Will Cisco’s SDN Platform, ACI Survive VMware’s NSX Onslaught?

  • VMware’s SDN platform NSX is rapidly gaining traction
  • This is partly because of its relative ease of deployment compared to Cisco’s ACI and the fact that ACI was a bit late to the market
  • Does NSX’s rapid adoption threaten Cisco?
Cisco VMware SDN war

Lately, we have been hearing a lot of talk regarding VMware’s (NYSE: VMW) Software-Defined Networking or SDN platform, NSX, and its achievements in the networking world but not so much about Cisco’s (NASDAQ:CSCO) SDN platform, ACI. NSX and ACI are two competing and diametrically-opposed SDN strategies. NSX and ACI are widely considered the early SDN leaders due to the dominance of VMware and Cisco in datacenters and enterprises. VMware seems to have earned its bragging rights--the company revealed during its end-of-year earnings call that NSX had reached 400 paying customers by the end of 2014, and that a whopping 90% of deals the company sealed in the fourth quarter had NSX as part of the agreement. Now that is a big achievement when you consider that Nicira, the company that VMware acquired in 2012 and which formed the backbone of NSX, had managed to garner just a handful of users by the time of its acquisition, including companies such as eBay (NASDAQ:EBAY) and Rackspace Hosting (NYSE:RAX). It’s possible that not all of those customers that VMware touted in its announcement are in full-deployment mode; some might still be in the prototyping stage. The important thing is that they are paying customers and a sizable chunk might end up becoming full-time customers.

Considering that Cisco is a predominantly a networking company, the news that NSX is growing so fast certainly does not bode well for it. NSX has been available in the market since October 2013 while a fully deployable form of ACI did not hit the market till around August of 2014, therefore giving NSX a small but decisive first-mover advantage. Cisco is yet to release any ACI numbers that might give investors a clue of what’s going on behind the scenes.

SDN Market

The SDN industry is still embryonic. According to SND Central, an organization that monitors developments in this market, the SDN market is worth about $7.8 billion in 2015, while IDC predicted back in 2012 that the market would reach $2 billion by 2016. To put that into context, consider that the combined enterprise switch and router market is worth about $21 billion (that excludes the carrier routing and switching market which is worth another $12 billion). But, what are VMware’s and Cisco’s stakes in this market?

VMware was the first company to provide solid SDN sales figures when it revealed that NSX sales had already hit a $100 million run rate during its second quarter 2014 earnings call. Back then, the company had about 150 paying customers for NSX. The company finished the year with 400 NSX customers which implies its annual NSX revenue run rate may have reached $270 million. NSX can be sold either as a standalone license or an Enterprise License Agreement (ELA). This means that some of VMware customers are buying NSX alone or the entire VMware stack with NSX as one of the elements.

Considering that NSX is most likely ahead of ACI in terms of sales by virtue of having reached the market earlier, and the two SDN strategies are the most dominant, it would appear as if IDC’s $2 billion figure is more in the ballpark than SDN Central’s figure of $7.8 billion. SDN central, however, says that it arrived at that figure by looking at total sales triggered by SDN and not just sales of SDN equipment alone.

When Cisco launched ACI in August last year, it said that it had 1,000 customers for Nexus 9000 switches, and another 170 in the pipeline that were already testing ACI with APIC controllers. That figure is comparable with the 150 NSX customers VMware had during the second quarter of 2014, about 9 months after the launch of the platform, which indicates that ACI might also enjoy rapid uptake.

Who Wins the SDN Wars?

There are several factors that might play a part in determining whether Cisco’s or VMware’s SDN strategy goes on to become the most dominant SDN platform. One of the key factors revolves around how the two platforms operate.

Cisco’s ACI really is a framework that consists of both software and hardware instead of a pure-software suite that knits together different networks. ACI is built on top of Nexus 9000 switches and is controlled by APICs, or Application Policy Infrastructure Controllers. These APICs do not interact directly with the data path, but are instead used to stitch together the physical Nexus underlay to Nexus 1000v switches. One chief characteristic of ACI is that it sports very high port density, in fact much higher than what a typical business customer or organization would probably need.

NSX, on the other hand, is a pure software suite. NSX consists of a multi-hypervisor and vSphere. vSphere integrates directly into the existing ESX/i deployments by building on distributed virtual switches, or dVS. A major advantage of NSX is that it can run on a wide variety of networks by different network companies by leveraging 2/3 gateway services from a variety of switch vendors. This makes the potential market for NSX large since it can not only serve other open source customers including Red Hat’s and Citrix’s, but does not force organizations to make costly hardware upgrades to deploy it.

NSX’s major drawback lies in its limited visibility. Deploying NSX requires users to find a way to connect their overlay and underlay management. This is not something that is easy to accomplish using existing tools. To make matters even more complicated, the NSX pricing model can easily get quite costly depending on the number of virtual machines deployed.

Cisco’s ACI takes the cake for pure unadulterated data packet movement at ultra-high speeds, which makes it a great fit for data centers and large enterprises. Moreover, given the fact that the amount of data being moved around is always increasing at an astronomical rate, ACI might be great for enterprises 3-5 years from now. At the moment, however, few companies or organizations need ACI’s 1000+ non-blocking ports each with a capacity of 10Gbps.

Another big advantage of ACI lies in the fact that it’s built around Nexus 9000 switches, a scaled down version of the highly popular Nexus operating system. Nexus is OS that most network engineers are already familiar with. Network engineers, who are the guys mainly charged with networking tasks in most organizations, can run the Nexus 9000 switches in the normal Nexus mode they are used to until they become more comfortable with SDN at which point they can deploy the APICs and transition to ACI. These professionals might not be too comfortable with VMware’s pure-software NSX, and might even view it as a threat. Systems engineers on the other hand are more likely to fall in love with NSX due to its promise of network virtualization.

Conclusion

There is a strong likelihood that Cisco and NSX might end up sharing SDN spoils. Cisco owns about 70% of the enterprise networking market while VMware owns about 64% of the server virtualization market, giving both companies a huge leg up any other SDN upstarts. But, it appears that Cisco’s ACI is more likely to win in the long run. Many VMware hypervisor customers might start out with NSX, but later choose to move to ACI because it offers a more holistic solution for linking together physical and virtual infrastructure. The ease of deployment of NSX, however, might mean that the platform remains the leading SDN product over the short-to-medium term.

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