UPDATED 08:37 EDT / MARCH 19 2012

Cisco’s New Startup Coming While Hot Startup is Already Out There – VCE Quietly Smoking the Competition

Quinten Hardy of the NY Times has a good story here for Cisco about an internal startup that three of Cisco’s top engineers have conceived to create a new type of network switch for data centers.

The product they are discussing, called Insiemi, would be designed to work in high-end computer centers that use “software-defined networking.” This type of data center, increasingly used in cloud computing, typically carries out much of its computing with cheaper off-the-shelf semiconductors, while complex software handles tasks that were previously done using expensive machines full of custom semiconductors.

Silicon Valley startup scene is littered with small ideas these days and fake VCs & entrepreneurs – iPad app here and photo sharing app there.  However, the big systems plays like what Cisco and Juniper were in the old days are no where to be seen.  Except upstarts like Arista Networks,  and Nicira, which uses software-based network virtualization to cut down on data center manpower.  Oh yeah I forgot to mention, those new systems startups need about $200m in capital just to enter the market.

According to NY Times:

In a recent call with journalists, John Chambers, Cisco’s chief executive, said the company had “reinvented” itself and was now a big believer in software-defined networking. Insiemi could be a networking product that would bridge the custom and commodity worlds for Cisco.

In an interview on Thursday, Mr. Chambers declined to comment on Insiemi. “We do not discuss our plans or internal investments,” he said. People with knowledge of the matter say discussions about Insiemi are expected to be completed in the next few weeks, and if successful are likely to be announced in the late spring.

Insiemi could be one of the great face-offs in enterprise computing. Two of Arista’s founders, Andreas von Bechtolsheim and David Cheriton, sold an earlier company to Cisco. They are also both billionaires, thanks to early investments in Google. Arista’s chief executive, Jayshree Ullal, is a former chief engineering director at Cisco. The three Cisco engineers involved in Insiemi, Mario Mazzola, Prem Jain, and Luca Cafiero, are also wealthy, thanks to their work inside companies they led, which were hatched inside Cisco, financed largely by Cisco and then purchased by Cisco.

Cisco’s use of so-called spin-in projects, the opposite of the more typical business process of spinning a technology out from a company in order to create a new venture, have been controversial in the past.

While Cisco is guaranteed a product that fits well inside its overall technology plans, Cisco’s internal morale can be challenged. The spin in is seen as a kind of star system of top engineers, who work on a what, essentially, is going to be a Cisco device, earning a payout several times their normal Cisco salary. Ms. Ullal, who declined to comment on Insiemi, was a critic of spin ins while at Cisco.

The three men involved in Insiemi had their first spin in about a decade ago with Andiamo Systems, a storage networking company. The second, Nuova Systems, made a fast switch that could handle lots of different types of computing tasks in big data centers.

Nuova was purchased by Cisco in 2008 for a total of as much as $678 million, following an initial investment of $70 million for an 80 percent stake. Nuova’s core technology, the Nexus switch, has become an important part of Cisco’s product line.

Insiemi, like the names of the other companies, is Italian, the native language of Mr. Cafiero and Mr. Mazzola. Andiamo means “let’s go.” Nuova means “new.” Insiemi translates as “collection” or “assembly,” in the sense of orchestration.

 

While Cisco prepares to launch their new internal startup, they have had another startup already in the market – VCE. VCE is killing it in terms of market acceptance and performance.

According to data acquired by SiliconANGLE VCE is on a $1b run rate in sales this year. VCE – VCE is run by Michael Capellas and is owned mostly by EMC. According to analyst firm Wikibon’s founder Dave Vellante the total addressable market for this new VCE venture for Cisco is $400b by 2017.

Wikibon’s Vellante is defining the TAM as data center infrastructure that includes hardware (servers, storage and networking), infrastructure software (e.g. systems management, backup, etc) and related services (including internal staff). Wikibon pegged that market at $323B in 2011 growing to $402B by 2017.

Quietly Cisco and EMC are running the table on this new market. VCE was basically a $400m startup joint venture.

Building the next Cisco, Juniper in the classic way like Arista and NIcira is just to difficult. The systems game in Silicon Valley has changed.

On thing is for certain for Cisco to compete in the new innovation landscape.  Speed is of the essence.


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