituents. One of the staples on the menu is a private Infrastructure-as-a-Sevice (IaaS) cloud offering. A few concrete business drivers underlying this offering are:

• Fine-grained control over the infrastructure which lowers risk and increases ability to deal with compliance concerns
• A lower cost when compared to external services like Amazon
• Lowered operational expenditures with regard to provisioning resources
• A much faster provisioning speed than internal IT typically offers
• Better disaster recovery options
• Increased application availability

Elements of an IaaS cloud

There are four elements needed to build an IaaS cloud: a cloud management system, compute (also known as the hypervisor), storage and networking. The cloud management system handles all the provisioning and orchestration of the underlying compute, storage and network components. Examples of such systems are OpenStack, Citrix CloudStack, Eucalyptus and VMware’s Vsphere product.

For compute, storage and networking, cloud architects look for solutions that linearly scale out (adding new capacity incrementally) rather than scaling up (buying bigger devices). This approach keeps costs low by consistently maximizing utilization. Even if cost weren’t an issue, this scale out approach is highly favored because it increases availability and reduces service interruptions of your cloud. In a well-thought distributed IaaS design, a single large device would never be an integral component of your cloud. Adhering to distributed design philosophies is a key reason why cloud service providers can consistently achieve very high levels of availability.

Another item cloud architects look for are products that can integrate with the cloud management systems so that they are fully automated. Scaling out and automating compute is a known problem and all the cloud management systems solve it with ease. As for cloud storage, there are now great distributed options like Ceph, SolidFire and OpenStack Swift that linearly scale out and can be easily automated.

Networks are hard to provision and scale

These newly minted cloud architects are beginning to realize something that those in the cloud service provider business have known for a while. Network devices weren’t designed to be automated, and they definitely weren’t designed to be provisioned at the granularity and high-churn rate than IaaS clouds demand of them. Also, some network devices, instead of linearly scaling out as demand increases, tend to adopt a scale up model.

Networks aren’t flexible enough for cloud requirements

A common use case for an IaaS cloud is disaster recovery, which often requires the recreation of complex network topologies. This can be problematic because that typically would require the physical network to be purpose built for that specific disaster recovery scenario, thereby eliminating the cost benefits and general purpose nature of the IaaS cloud. Another very common use case is migrating existing applications to the cloud. Many applications are reliant on very specific network design patterns. These apps would pose problems if they were moved to the cloud and might even have to be rewritten to fully operate in a cloud environment

Enter overlay-based network virtualization

Overlay-based network virtualization is a technology that allows cloud users to provision virtual network devices such as virtual switches, virtual routers, virtual firewalls and virtual load balancers. These virtual network devices can then be connected to VM’s as well as other virtual network devices to create complex network topologies. Since these virtual devices live in software, the underlying network (a.k.a. the physical network) only needs to be an IP network which allows all the compute hosts to see each other. Two leading examples of overlay-based network virtualization solutions are Midokura’s MidoNet and Nicira’s Network Virtualization Platform. These particular solutions have an added benefit that they are designed to be fully distributed; that means the scaling model is linear and can be scaled out incrementally as demand increases. They are also integrated with cloud management solutions so that virtual network device provisioning is automated. Those who spent their lives deploying production clouds think of overlay-based network virtualization as the best way to handle networking for cloud environments.

Predictions and prognostications

Now it’s time for me to put on my Nostradamus hat. Server virtualization adoption has grown at an extremely fast pace since its debut and has fundamentally changed the IT landscape. The next phase is widespread self-service IT adoption, and consequently, the proliferation of IaaS clouds. These concepts, as well as the technology behind them, will become essential to how the modern enterprise will deliver IT services. Because overlay-based network virtualization solves the very real problems stated above, it will soon become the preferred method of handling cloud networking. Now is a great time to start researching overlay-based network virtualization to better understand how it will fit within your IT future.

Ben Cherian is a serial entrepreneur who loves playing in the intersection of business and technology. He’s currently the Chief Strategy Officer at Midokura, a network virtualization company. Prior to Midokura, he was the GM of Emerging Technologies at DreamHost, where he ran the cloud business unit. Prior to that, Ben ran a cloud-focused managed services company.

“Everything that can be invented has been invented.”
—Charles H. Duell, Commissioner, U.S. patent office, 1899

Last month, we gathered 75 of the top CIOs from around the country to discuss the new generation of enterprise software and the redefined role of the CIO. These CIOs are dealing with an unprecedented level of experimentation and innovative new approaches focused on unsolved problems in enterprise software. The end result will be a complete remaking of the entire enterprise software stack at the intersection of cloud, mobile and SaaS.

All of the CIOs are also facing a changed environment, one where every department within an organization makes its own software buying decisions, outside the purview of the CIO. This “departmentalization of applications” — from Box for collaboration to GitHub for software development to Tidemark for Enterprise Performance Management — means the CIO not only needs to figure out how to enable the department and employee to leverage these software products, but also meet the security and compliance requirements of the larger corporate environment — which, by the way, Bromium and Okta allow you to do. These CIOs know that they can adapt or organizations will adapt without them.

Their jobs weren’t always so difficult. For those of you old enough to remember, there was a time when enterprise computing was almost exclusively dominated by Microsoft, Oracle and Cisco. It was a time when on-premise, Windows-based applications were the de facto standard and there was no alternative. The enterprise was so entrenched that challenging the status quo was viewed as suicidal and very stupid. So hardened was the thinking that most innovation in the enterprise was relegated to mere feature extensions of existing solutions.

Fast-forward to today and the world of enterprise computing has done a 180. Traditional IT is being blown to bits as cloud infrastructure, Software-as-a-Service and mobile computing become the new standards. We are experiencing innovation and usage as never seen before. It is truly a renaissance of massive scale. Hundreds of billions of dollars are up for grabs as buyers shift to new architectures and away from old, as new users and new markets embrace the availability and ease by which they can consume technology.

On the Road to a Revolution

VMware and Salesforce catalyzed this movement from unlikely origins. Both were little known and under-funded, but against all conventional wisdom each visualized a new world order — a world in which the data center was virtual and where applications would run off-premise, eliminating op-ex and painful software upgrades. The world watched but there were few believers. “Suicidal,” people said. “Why would I ever permit my precious customer data to reside outside my firewall?”

But momentum grew. VMware figured out how to effectively break apart the functionality of software from the hardware it resides on, driving a new set of economics into data centers. Salesforce began expanding beyond CRM, demonstrating the wider viability of subscription-based payments and the customer benefits of constant iteration. Customers began to believe that this new vision might actually come true. From a single virtual server and a single customer relationship app, both companies paved the way for a new world order.

Every part of the business software stack is now being remade — from infrastructure to applications to mobile to analytics — with every incumbent in danger of having its core business eroded. And, sure, incumbents will try to buy innovative products and will try to develop their own competing technologies, but the reality is that this new paradigm disrupts the entirety of these businesses. Overcoming a foundational shift cannot be met by a simple product buy or even a strategy change — the new breed of enterprise software start-ups has different revenue recognition policies, different sales models and different go-to-market models, and engineering processes than incumbents. We are talking about transformations occurring here simultaneously in technology and business models! It’s an entirely new approach to IT.

The Departmentalization of Applications

Buyers are clamoring for this new approach. None of our portfolio companies use Oracle. Some use Microsoft, but the majority opt for Google or an open source package. In our own Executive Briefing Center, where we connect and facilitate exchange amongst global brands and the rising stars in tech, we’re finding that even enterprise CIOs are looking beyond mature players to new and emerging technology companies, especially in areas like cloud computing, mobile, big data and SaaS. These are the early indicators of a more permanent shift in IT consumption habits. This shift is resulting in software applications that are targeted for specific business functions. Apptio, for example, has built a world-class application that specifically targets the CIO as a customer. Mixpanel has an application that is in the big data space, but specifically targets analytics for mobile applications. This shift is what I am calling the “departmentalization of applications”.

And entrepreneurs know that incumbents are vulnerable. We see a tremendous number of entrepreneurs bringing a new approach to this crusty old enterprise software market. We see entrepreneurs like Ben Werther of Platfora, who is passionate about up-ending the Business Intelligence market, and Ash Ashutosh of Actifio, who is creating the next generation storage software.

These are entrepreneurs who choose to do the hard work of building software for companies to use, and the software they are creating is elegant, fast, does what it’s supposed to and priced fairly. This is an unbeatable value proposition. For everyone except perhaps the incumbents, this is a great time to be involved with enterprise software.

Peter Levine is a partner at Andreessen Horowitz and blogs at http://peter.a16z.com/. He has been a lecturer at both MIT and Stanford business schools and was the former CEO of XenSource, which was acquired by Citrix in 2007. Prior to XenSource, Peter was EVP of Strategic and Platform Operations at Veritas Software, where he helped grow the organization from no revenue to more than $1.5 billion, and from 20 employees to over 6,000.

Collaboration tools are all the rage in office applications these days, and they come in many forms. There are platforms through which one can share and collaborate on many kinds of files. Box comes to mind. Then there are the cloud applications like Salesforce.com and Workday, all of which are collaborative. Social enterprise apps like Jive and Yammer are built expressly to encourage collaboration. Google Apps has recreated a solid set of core office applications, all accessible directly from a browser, and all of them allow multiple editors on documents.

Smartsheet is essentially a spreadsheet application that’s built for the age of the cloud. Entire sheets can be shared with colleagues, or you can share only granular bits of data, like the contents of a particular row. Sheets can be published to the Web, and are also accessible via mobile apps on iOS and Android. It integrates with Box, Salesforce, Google Drive and Amazon Web Services.

So far, it has a million customers, including companies as varied as ESPN, MetLife and Toshiba. Many of those just found Smartsheet and started using it for a particular project or task, and its use grew virally within those companies. One of them was Insight Venture Partners. And, of course, you know where this is going. In a moment worthy of a Victor Kiam, they liked it so much they’ve bought a piece of the company.

Insight announced today that it has led a $26 million investment in Smartsheet, along with Madrona Venture Partners. Ryan Hinkle, a principal at Insight, will join Smartsheet’s board of directors. The funding will go toward accelerating sales and marketing, and to kick software development efforts up a notch or two.

In response, the once-lethargic $20+ billion enterprise storage industry is exhibiting unprecedented innovation. Giants like EMC and Dell are vying with, partnering with and acquiring start-ups for supremacy in a morphing landscape.

It’s a serious game. More than $3.5 billion was pumped into VC-backed storage start-ups between 2007 and 2011, with more than $1 billion in 2011 alone. And $10 billion more has been poured into M&A, with the most recent example being EMC’s $430 million purchase of a company that hasn’t finished developing an initial product. Tectonic shifts come from collisions of forces. There are three major force vectors here.

First is the demand for more scalable, instantly provisionable, faster and higher-capacity storage. Even in an anemic economy, demand for data storage grows more than 50 percent per year.

Storage in a Flash

The second driver is the widespread proliferation of flash memory. Remember when you could feel the hard drive spinning inside your iPod? Today, practically every consumer carries flash memory in his or her pocket or purse.

Flash has been around for years, but was too expensive for broad adoption. Thanks to companies like Apple, which consume enormous amounts of flash, the cost is dropping like an apple from a tree. It’s still much more expensive than rotating hard drives, but its notable physics are compelling. Solid-state flash is faster than mechanical drives, and doesn’t forget everything when the power is turned off. Perfect, right?

Flash in the Pan?

Actually, not so perfect for corporate, governmental or cloud environments. In addition to high cost, flash has some unfortunate features. For example, it wears out in the same way your favorite pair of jeans will become threadbare with use. You’ll never wear out your phone from too much texting. But in an enterprise application, the number of IOPS can be so staggering that flash has to be treated almost like a printer cartridge, a consumable.

Many companies are developing techniques to deal with flash’s inherent limitations to make it suitable for data centers. It’s a gold rush, with vast sums of capital chasing big markets. That $430 million acquisition by EMC? Yup, flash.

Why pay so much for a pre-product company? There were multiple bidders. NetApp made a rich offer, which Dell topped by a lot, which EMC topped by an equally wide margin. There will be more M&A.

Interestingly, this activity is driving breakneck commoditization. This is great for customers, but not for vendors, who will not long enjoy rapacious (oops, I meant healthy) margins on proprietary technology. Ironically, the value in flash-based systems is really in the software that wrests the value from the hardware. Everyone in the industry knows that the days of differentiated flash hardware are numbered.

When Is Storage Not Real? When It’s Virtual.

As if hot, high demand and cool flash aren’t enough, the storage games are impacted by a third force called virtualization. Virtualization has transformed computing. The leading vendor, VMware (not coincidentally, owned by storage company EMC), has built a market capitalization of roughly $40 billion. All by making fake computers.

We call them virtual machines. Your iPhone may be talking to one right now over the Internet. Their magic allows the creation of what looks like a physical computer server. A virtual machine, or VM, appears to embody central processing units, memory and communication networks like physical computers. But it’s a software abstraction. Through this prestidigitation, data centers run scores of VMs on a single server box.

Enterprises can deploy vastly more applications because virtualization from Microsoft, Citrix, Red Hat and VMware saves enormously on capital and operating expenses. And provisioning is so much faster. Just a few clicks and, voila, you have a new server. By the way, you can buy server hardware from anyone. That freedom makes vendors compete harder, which you like if you run an information technology department.

What does this have to do with data storage?

Enterprise and cloud storage still live in the physical age. That is, storage system features are embedded in proprietary hardware. Want a cool software feature? You have to buy hardware to get it. Before virtualization, this was how the server industry worked. But virtualization is stressing traditional modes of delivering storage to applications. Performance problems, high costs and inflexibility cause VM users great pain on a daily basis.

Hello, Storage Hypervisor

The key enabling technology in compute virtualization is called a hypervisor. This core magic remade the server industry for the benefit of all. Until recently, there was no storage equivalent.

Now the storage industry is beginning to buzz about the concept of a storage hypervisor — the analog of the server hypervisor, but for storage. Storage hypervisors promise to increase the effective performance of hardware by an order of magnitude. By virtualizing resources to provide the administrative paradigm needed in virtualized environments — VM-centric management — they provide unprecedented flexibility and efficiency. Naturally, the ideal storage hypervisor leverages flash, just as server hypervisors unleash the power of Intel-based silicon.

Giant publicly-traded storage vendors and ambitious start-ups alike are talking up their offerings. All have differing approaches, but share the goal of giving data-center storage buyers the benefits already bestowed on server customers.

A Serious Game

Today we observe a convergence of forces transforming a multi-billion dollar market. The unending pressure for more data increases demand for high-performance flash-based storage hardware. This in turn is driving the essential requirement for virtualization of storage hardware resources. This confluence will enable vastly larger amounts of storage to be applied to every imaginable use case, all while making the economics not only affordable, but also compelling.

The winners in this game? Corporate and cloud data centers and their users. In other words, you.

Before co-founding Virsto, Mark Davis was CEO of storage resource management vendor Creekpath, where he engineered its acquisition by Opsware (now HP).

Since then, there have been other moves around virtual (software-defined) networks. Oracle nabbed Xsigo Systems, another virtual networking player. A start-up called Plumgrid landed $10.7 million in funding. Then, networking giant Cisco Systems — which notably reports quarterly earnings today — started insisting that, after a couple of decades of selling gear for networks that are fundamentally defined by their hardware, it has considerable expertise in software-defined networking, too. We’ll see.

Anyway, there’s now a new player to keep track of, and its name is Big Switch Networks. It comes out of stealth mode today, and it is also launching a general-release product with an army of partners and $37 million in combined funding from investors including Redpoint Ventures, Khosla Ventures, Index Ventures and Goldman Sachs.

Yesterday, I talked with CEO and founder Guido Appenzeller (that’s him in the photo above, at the left of president and co-founder Kyle Forster) about what Big Switch plans to do. Essentially, it is software-defined networking writ larger than other players have sought to do. Specifically, Appenzeller says, Nicira aims to bring make networks programmable in software, but really only the data center. It is what he calls a “narrow stovepipe approach” that doesn’t take into account the larger opportunity. “It’s a single application without any open architecture support for other vendors, and there’s no support for anything other than the virtual switch that they have built. They’ve done a good job with what they’ve built, but customers want a platform; they want an open architecture that supports multiple vendors and devices, and which supports the deployment of many applications.”

Appenzeller has a strong background in OpenFlow, an open standard that allows software to determine how data is handled on a network. He was on the team at Stanford University’s Clean Slate Lab, and he led the research team that developed the OpenFlow standard.

The basic idea behind SDN is that networking environments should be as programmable as other parts of the IT infrastructure. Networks have grown incredibly complex to manage and, more often than not, when more flexibility or capacity is needed, the answer is to buy more hardware. The more you can customize a network in software, the less hardware you have to buy. SDN is also a departure from the way networking gear has generally been run before: Up to now, they have not been open for programmers to tinker with.

Big Switch’s approach has a lot of industry support. Its numerous partners include some pretty big names: Juniper Networks, Citrix, F5, Dell, Microsoft and Palo Alto Networks are but a few. One key name is not among them: Cisco Systems.

While Cisco does support OpenFlow, it has been slow to get serious about it, Appenzeller says. “Cisco has been timid in the SDN space. It has announced OpenFlow support on some of its switches, but right now it doesn’t have the API support to configure existing functionality on the switch, not to create new applications that run on it.”

Yet Big Switch doesn’t see Cisco as a competitor: It doesn’t sell routers and switches. “We would wholeheartedly embrace Cisco if and when it supports a data-abstraction layer like OpenFlow, but right now it doesn’t,” says Big Switch marketing VP Jason Matlof.

To be sure, Cisco has been trying to get ahead of the marketplace chatter around SDN for awhile. For one thing, it poured $100 million into an SDN-focused start-up called Insieme Networks. But it has argued that OpenFlow is just one approach to SDN. It has offered its own API kit, called the Cisco One Platform Kit, to work with Cisco gear.

It’s too soon to tell if SDN technology represents a fundamental competitive threat to Cisco, which has for so long thrived by selling proprietary networking gear. In a research note to clients dated Nov. 9, analyst Paul Silverstein of UBS Credit Suisse called SDN technology a “long term competitive threat to Cisco in the data center switching market,” and noted that data center switching amounts to about 10 percent of Cisco’s sales. Silverstein also noted that a large number of companies had partnered with Big Switch. He went on to write that, in the eyes of some industry sources he consulted, Cisco’s SDN approach is looking “increasingly cogent.”

Brian Marshall, an analyst with ISI, said in a short note today that, while SDN is promising, the threat to Cisco and established players is still off on the horizon. “Big Switch and Nicira have emerged as the early leaders in SDN with commercially viable solutions. We believe SDN momentum is solid and will create a longer-term headwind to traditional networking vendors, but do not expect a significant impact to financial models over the next 12-18 months.”

Whatever threat it may or may not represent to established players like Cisco, it’s clear that Big Switch sees the network as having reached a point similar to where smartphones were in, say, early 2007, when the iPhone and Android burst onto the scene and made creating smartphone apps so easy. “The point is to make networking a peer of the open computing environment, just like computing, just like the mobile world,” Matlof said. “Look back five years at what you could and couldn’t do with a smartphone, and what you can do now.”

A similar transformation is coming to networks that will make them a lot more flexible and customizable, and will allow companies to build their own custom applications to manage their networks in ways not possible before. “Those companies that are committed to open architectures will be our partners,” Appenzeller says. “Those that aren’t, won’t.”