Daily Archives: November 17, 2011

Assessing Dell’s Layer 4-7 Options

As it continues to integrate and assimilate its acquisition of Force10 Networks, Dell is thinking about its next networking move.

Based on what has been said recently by Dario Zamarian, Dell’s GM and SVP of networking, the company definitely will be making that move soon. In an article covering Dell’s transition from box pusher to data-center and cloud contender, Zamarian told Fritz Nelson of InformationWeek that “Dell needs to offer Layer 4 and Layer 7 network services, citing security, load balancing, and overall orchestration as its areas of emphasis.”

Zamarian didn’t say whether the move into Layer 4-7 network services would occur through acquisition, internal development, or partnership. However, as I invoke deductive reasoning that would make Sherlock Holmes green with envy (or not), I think it’s safe to conclude an acquisition is the most likely route.

F5 Connection

Why? Well, Dell already has partnerships that cover Layer 4-7 services. F5 Networks, the leader in the application-delivery controllers (ADCs), is a significant Dell partner in the Layer 4-7 sphere. Dell and F5 have partnered for 10 years, and Dell bills itself as the largest reseller of F5 solutions. If you consider what Zamarian described as Dell’s next networking priority, F5 certainly fits the bill.

There’s one problem. F5 probably isn’t selling at any price Dell would be willing to pay.  As of today, F5 has a market capitalization of more than $8.5 billion. Dell has the cash, about $16 billion and counting, to buy F5 at a premium, but it’s unlikely Dell would be willing to fork over more than $11 billion — which, presuming mutual interest, might be F5’s absolute minimum asking price — to close the deal. Besides, observers have been thinking F5 would be acquired since before the Internet bubble of 2000 burst. It’s not likely to happen this time either.

Dell could see whether one of its other partners, Citrix, is willing to sell its NetScaler business. I’m not sure that’s likely to happen, though. I definitely can’t envision Dell buying Citrix outright. Citrix’s market cap, at more than $13.7 billion, is too high, and there are pieces of the business Dell probably wouldn’t want to own.

Shopping Not Far From Home?

Who else is in the mix? Radware is an F5 competitor that Dell might consider, but I don’t see that happening. Dell’s networking group is based in the Bay Area, and I think they’ll be looking for something closer to home, easier to integrate.

That brings us to F5 rival A10 Networks. Force10 Networks, which Dell now owns, had a partnership with A10, and there’s a possibility Dell might inherit and expand upon that relationship.

Then again, maybe not. Generally, A10 is a seen as purveyor of cost-effective ADCs. It is not typically perceived as an innovator and trailblazer, and it isn’t thought to have the best solutions for complex enterprise or data-center environments, exactly the areas where Dell wants to press its advantage. It’s also worth bearing in mind that A10 has been involved in exchanges of not-so-friendly litigious fire — yes, lawsuits volleyed back and forth furiously — with F5 and others.

All in all, A10 doesn’t seem a perfect fit for Dell’s needs, though the price might be right.

Something Programmable 

Another candidate, one that’s quite intriguing in many respects, is Embrane. The company is bringing programmable network services, delivered on commodity x86 servers, to the upper layers of the stack, addressing many of the areas in which Zamarian expressed interest. Embrane is focusing on virtualized data centers where Dell wants to be a player, but initially its appeal will be with service providers rather than with enterprises.

In an article written by Stacey Higginbotham and published at GigaOM this summer, Embrane CEO Dante Malagrinò explained that his company’s technology would enable hosting companies to provide virtualized services at Layers 4 through 7, including load balancing, firewalls, virtual private networking (VPN),  among others.

Some of you might see similarities between what Embrane is offering and the OpenFlow-enabled software-defined networking (SDN). Indeed, there are similarities, but, as Embrane points out, OpenFlow promises network virtualization and programmability at Layers 2 and 3 of the stack, not at Layers 4 through 7.

Higher-Layer Complement to OpenFlow

Dell, as we know, has talked extensively about the potential of OpenFlow to deliver operational cost savings and innovative services to data centers at service provides and enterprises. One could see what Embrane does as a higher-layer complement to OpenFlow’s network programmability. Both technologies take intelligence away from specialized networking gear and place it at the edge of the network, running in software on industry-standard hardware.

Interestingly, there aren’t many degrees of separation between the principals at Embrane and Dell’s Zamarian. It doesn’t take much sleuthing to learn that Zamarian knows both Malagrinò and Marco Di Benedetto, Embrane’s CTO. They worked together at Cisco Systems. Moreover, Zamarian and Malagrinò both studied at the Politecnico di Torino, though a decade or so apart.  Zamarian also has connections to Embrane board members.

Play an Old Game, Or Define a New One

In and of itself, those don’t mean anything. Dell would have to see value in what Embrane offers, and Embrane and its backers would have to want to sell. The company announced that in August that it had closed an $18-million Series-financing round, led by New Enterprise Associates (NEA). Lightspeed Venture Partners and North Bridge Ventures also took part in the round, which followed initial lead investments in the company’s $9-million Series-A funding.

Embrane’s product has been in beta, but the company planned a commercial launch before the end of this year. Its blog has been quiet since August.

I would be surprised to see Dell acquire F5, and I don’t think Citrix will part with NetScaler. If Dell is thinking about plugging L4-7 holes cost-effectively, it might opt for an acquisition of A10, but, if it’s thinking more ambitiously — if it really is transforming itself into a solutions provider for cloud providers and data centers — then it might reach for something with the potential to establish a new game rather than play at an old one.

Amazon’s Advantageous Model for Cloud Investments

While catching up with industry developments earlier this week, I came across a Reuters piece on Amazon’s now well-established approach toward investments in startup companies. If you haven’t seen it, I recommend that you give it a read.

As its Amazon Web Services (AWS) cloud operations approach the threshold of a $1-billion business, the company once known exclusively as an online bookshop continues to search for money-making opportunities well beyond Internet retailing.

Privileged Insights

An article at GigaOM by Barb Darrow quotes Amazon CEO Jeff Bezos explaining that his company stumbled unintentionally into the cloud-services business, but the Reuters item makes clear that Amazon is putting considerably more thought into its cloud endeavors these days. In fact, Amazon’s investment methodology, which sees it invest in startup companies that are AWS customers, is an exercise in calculated risk mitigation.

That’s because, before making those investments, Amazon gains highly detailed and extremely valuable insights into startup companies’ dynamic requirements for computing infrastructure and resources. It can then draw inferences about the popularity and market appeal of the services those companies supply. All in all, it seems like an inherently logical and sound investment model, one that gives Amazon privileged insights into companies before it decides to bet on their long-term health and prosperity.

That fact has not been lost on a number of prominent venture-capital firms, which have joined with Amazon to back the likes of Yieldex, Sonian, Engine Yard, and Animoto, all of whom, at one time or another, were AWS customers.

Mutual Benefits

Now that nearly every startup is likely to begin its business life using cloud-based computing infrastructure, either from AWS or another cloud purveyor, I wonder whether Amazon’s investment model might be mimicked by others with similar insights into their business customers’ resource utilization and growth rates.

There’s no question that such investments deliver mutual benefit. The startup companies get the financial backing to accelerate its growth, establish and maintain competitive differentiation, and speed toward market leadership. Meanwhile, Amazon and its VC partners get stakes in fast-growing companies that seem destined for bigger things, including potentially lucrative exits. Amazon also gets to maintain relationships with customers that might otherwise outgrow AWS and leave the relationship behind. Last but not least, the investment program serves a promotional purpose for Amazon, demonstrating a commitment and dedication to its AWS customers that can extend well beyond operational support.

It isn’t just Amazon that can derive an investment edge from how their customers are using their cloud services. SaaS cloud providers such as Salesforce and Google also can gain useful insights into how customers and customer segments are faring during good and bad economic times, and PaaS providers would also stand to derive potentially useful knowledge about how and where customers are adopting their services.

Various Scenarios

Also on SaaS side of the ledger, in the realm of social networking — I’m thinking of Facebook, but others fit the bill — subscriber data can be mined for the benefit of advertisers seeking to deliver targeted campaigns to specific demographic segments.

In a different vein, Google’s search business could potentially give it the means to develop high-probability or weighted analytics based on the prevalence, intensity, nature, and specificity of search queries. Such data could be applied to and mined for probability markets. One application scenario might involve insiders searching online to ascertain whether prior knowledge of a transaction has been leaked to the wider world. By searching for the terms in question, they would effectively signal that an event might take place. (This would be more granular than Google Trends, and different from it in other respects, too.) There are a number of other examples and scenarios that one could envision.

Getting back to Amazon, though, what it is doing with its investment model clearly makes a lot of sense, giving it unique insights and a clear advantage as it weighs where to place its bets. As I said, it would be no surprise to see other cloud providers, even those not of the same scale as Amazon, consider similar investment models.