Virtually Speaking: Buying in to the Virtual Network

By Amy Newman (Send Email)
Posted Jul 31, 2007


Amy Newman
Cisco announces its intent to invest in VMware and unveils some virtualization offerings of its own.

As summer rolls on, VMware's planned IPO looms closer and closer. This week, another vendor announced plans to invest in the virtualization kingpin. These investments are, in some ways, the strongest endorsement of both the vendor and the technology.

Cisco Systems said it will invest $150 million to purchase roughly 1.6 percent of VMware's common stock. This is less than 1 percent of the combined voting power of VMware's outstanding common stock, and it does not translate into a seat on the board. Cisco is not the only vendor to invest in VMware. Several weeks ago, Intel Capital, Intel's investment arm, agreed to invest $218.5 million, for a 2.5 percent stake.

Unlike the Intel investment, which was large enough to warrant a board member appointment, Cisco's investment does not carry the same requirement. VMware said it will consider appointing a Cisco executive to VMware's board of directors at a future date, however.

With EMC holding on to 90 percent of VMware, and Cisco and Intel picking up more than 4 percent ... well, you do the math. It doesn't leave a whole lot for investors, whether individual or institutional. Then again, exclusivity is one way to ensure it's an even hotter commodity while increasing liquidity for the new company and its parent.

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At first blush, a Cisco-VMware coupling may seem to lack synergy, unlike the previous investment, which as internetnews.com noted, "was exquisitely natural. VMware made its claim to fame virtualizing Windows operating systems running on servers powered by Intel's x86 processors."

When one looks at the changes virtualization has already brought, the investment seems logical from Cisco's perspective.

Virtualization, whether viewed as a technology or an architecture (or perhaps both) has already won over the mainstream as a concept, even if it hasn't entirely proven itself in production environments. It doesn't take a tremendous leap in logic to see that it will soon have an impact (if it hasn't had one already) on the hardware going into the server room. The analyst firms have already hashed this out.

To state the obvious: Fewer servers means less networking equipment, and thus fewer products for Cisco (and others) to move.

So it's both prudent and forward-thinking of Cisco find a virtual tune to sing, and what better way to do so than to leverage itself to the market leader, especially when the market leader already has a solid hardware tie.

There is, therefore, a collaboration element to the investment. Cisco will work with VMware to build solutions that tie VMware's virtualization products to Cisco networking infrastructure products at the points where their respective technologies intersect.

Cisco, however, is not relying entirely on VMware to build virtualization cred. Last week, almost in parallel with the investment announcement, the networking company unveiled VFrame Data Center, a real-time provisioning platform that uses network intelligence to enable the linking of compute, networking and storage infrastructures as a set of virtualized services.

VFrame Data Center features a policy engine for automating resource changes in response to infrastructure outages, performance changes and external monitoring systems via integration with the VFrame Data Center Web services application programming interface (API).

The product also integrates with third-party management applications, server and storage virtualization offerings — including VMware's server virtualization products.

VFrame Data Center is part of Cisco's Data Center 3.0 initiative, which was also announced last week. Data Center 3.0 is Cisco's vision of how next-generation data centers will function. Cisco anticipates data centers using real-time, dynamic orchestration of infrastructure services from shared pools of virtualized server, storage and network resources.

Amy Newman is the managing editor of ServerWatch. She has been following the virtualization space since 2001.

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