Cisco Outlines Insieme Software Networking Venture

Cisco is investing $100 million to start Insieme to create SDN-related products, and will have the option to buy the "spin-in" for $750 million later.

Cisco Systems officials reportedly are talking about the company€™s latest investment, the $100 million it is spending to create a startup called Insieme that will develop products for software-defined networking (SDN) environments.

Insieme is being started by three Cisco engineers, and Cisco holds the option to eventually buy the €œspin-in€ company for $750 million, giving it an instantly expanded portfolio in the increasingly popular SDN market.

The New York Times first reported on the plan in March, and now Cisco executives reportedly have sent a memo to company employees laying out the plan, and stressing the need for cooperation and collaboration from all of them to make the effort work.

In the memo, according to The Times, Cisco officials talk about how Insieme€™s work will add value to Cisco as a whole.

€œInsieme€™s product development efforts are complementary to that of Cisco€™s current and planned internal investments,€ the memo reads. €œInsieme and other internal programs will be components of Cisco€™s broader programmability framework. These types of investments have strongly benefitted Cisco in the past, and we will continue to look for similar ways to complement our internal development capabilities.€

SDN is gaining a lot of attention in the industry, particularly among big Web businesses and cloud computing proponents. Essentially, the idea is to take many of the networking tasks that are now done on expensive pieces of hardware and do them instead in software. SDN is seen as a way of giving IT administrators greater control over their networking environments, with the software seen as a controller of everything else in the network. SDN can run on hardware that uses off-the-shelf processors, rather than more expensive proprietary technology; software upgrades are relatively easier than hardware refreshes; and the software can power down routers when necessary, which saves money and power.

SDN environments leverage the OpenFlow protocol, and in March 2011, a number of major tech players€”such as Google, Facebook, Microsoft, Yahoo and Verizon€”created the Open Networking Foundation with the goal of driving innovation around SDN and pushing for continued development of OpenFlow. Startups like Arista Networks already are diving into SDN development, and Cisco, Hewlett-Packard and other traditional networking leaders are looking to incorporate OpenFlow capabilities into their switches.

At the Open Networking Summit 2012 event in California this week, Google officials talked about how their data centers have migrated to a networking infrastructure dominated by software. The Times reported that Urs Hölzle, senior vice president of technical infrastructure at Google, said during a presentation that the company€™s SDN infrastructure has been running for about six months, and that cost reductions will come in such areas as better system management and utilization.

Hölzle also said that while smaller vendors are now leading the way in SDN, he expected larger companies, including Cisco, to become leaders in the field.

Cisco officials, according to their memo, expect the same.

€œCisco has the opportunity to shape and define the SDN market because it is still perceived as an emerging technology,€ Cisco said in its memo. €œIn fact, Cisco innovation will be much deeper than just SDN. Cisco is operating from established positions of strength, which include the scale of its operating systems, superior ASICs [application-specific ICs], unique embedded intelligence, experienced engineering expertise, and an expansive installed base€”most of which has no interest in completely replacing what it has already invested in so heavily.€

The networking giant has done two other "spin-ins" similar to what it is doing with Insieme. Two other companies€”Andiamo Systems, for storage networking, and Nuova Systems, for data center switching€”also were created through Cisco investments, developed products and were later bought by Cisco. Insieme, which Cisco said was founded in February, is being started by Cisco engineers Mario Mazzola, Luca Cafiero and Prem Jain.

The spin-in strategy, while being successful in developing new products for Cisco, also comes with some risks, including creating resentment among those engineers who aren€™t included in the startup, and won€™t be able to share in the millions of dollars the Insieme folks will earn.

In addition, some€”including GigaOm€™s Om Malik€”question whether the need to develop new technologies externally is an indication that Cisco can no longer do such work internally.

€œ[W]hen I read this memo, I see a company making a tactical admission that it has become so big, so bureaucratic and so broken that it cannot count on internal teams to build any groundbreaking products,€ Malik wrote April 19. €œThe SDN memo, at least from my perspective, sends the wrong message to Cisco€™s engineering corps: You are worth more outside than you are inside Cisco.€