 And now, SiliconANGLE TV and wikibon.org present a focus spotlight. Live from Las Vegas at VMworld 2011, host John Furrier and Dave Vellante, a women's game, virtual networking with support from HP, network virtualization and cloud computing will converge infrastructure innovations. Welcome back everybody. We're here at VMworld live. I'm here with Stu Miniman. I'm Dave Vellante at wikibon.org. Stu, welcome. Thanks, Dave. Okay, we're going to dig deep into the virtual networking spotlight. As you know, Stu, these spotlights are topical and they are designed to go deep into an area to help users better understand the key issues around particular topics coming from our community. And this one is virtual networking. It's sponsored by HP, so let's dive right into it. Stu, we've prepared a set of slides. The first one we're going to look at is the networking mega trends. I want to ask you, you hear a lot about the flattening of the network. What's behind that? Okay, so Dave, basically it goes back to similar to what we had with server environments, we need to get greater utility out of our equipment. So on server virtualization, we saw VMware helping us gain greater utilization. And in the network, we also had great inefficiencies. A lot of that was with one gigabit environments, we had what was known as the three tier network, which was going from my access layer to my aggregation layer and up to the core layer. And with spanning tree protocol, we are not using a lot of our links. When we go to 10 gigabit environments, we have consolidation, so I have fewer links and therefore I need to be able to utilize them better. And with things like VMware vMotion, we actually rather than needing to go up the tree, what's known as north-south traffic, we are actually driving more east-west traffic or server-to-server traffic. And that's why we need a flatter, you know, wider network than kind of the, what we had before. We love sports analogies here in the cube. East-west, not good in football. Much better in networking. Yeah, like you're running back, you want to go and hit it hard and use all the resources that we have. Okay, the second mega trend that we're looking at, let's go left to right here, is this issue of custom ASIC versus merchant silicon. In the old days, everybody was highly vertically integrated, a lot of function built into the customized chips. What's happening now, Stu? Sure, Dave. Right, if you dial back just even, you know, five years, the major switch manufacturers all made their own chips, that they needed to bake in their own functionality and have them own their own release cycle. What we've seen is this trend towards off-the-shelf silicon. So that is the same hardware functionality across the board, and it's through software and management that people are adding their value. Now, this isn't everyone across the board. Cisco, still most of their ASICs are in-house design, but even Cisco, with an announcement earlier this year, has the Nexus 3000 is for high performance, low latency environments, and that's off-the-shelf silicon. And just to note, there are three main vendors for the off-the-shelf silicon. It is Broadcom, Marvell, and Fulcrum Micro, who was recently acquired by Intel. So you're talking about lower cost, faster time to market, and an imperative to differentiate through software. Okay, lower left, we're talking about virtualization in the security model. Virtualization stresses a lot of things. Security being one of them. There's a lot of discussion, particularly Stu around sort of the level four, the level seven segments. Layer four through seven. Yeah, layer four through seven. Where function should reside? Should it be in the app, in the appliance? What are your thoughts on that? Yeah, so really, this is still one of those, it depends models. So VMware came out with their VShield portfolio, things like firewalls, there are different places in the network, and it really depends on your architecture. In a lot of ways, we were going from kind of the best of breed model to more fully integrated models. So close partnerships and products that can have the full portfolio. Okay, and of course the mother of all mega trends here. We're talking about convergence. The convergence of compute, networking, and storage into a single set of infrastructure that supports applications horizontally across the portfolio, as opposed to purpose built in silos. What do you see going on there? Sure, so first of all, we saw a consolidation in the marketplace, where the server vendors now have bought networking. So Cisco got into the server business, HP bought 3Com, IBM bought BNT, Dell bought Force 10 recently, and we're seeing rather than individual pipes and individual networks for certain applications, really converging things down to fewer number of connections, Ethernet is the main network in most of these environments, not just the convergence discussion around fiber channel over Ethernet, but also iSCSI and NAS, and there are still plays for fiber channel and finaband in those niches. So of course, if we could rip and replace, or if we had a green field, there would be no problem, but you can't do that in IT. So the big issue for IT organizations is how do I get from point A to point B in a logical progression without disrupting my existing install base? And of course, people and processes are likely even more important than the technology itself. Okay, let's switch gears. Let's take a look at the market angle, Stu. We've got a number of points that we want to make here. Take us through, you know, some of the key metrics that you're seeing in terms of market size, market growth, who the major players are and what the shares look like. Okay, so margins are definitely getting squeezed in the networking space. Overall revenue is not growing that fast, but port counts are growing. We've talked about the explosion of data and that ripples to the network. More ports are adding all the time and more environments need to be managed by fewer people. So there's a real push to try to take market share away from Cisco. Cisco has been the dominant player for, you know, over 10, 15 years, and now they're seeing some strong competition. So the latest market share numbers, Cisco sitting at 65%, HP's moved up to 12% market share after their acquisition with 3Com and we've seen Juniper and Brocade have separated themselves from that other pack to have over 2% market share reach. Okay, and there's a notation here the first time in 10 years that any company other than Cisco has had more than 10% market share. So Cisco's really enjoyed a top dog position and a dominant position for a long time. That's starting to change. Yeah, interesting though, when I used to look at the Delaware numbers they actually had two slides. They called it Snow White and Seven Dwarfs. So they would have Cisco way on top and all these small little companies down the bottom. There were seven of them. Now there's been market consolidation. A couple guys have fallen off the face. Gone out of business, been bought by others and now, right, it's Cisco, you know, obviously still the dominant 800-pound gorilla in the space. HP's a clear number two and a couple of vendors trying to separate themselves from the pack to be that number three, number four players. So you've got cloud and virtualization generally. You've got VMware specifically. We're here at VMworld. What's the VMware and cloud and virtualization angles here? So a lot of it is when we look at management. Just as we've seen that ripple effect of virtualization breaking how things are managed from a networking space that the server guy has networking concerns. So there's that balance between what goes in the virtualization environment. So it's the virtual networking, the distributed virtual switch versus the external networking. And how do I manage those two pieces? Because there's a lot more flexibility and mobility than we had in the past. Okay. And we talked about consolidation. Another point is we can all agree that Ethernet is king. Where are we with 10-gig adoption? So 10-gig adoption has really been starting to ramp up over the last couple of years. It's being built into more products. It's really already predominant in the Blade server environment. But we believe that the Intel Romly generation coming out in the second half of 11 that will really see that kick into the rack and stack servers so that 10-gig will be prolific. And we're even starting to see 40-gig in some backbone environments and 100-gig coming out since the standard ratified back in 2010. Okay. Let's switch gears and take a look at the business angle. On this slide, we've got a number of things that we're watching at Silicon Angle and Wikibon from a business perspective. And the big one is the new pricing models. We're seeing much more competitive pricing. Talk about that a little bit. Yeah. So Cisco, with its dominant position in the marketplace, has had a bit of a stranglehold on customers and competition. As the server guys own some of their own intellectual property and have switches that they can bake into their environments, they're helping to push Cisco out of the rack. So Cisco is still in the core and it's a high-margin business, but they do face tough competition from new generations of architectures from Juniper, from Arista, from HP, on the 3Com side. So there's challenges there. And services are a big piece of this. I've talked to some of Cisco's largest customers out there, and to be perfectly honest, some customers are unhappy with Cisco. They don't feel that they've gotten the service that they really shouldn't be expecting as a large customer. And then maybe there's a little bit of neglect or even a little bit of arrogance on Cisco's side and therefore competition that can come in and deliver products at lower price and give them the service that they expect are going to allow customers to be able to switch. Well, and you're seeing a couple of different service models emerge where you've got certainly IBM and HP and now Dell with the pro acquisition as to having highly vertically integrated services. You've got others like Cisco, like EMC partnering up with a lot of these services companies who are competitive with IBM and HP. So there's an interesting dynamic going on there and it's definitely one that we're watching. Absolutely. Another issue is that, you know, the Cisco whale and you've got the big server vendors that have made some acquisitions recently and you've still got some disruptors like Juniper that are independents, right? And so everybody wants a piece of Cisco, don't they? Yeah, if you just want to buy a 10 gigabit Ethernet switch and you're not looking for the latest, you know, scale out fabric architecture, you can find things much less expensive than what Cisco's offering, you know, easily 30, 40% less. Most enterprise customers are really risk averse, but these products all work, they've been baked out and there's competition to Cisco that are gaining lots of customer wins. And you've got some, because of convergence, you've got some interesting competitive dynamics with companies that have, like Cisco, that haven't traditionally been in the server business, getting into the server business, HP getting much more aggressive into the networking business. Networking has been traditionally a much higher margin business than servers, which have largely been commoditized. We're seeing HP, you know, pick away at some of the lower end markets and starting to move up to the top of the rack and into core switching, more work needs to be done there. Yeah, so HP, you know, has long been known for having some good innovations with their flex fabric product line, their blade servers really led some of that new generation of wire once technology. Cisco still competing hard there. Not gonna, you know, they're gonna fight tooth and nail for that environment, but as we see with the market share standpoint, you know, Cisco, if they lose one or two points of market share, it's not devastating to them, but that can be a doubling or tripling of revenue for the networking product. So you're gonna see more and more investment from some of the server manufacturers and some of the independents as they smell blood. So the market overall is not growing rapidly. I mean, it's talking about single-digit growth rates, oftentimes flat. So growth is gonna come through share gains and disruption, hence all the focus on market share. Right, and virtualization is a real area for focus, not just the VMware environments, but companies are also partnering with Microsoft, partnering with Citrix, and trying to ride that wave of virtualization, because that's where the growth is in the marketplace. Now again, another point on virtualization is OEM sales of vSphere are under pressure. What's going on there and what does that mean? Yeah, so when you look at VMware, you know, five years ago, VMware was sold mostly by the server manufacturers. And today it's highly more, it's much more distributed. So rather than more than 50% of vSphere licenses going through the OEMs, it's now under a third, I think almost down to a quarter, the last time I saw market share there. And part of that is that there's many ways to get your hypervisor. The hypervisor in many cases is free and there's also competition in that space. So some of the server guys are gonna license the three or less expensive options when they bundle that offering. Now the other business angle we're watching is the imperative of adding value beyond the hypervisor. If you don't own VMware, then you've got to find ways to do that to add value. And now that leads us, Stu, to the technical angle. And in this slide we've got a number of points that we want to make. What are the big disruptions that you see in the marketplace? Okay, so there's a lot of kind of open source initiatives out there. So open scale in the cloud environment and in the networking space there's open flow. So open flow at Interop a couple of months ago was the buzz of the show. And what we're talking about here is how to build large scalable environments that can be managed much simpler. So the service providers definitely need this, but it's actually the enterprises where we're gonna see this technology first. It's a software product that is going to be supported by many different vendors out there. So the company is participating in this and it's one that bears watching. And how about optical? Is optical finally going to replace copper? Yeah, so if we look at the cabling, traditionally Ethernet cabling has been, if we look at 1 gigabit over 99% copper. And when we went 10 gigabit for many years, optical was the only answer. What we've got right now is 10 gigabit Ethernet really starting to ramp up the 10G base T. So we'll start to see copper seeping into it some. Optical is definitely gaining market share on copper. The price of copper keeps going up. The differentiator between copper and optical from a price standpoint is being even. And the interesting technology that we saw come out of HP Labs is an optical backplane. So very short distances on the backplane, how we attach things has always been copper. And in the future, that could be replaced as optical. So Corning's very happy. There definitely is, you know, we're bullish on optical. Okay, we talked earlier, you were talking about management. We've covered the stack wars at Wikibon and SiliconANGLE now for a while. What's happening in management across the various heterogeneous stacks? Okay, so specifically from the network environment, one thing that has been around for a couple of years now is VMware has their embedded switching and Cisco came out with the 1000V. And the 1000V solved what on paper and in many ways was a real issue, which was I have my networking in my virtual environment and my physical environment and how do I manage both of those? Cisco worked with VMware and said, let's give the networking guys all the keys to the kingdom and make a 1000V looks just like a Cisco switch and they can manage that environment. Nobody else invested in that because VMware has enhanced their product and the gap between what I can get from a native networking environment and virtualization versus an external, it's kind of merged. There's not much difference now if I just buy a VMware environment and use the native networking versus buying a Cisco 1000V. Okay, we talked about adding value beyond the hypervisor. This next point is an example of an embedded technology HP Flex Fabric. It's an example of adding value beyond the hypervisor. It has traction. You're saying, however, there really needs to be similar innovation in the top of the rack switch and the core switching, which is really Cisco strong. The wonderful thing about the Flex Fabric Virtual Connect is it's a wire once technology and it's really invisible to the customer. What I mean by that is they buy a blade server, it plugs into their existing environment and they don't worry about what's inside. FCOE, as Dave, you and I moderated a session at SNW and nobody is banging down the door for a new protocol. Nobody wants to change. I want to fit into my existing environment and let me take my time as to how I deploy that. Flex Fabric Virtual Connect fits into that and what we're seeing in the new generation of top of rack switches are using merchant silicon, they all have FCOE functionality. Once FCOE is built in throughout the stack, 10 gigs built in throughout the stack, I have lots of options and flexibility as to where and when I turn on convergence technology for my environment. These are high stakes too, especially at the core because that's really where the high margin, we talked earlier about margins and servers versus networking, the real high margin is in the big core switches, isn't it? Absolutely, so there's a big battle for what is your 10 gigabit ethernet switch and whoever wins that, you've got a design win that's going to last you at a customer site for at least five years usually. Okay, and then the last technical angle that we're looking at is from a VMware perspective. What do you see going on there with things like VMotion? So this is where the new technology that was announced at VMworld, this land plays into it because the scalability of Layer 2 environments is limited, but VMotion requires Layer 2, so how do I have that, you know, VM anywhere, anytime flexibility? It's still a lot of ways of vision, but VMware and a bronze consortium of the networking groups have brought that to the ITF and it bears watching. Okay, the last slide that we're going to show you is a copy of the Gartner Magic Quadrant. This is very interesting, this is for enterprise networking. Very interesting picture, you've got two vendors in the upper right, Cisco and HP, that's where a lot of the pricing action is going on. What do you see here? So Dave, right, if we talked earlier about market shares, Cisco and HP are obviously the number one and number two players. Cisco is still having the largest portfolio and HP has some good product lines. As we said, HP in the rack has some great products. Their core environments, they still need to figure out how the ProCurve and the 3Com fit together in that environment. But from a pricing standpoint, HP definitely can execute, they've got good services, but it's a strong battle there and there's innovators. So we look in the Visionaries Quadrant, Juniper with its Q fabric, Brocade with its VCS product line and one that we're surprised that we didn't see on here is actually Arista. So Arista has some good technology at low price points and good innovation, a lot of programmability built into it which is really good for the service providers in the web 2.0 space and kind of surprised to not see it on the Magic Quadrant when some of the other guys in the lower left we don't hear about too much anymore. Okay, so Stu, thank you for taking us through the networking trends and the mega trends. Appreciate you joining me for this spotlight. Now for some of you out there, we maybe went a little fast. Maybe some of you, this is a little too slow. So we might want to get a little deeper. So now's a good time to tell you, go to siliconangle.com, go to siliconangle.tv, check out servicesangle.com, our newest publication and check out wikibon.org. You'll find research, you'll find all kinds of editorial, you'll find videos, you have questions, hopefully we have answers. Hit the edit key, make improvements, share with your peers. This has been the in-depth first segment of the networking, the virtual networking spotlight. Stay tuned because we're going to go deeper with subject matter experts, industry experts, and we've got a panel. Stay with us, we'll be right back.