Why is Nicira worth $1.2 billion?

At a cloud conference in June, I was introduced to Martin (pronounced “martini” without the second “i”) Casado, the 35-year-old CTO of network virtualization startup Nicira. In the space of about 10 minutes, Casado convinced me that we’re at the dawn of the age of Software Defined Everything.

Casado knows how to pitch. Just one month later, VMware announced it would pay $1.2 billion to acquire Nicira, which Casado co-founded in 2007. Total investment in Nicira to that point had amounted to $50 million, and the company has just one commercial product, Nicira Network Virtualization Platform, with a few big-name customers. The acquisition is expected to close by end of year.

[ Also on InfoWorld: eBay just announced it is using Nicira’s Network Virtualization Platform to create secure virtual networks. | Last November InfoWorld chose SDN (software-defined networking) as one of the top 10 emerging enterprise technologies. | For more on OpenStack, read Oliver Rist’s article, “Is OpenStack the new Linux?” ]

Last week when I spoke with Casado a second time, I wanted more insight into the technology that had commanded such a monster sum. I already knew there was something worth stealing. Last October, real (not cyber) burglars broke into Nicira’s offices and stole a laptop containing intellectual property. Speculation swirled that the perpetrators were operating on behalf of the Chinese government.

That incident only served to heighten the mystique around Casado himself. When he worked as a researcher at Lawrence Livermore National Laboratory, he was asked by a U.S. intelligence agency to explore the development of an ultra-secure global network within the public Internet.

Ultimately, Casado decided it couldn’t be done. But the challenges he encountered led him to enroll at Stanford, where he wrote a Ph.D thesis that led to OpenFlow, a specification — and now a vibrant open source project — to create a standard interface for network switches.

Which led me to my second big question. Nicira has also been a key developer of the Quantum networking component of OpenStack, an open source “cloud operating system” that in some ways competes with VMware’s pricey line of private cloud products. Was part of the motive behind VMware’s play for Nicira to shut that activity down?

When I caught up with Casado, he could only take a short break from poring over the details of the VMware acquisition. As he put it, “There’s a big transaction that I’ve got to work on, and it’s taking about 20 hours of every day.” So I got right to the point.

Eric Knorr: Why is your company is worth $1.2 billion dollars?

Martin Casado: Networking is a very, very large market and we have done some very innovative things. The SDN (software-defined networking) craze came out of Nicira. We created OpenFlow. OpenFlow is the basis of even the term SDN, which came from an MIT Tech Review article in I think 2009. And so when you have a very large market, you have enormous innovation in an area, you have insertion, and you have large customers, this becomes a very strategic asset.

Knorr: What specific areas do you address where you have unique ideas that nobody else came up with?

Casado: If you think in broad strokes about the software-defined data center, it’s going to require orchestrating compute and storage and networking — and the piece we’ve worked on is networking. In order to virtualize the network, you have all the properties of software, so you need to do new things to the network control plane.

The way we think about it is that we turned it from a networking problem into a distributed systems problem. So instead of using a traditional protocol to manage the physical network, you use a distributed system, and that will provide you more functionality and better guarantees. And the core IP in order to do this virtualization is an area where we’re very, very far ahead.

Knorr: Help us understand how Nicira’s product, Network Virtualization Platform, fits in with OpenFlow itself and draw the connections between the two as well as to Quantum.

Casado: Well, Nicira created OpenFlow. We wrote the first draft in 2007.

Knorr: Was that your Ph.D. thesis?

Casado: No, I actually did this while at Nicira. Now, the idea to do OpenFlow to create a switch protocol, that was done when I was a Ph.D.

Knorr: What year was that?

Casado: I finished my Ph.D. in 2007. And I wrote the first version of OpenFlow, the first draft, at the end of 2007. Then the original three engineers of Nicira — myself, Ben Pfaff, and Justin Pettit — wrote the first version of OpenFlow.

All OpenFlow is trying to do is standardize a way of speaking to a switch. But it doesn’t tell you anything about what you do with that switch. It’s a mechanism, but it doesn’t solve any problems. It’s not architecturally significant. What you should be interested in is what properties does the solution give me, not how it speaks.

Knorr: So let’s get back to Nicira’s core value.

Casado: What Nicira does is solve the network virtualization problem. We build a solution that presents a virtual view of a network that is totally invariant to the physical topology.

So, for example, you could build a very simple L3 network. I can present to you the view that it’s a very rich L2 network with ACLs and high-level services and then virtual machines move back and forth and the physical network changes, that virtual view is invariant. So it has the operational model of a virtual machine. You can create it dynamically, you can grow it, you can shrink it, but all of this is implemented totally in software. What we built is that virtual networking solution, which you can think of as building a hypervisor for the network.

Knorr: You have also been a key contributor to the OpenStack Quantum effort.

Casado: We lead Quantum. The technical project lead for Quantum is at Nicira. We have probably three full-time people who work on Quantum. So not only have we designed a lot of the interface, we’ve done probably the majority of the actual development.

Now, Quantum does not virtualize the network. It provides an interface for people who want to virtualize the network. A good analog would be that Nova, the compute portion of OpenStack, provides a standard interface for managing compute, but it is not a hypervisor. A hypervisor would be like Xen or KVM or ESX.

Quantum is an interface to the virtual networking subsystem. But that virtual networking subsystem could be in Nicira’s NVP, it could be Cisco Nexus 1K, or any number of virtual network solutions. So again, Quantum is just the interface layer, it’s not a mechanism that does the virtualization. Just like with Nova and the compute hypervisor.

Knorr: Does that mean that one of the more important open source pieces in that scenario is Open vSwitch?

Casado: Open vSwitch provides a virtual switch on each hypervisor. And virtual networking solutions are normally broken up into two pieces: The virtual switching layer that sits in the hypervisor, and the control plane that orchestrates all of them together. Open vSwitch is another project that was created by Nicira, though these days we’re not even the majority contributor to it.

It can be used by anybody who wants to build a virtual networking solution. So, for example, Cisco could use it, BigSwitch could use it, Midokura could use it, NTT could use it. It’s a piece of a solution but it’s not the entire solution. That solution is going to have your control plane, it’s going to have the data plane, which is going to be the vSwitching layer. And then of course it’s going to have the management abstraction, which will be something like Quantum.

Knorr: What will be the effect of the VMware acquisition on Nicira’s participation in OpenStack? VMware and OpenStack don’t seem to be natural allies, shall we say.

Casado: This acquisition is actually a statement. Part of this acquisition is a strategic direction to embrace open standards, embrace open source, and go multi-hypervisor. Not only will we continue the level of contribution to these projects, we’ll most likely accelerate them in certain areas.

Knorr: You mean this is a statement by VMware?

Casado: That’s right. Maybe “statement” is the wrong word, but it’s certainly a concrete step in the direction towards multi-hypervisor. And the reason is, if you look at the software-defined data center, you’re pulling the zoom level back from a single server to all of the technologies in the data center.

The reality is, if you look at data centers today, you’ve got all sorts of different technologies in play. You have different hypervisors and different cloud management systems. You could have CloudStack, you could have OpenStack, you can have Xen, you can have KVM, you can have vCloud Director, you can have ESX.

And so for the software-defined data center, VMware is very interested in working in these heterogeneous environments, and this is something Nicira has been doing from day zero. We support multiple hypervisors already. We support Xen and KVM and VMware. We support multiple cloud management stacks, we support CloudStack and OpenStack. This trajectory would be maintained going forward.

Knorr: The Folsom release of OpenStack this fall will be the first release that includes Quantum. It will be interesting to see how this all plays out. The politics are pretty intense, and the fact is your acquisition is now building a bridge between VMware and OpenStack that didn’t exist before. That’s quite an event in itself.

Casado: That’s right, and I think it’s going to take awhile for the communities to understand that this is in everybody’s best interest. I think OpenStack is a phenomenal project. I’m an enormous supporter. We’ve put a lot of effort into contributing to it, and we’ll continue to do so.

But OpenStack by design is meant to be an open framework by which you can have multiple components — some open source, some closed source — but an open framework, so you can have horizontal integration. And that fits very well within our strategy going forward. While it will take a little while for nerves to settle, ultimately I think this is better for everybody to have strong technology available within an open framework.

This article, “Why is Nicira worth 1.2 billion?,” originally appeared at InfoWorld.com. Read more of Eric Knorr’s Modernizing IT blog. And for the latest business technology news, follow InfoWorld on Twitter.