IDEAS Insights

After HP’s Acquisition of 3Com, What’s Next for Storage and Network Virtualization?

Following HP's announcement last week that it would acquire 3Com, speculation has arisen that more acquisitions related to storage and networking could happen soon, possibly including HP's absorption of 3PAR or Pillar. Another leading network company, Brocade, issued a denial that it was for sale, which nonetheless raises questions about whether its products and technology would fit well into a larger company.

As the industry moves into the next stage of applying virtualization, going beyond basic use cases such as consolidation, users are focusing increasingly on the broader impact that virtualization will have across storage and network infrastructures. Especially in large organizations, system managers now seek to achieve some of the same benefits from virtualizing storage and networking resources that they gained with server virtualization. In particular, they would like to reconfigure storage and network infrastructures with the same flexibility as virtual machines. For example, just as virtual machines can be moved around a network with functions such as VMware vMotion or Hyper-V Live Migration, virtual storage can be transparently relocated from one physical storage device to another with tools such VMware Storage vMotion. Similarly, administrators expect to be able to dynamically reconfigure virtual networks independently of the physical network and storage connections, which are generally changed as little as possible to avoid burdening network and storage management personnel.

Some of the requirements for these capabilities must be handled at the level of server hardware. Indeed, I/O virtualization technologies such as HP Virtual Connect, IBM BladeCenter Open Fabric Manager, and Egenera PAN Manager enable flexible connections between servers and the physical topology of networks and storage. However, to fully integrate virtual machines into virtual networks spanning datacenters or enterprises, specific functions must be implemented within virtual machine hypervisors. For this reason, the integration of Cisco's Nexus 1000V virtual switch with VMware vSphere 4.0 represents an especially crucial link. The commonality between Cisco and VMware's virtual networking technology enables VMware-based virtual networks to be managed with the same tools used for managing Cisco-based physical networks, in a way that allows virtual networks to be flexibly reconfigured. A key strength of the Virtual Computing Environment (VCE) coalition between EMC, Cisco, and VMware is their ability to further optimize the hypervisor, virtualized storage, and virtualized networking as a single integrated stack. Coupled with Cisco's entry into the server market with its Unified Computing System (UCS), VCE's thrust deep into the heart of virtual infrastructure steps up the challenge for other major systems vendors to respond with a credible alternative for end-to-end virtual infrastructures spanning servers, storage, and networking.

HP's acquisition of 3Com, following its renewed focus on the HP ProCurve line of networking gear in the past year, clearly represents a dramatic first step towards adapting to the new realities of the IT systems business, in which Cisco has become a strategic competitor. HP has also quietly started promoting an industry standard for virtualized networking called Virtual Ethernet Port Aggregator (VEPA), which it hopes will be more palatable for adoption by multiple server vendors than the VN-Link technology underlying Cisco's Nexus 1000V switch and the vNetwork distributed switch in VMware vSphere 4.0. As the strategic importance of virtual switching has become clearer, some other alternatives have sprung up in the industry as well, including Open vSwitch, which is based on open source technology developed in part by Nicira Networks and is being promoted by Citrix for its XenServer hypervisor.

How would additional acquisitions then help HP to compete with Cisco and VCE? First, acquiring 3PAR does not appear to be necessary. HP already has a broad range of storage solutions, including Modular Smart Array (MSA), Enterprise Virtual Array (EVA), XP, X9000, ExDS9900, AiO (Proliant Storage Server), RISS, and Lefthand. It is not clear how 3PAR would fit into this lineup, unless some existing product family were phased out. Indeed, most of the big storage companies have now made their clustered storage technology acquisitions, leaving 3PAR to compete independently. At this stage, it is unlikely that any of the major vendors would want to acquire the company, except for an irresistible fire sale price. One possibility would be for 3PAR to be acquired by Rackable (now SGI), should it still have any money left after its acquisition of SGI. More far-fetched, 3PAR could be acquired by someone out of left field, such as a cloud service provider like Amazon, Salesforce.com, Google, or even Microsoft. Any of these companies could take advantage of 3PAR's technology to build out a cloud service infrastructure that requires vast amounts of high-performance storage.

Acquiring Brocade could be more strategically significant, either for HP or another vendor such as Cisco. From the perspective of storage customers, Brocade is far more relevant than 3Com, which does not make Storage Area Network (SAN) switches. Brocade is one of only two independent suppliers of enterprise-grade Fibre Channel (FC) switches, the other being Cisco, which entered the FC market relatively late. While Brocade insists it is not for sale, the company now faces a long-term strategic issue as its core market of FC solutions nears the end of its natural lifespan. FC technology is now 30 years old, and while it has been the SAN interface of choice for the last 10 years, it will soon enter the sunset phase when FCoE and/or Infiniband start taking off as expected. As a result, Brocade needs to break out with some major new innovation or be acquired, otherwise it will perish.

One key advantage for Brocade is its DCX Backbones technology, which enables true Storage Network Virtualization, whereby SAN switches themselves are transformed into hosting virtual networks. Cisco is targeting converged storage networking with Fibre Channel over Ethernet (FCoE), but its technology is optimized more for the virtualized Ethernet layer of the stack, and it does not have quite the same degree of storage virtualization functionality as DCX Backbones. Whichever company acquires Brocade and its DCX Backbones technology could gain a crucial edge in the pursuit of Storage Network Virtualization.

Integrating DCX Backbones with Nexus 1000V technology would put Cisco, and the VCE coalition, in an even stronger position than before to drive the agenda of virtual infrastructure and Storage Network Virtualization, since most of the major systems vendors now OEM Brocade's technology for their existing SAN products. Conversely, should HP proceed to acquire Brocade, it would significantly strengthen its defenses against Cisco's drive into the server market. At minimum, having another switch supplier in its fold would help HP establish VEPA as a standard for virtual switching. Further, integrating Brocade's technology with other elements of HP's virtual infrastructure such Virtual Connect would go far in enabling HP to propose an alternative to VCE for virtualizing everything outside of the hypervisor (regardless of which hypervisor is installed, i.e. VMware, Hyper-V, or XenServer). While there is no evidence at present that either Cisco or HP is about to make a move on Brocade, the control of that company's assets remains a critical variable for determining how virtual infrastructure will be adopted across the industry.

VMware's vSphere Pricing is Attractive at Entry, but Premium Looms at High End

VMware's new virtualization platform, vSphere 4, introduces some significant changes in the way the company prices and packages its software, compared to the previous version Virtual Infrastructure 3 (VI3). To determine the impact on of VMware's revised pricing on various classes of servers, IDEAS calculated the equivalent cost per processor for deploying VI3 and vSphere 4 on various hardware configurations (see details in the June edition of our Tech Trends Monthly newsletter). The analysis found that VMware's pricing for vSphere 4 will be attractive for entry users in SMB environments, but that VMware has increased its premium for users at the high-end who are likely to exploit its most advanced features.

vSphere 4 Standard, the entry version of VMware's virtualization platform for single servers, is clearly similar in features to VI3 Standard, and it is a lot cheaper in all three configurations. With vSphere 4 Standard, the two- and four-socket configurations are 47% cheaper than VI3 Standard, while the one-socket configuration is 73% cheaper. The new vSphere Essentials offerings (see datasheet) create a new entry price point for SMBs users with up to three servers. These users can obtain the same level of functionality as VMware's previous entry bundle, VI3 Foundation, for around one third of the cost.

At the high end, though, users will ultimately pay more to get the most advanced level of functionality. vSphere 4 Enterprise is priced the same as VI3 Enterprise at two- and four-socket configurations, and costs 50% less on one-socket configurations, while including many new features. However, VMware will discontinue vSphere 4 Enterprise after December 15, 2009, at which point users will have to buy vSphere 4 Enterprise Plus. vSphere 4 Enterprise Plus costs 21% more than vSphere 4 Enterprise, for which users get VMware's most advanced features, including VMware vNetwork Distributed Switch and VMware Host Profiles.

Further, some of VMware's new packages vary in terms of the number of cores per processor socket that they can be deployed on. While most versions of vSphere can be deployed on processors that contain up to six cores per socket, vSphere 4 Advanced and vSphere Enterprise Plus editions will be required for deployment on processors that contain up to 12 cores per socket. Most 4-socket servers today have 4 cores per socket, and Intel and AMD have each announced processors with 6 cores per socket. However, Intel has pre-announced processors with 8 cores per socket, which are expected in late 2009, while AMD has previewed processors with 12 cores per socket, and it is promising 16-core processors in the future. When systems with these processors become available, they will require the installation of vSphere Advanced or vSphere Enterprise Plus.

VMware's pricing has come under some pressure lately. Microsoft includes virtualization with its Windows Server 2008 operating system, and Citrix recently starting allowing use of its virtualization functions for free. With its vSphere pricing, VMware has clearly responded to these pressures. In an effort to blunt the appeal of bundled and low-cost alternatives, VMware has reduced the premium for users who may just be getting started with virtualization, and have limited funds to invest in virtual machine software. At the same time, VMware is betting that enterprise users who value VMware's high-end functions will not be as price-sensitive, and are willing to pay more to step up to the next level of VMware's vision for virtual infrastructure.

Scrutinizing Oracle's Words for the Future of Sun's Hardware Business

What does Oracle plan for Sun’s SPARC and x86 server lines? It seems easier to understand why Oracle, as a business software company, values Sun’s software assets. Java and Solaris are clearly important to the success of Oracle’s middleware and database products. However, during the call to announce Oracle's acquisition of Sun, Larry Ellison specifically highlighted integration of software and hardware as a competitive advantage offered by the combined Oracle/Sun. An article in the upcoming April issue of IDEAS Tech Trends Monthly, “Is Oracle Really Entering the Server Hardware Business?” explores our thoughts on what the future holds for Sun’s $8 billion hardware business.

By offering an end-to-end, vertically integrated platform including hardware and software, Oracle seeks to achieve a stronger bond with its customers, and higher profits. However, most of the major server vendors in the industry support Oracle’s database software to some extent, and if Oracle now promotes its own hardware platform based on Sun’s technology, other hardware vendors may become increasingly hesitant to encourage their customers to deploy Oracle’s software offerings, for fear of drawing their attention to Oracle’s competing hardware.

Oracle’s announcement FAQ indicated that “Oracle also intends to focus the server and storage businesses on our common enterprise customers”. Today, that set of customers clearly represents the users of Sun’s SPARC systems. By contrast, Sun’s x86 systems business overlaps much more with the business of Oracle’s key partners, including HP and Dell, and it represents less than 13% of Sun’s hardware business. Therefore, Oracle may be much more hesitant to promote these systems, and it will likely continue to encourage other x86 vendors to adopt the x86 versions of Solaris and OpenSolaris.

For twenty years, the IT industry has gravitated towards disaggregation, whereby enterprise IT solutions were typically assembled from collections of industry-standard components. Now, the industry is entering a phase in which the server side of IT infrastructure is increasingly delivered in proprietary, vertically integrated forms (of which cloud computing is perhaps the ultimate manifestation). Customers who deploy servers on their own premises expect solutions consisting of differentiated software that is integrated directly with the hardware platform. 

With the acquisition of Sun, Oracle expects to deliver such a solution at the high end, consisting of the Oracle database, SPARC hardware, and the Solaris operating system, which it can position as an end-to-end, integrated alternative to IBM’s mainframes with z/OS and DB2. For now, the margins at the upper levels of the server market will be most appealing to Oracle as it seeks new ways to expand its business. Sun’s assets targeting the lower end of the market, including its commodity x86 hardware and even the MySQL database, are not yet likely to represent a high priority for Oracle. Its ownership of these assets will serve defensive purposes in the short term, keeping them away from the hands of competitors.

Regardless of its ultimate plans for Sun’s server products, Oracle’s entry in the server market will change the balance of power in the IT industry, and it should not be taken lightly.

Why IBM Will Continue to Pursue Sun

Although IBM appears to have called off talks to acquire Sun, a review of various paths that are available to IBM indicates that there are significant advantages for it to continue its pursuit and re-negotiate. The decisions that IBM makes next will depend on how it tackles some tough strategic questions. For example, how willing is IBM to fully pursue market opportunities with its industry-standard x86 hardware, instead of favoring its own System z and Power Systems platforms for the most lucrative high-end opportunities? How committed is IBM to delivering an end-to-end software platform hosted on multi-vendor hardware, rather than concentrating on its own tightly-integrated hardware stack?

The choices that IBM makes now will be steered by many internal and external forces, some of which are orthogonal or opposed. Depending on which forces prevail over others, their effect will fundamentally influence IBM’s decision whether to continue pursuing Sun or not, and how to integrate Sun’s systems technology if it does succeed with the acquisition. If IBM ultimately succeeds in acquiring Sun, and takes on the burden of consolidating seemingly incompatible platform hardware and competing software, it will benefit from an unprecedented range of virtualization tools for helping customers migrate between hardware platforms with the least possible disruption. If IBM does not acquire Sun in the end, it will face renewed challenges to develop a software stack that can both help secure the profits of its proprietary systems, and extend them to the increasingly critical x86 server market.

IDEAS has developed a few scenarios for how IBM might evolve its systems strategy with or without Sun. After analyzing these scenarios, it appears likely that IBM will proceed with the acquisition. Whether future negotiations will reach a price (and terms/conditions) that each side can agree to is not something we can predict. However, assuming such business obstacles can be overcome, the result will be that IBM adopts Sun's Solaris operating system on its own processors for business critical workloads, while promoting the open source version of Solaris, OpenSolaris, on x86 to build a community. If the majority of the market eventually accepts x86 systems for the most critical workloads, Solaris on x86 will provide IBM with a crucial foothold. Once IBM has fully exploited all possible opportunities for vertical integration with System z and Power Systems, it can fully shift its strategic focus to x86 and deliver a version of Solaris optimized specifically for its System x servers. Until then, Solaris and Sun's users will help to strengthen IBM's most profitable systems based on its own processors.

For more detail on these scenarios, download the complete analysis: The Mating Ritual of IBM and Sun: Some Outcome Scenarios (free registration required)

Big Changes for IT Industry in the Year Ahead

The recent IDEAS newsletter summarized some predictions made by IDEAS analysts for the coming year (see PDF). In the current economic climate, it initially appeared hard to avoid a gloomy outlook. The ability for organizations to make major investments in new technology could be dampened in the short term. But while times are tough, some possible technology investments promise benefits that are too good to pass up, and customers will be implementing many of those in 2009. The driving force for making those investments will be cost savings. The major vendors, including IBM, HP, Unisys, Fujitsu, and Sun, recognize this opportunity, and they will be launching a variety of new products and services to help their customers reduce costs.

Indeed, whenever the economic recovery begins, it is quite possible that it will be led by technology firms. Many new ideas will emerge and mature in 2009, which could become a defining year for IT. For example, with storage systems, Disk-Array Processor Enclosures (DPEs) will increasingly be based on industry-standard hardware running various storage-optimized operating systems. In the area of server hardware, we expect to see increased competition among traditional UNIX-based midrange and high-end servers. At the same time, improvements in x86-based multiprocessing and virtualization will allow massive consolidation of industry-standard servers. The environmental cost savings (power and cooling) alone are making this type of redeployment an attractive choice, even in a down economy. In many cases, payback can be achieved in as little time as 6-9 months.

Significant improvements will continue to be made in the environmental sustainability of IT products, as customers demand easily accessible and usable information on product environmental data in a non-competitive and environmentally conscious manner. Virtualization technology is clearly thriving as it becomes a standard part of IT infrastructures, not just in servers, but also in storage, networks, and desktops. One area to watch particularly closely this year is increasing virtualization of the desktop. As the trends of desktop virtualization, mobile computing, and telecommuting converge, the traditional desktop PC form factor could near extinction.

Businesses that survive the recession will look quite different than they look today, and firms that do not embrace IT change in the next year may be out of business. When the recovery starts, those who are nimble will be able to invest and out-maneuver their competition. This notion applies to users of IT, as well as the hardware and software vendors themselves. The trick of course is timing: investing too early may deplete funds needed to hunker-down and survive, while investing too late risks someone else becoming the leader. In any event, the world of IT will look totally different in 2010 than it did in 2007. The changes will be profound, possibly having a similar impact on the IT industry to the introduction of the original PC nearly 30 years ago.