VMware announced on Thursday that they are buying VeloCloud. This was a big move in the market that immediately set off a huge discussion about the implications. I had originally thought AT&T would buy VeloCloud based on their relationship in the past, but the acquistion of Vyatta from Brocade over the summer should have been a hint that wasn’t going to happen. Instead, VMware swooped in and picked up the company for an undisclosed amount.

The conversations have been going wild so far. Everyone wants to know how this is going to affect the relationship with Cisco, especially given that Cisco put money into VeloCloud in both 2016 and 2017. Given the acquisition of Viptela by Cisco earlier this year it’s easy to see that these two companies might find themselves competing for marketshare in the SD-WAN space. However, I think that this is actually a different play from VMware. One that’s striking back at hyperconverged vendors.

Adding The Value

If you look at the marketing coming out of hyperconvergence vendors right now, you’ll see there’s a lot of discussion around platform. Fast storage, small footprints, and the ability to deploy anywhere. Hyperconverged solutions are also starting to focus on the hot new trends in compute, like containers. Along the way this means that traditional workloads that run on VMware ESX hypervisors aren’t getting the spotlight they once did.

In fact, the leading hyperconvergence vendor Nutanix has been aggressively selling their own hypervisor, Acropolis as a competitor to VMware. They tout new features and easy configuration as the major reason to use Acropolis over ESX. The push by Nutanix is to get their customers off of ESX and on to Acropolis to get a share of the VMware budget that companies are currently paying.

For VMware, it’s a tough sell to keep their customers on ESX. There’s a very big ecosystem of software out there that runs on ESX, but if you can replicate a large portion of it natively like Acropolis and other hypervisors do there’s not much of a reason to stick with ESX. And if the VMware solution is more expensive over time you will find yourself choosing the cheaper alternative when the negotiations come up for renewal.

For VMware NSX, it’s an even harder road. Most of the organizations that I’ve seen deploying hyperconverged solutions are not huge enterprises with massive centralized data centers. Instead, they are the kind small-to-medium businesses that need some functions but are very budget conscious. They’re also very geographically diverse, with smaller branch offices taking the place of a few massive headquarters locations. While NSX has some advantages for these companies, it’s not the best fit for them. NSX works optimally in a data center with high-speed links and a well-built underlay network.

vWAN with VeloCloud

So how is VeloCloud going to play into this? VeloCloud already has a lot of advantages that made them a great complement to VMware’s model. They have built-in multi tenancy. Their service delivery is virtualized. They were already looking to move toward service providers as their primary market, but network services and managed service providers. This sounds like their interests are aligning quite well with VMware already.

The key advantage for VMware with VeloCloud is how it will allow NSX to extend into the branch. Remember how I said that NSX loves an environment with a stable underlay? That’s what VeloCloud can deliver. A stable, encrypted VPN underlay. An underlay that can be managed from one central location, or in the future, perhaps even a vCenter plugin. That gives VeloCloud a huge advantage to build the underlay to get connectivity between branches.

Now, with an underlay built out, NSX can be pushed down into the branch. Branches can now use all the great features of NSX like analytics, some of which will be bolstered by VeloCloud, as well as microsegmentation and other heretofore unseen features in the branch. The large headquarters data center is now available in a smaller remote size for branches. That’s a huge advantage for organizations that need those features in places that don’t have data centers.

And the pitch against using other hypervisors with your hyperconverged solution? NSX works best with ESX. Now, you can argue that there is real value in keeping ESX on your remote branches is not costs or features that you may one day hope to use if your WAN connection gets upgraded to ludicrous speed. Instead, VeloCloud can be deployed between your HQ or main office and your remote site to bring those NSX functions down into your environment over a secure tunnel.

While this does compete a bit with Cisco from a delivery standpoint, it still doesn’t affect them with complete overlap. In this scenario, VeloCloud is a service delivery platform for NSX and not a piece of hardware at the edge. Absent VeloCloud, this kind of setup could still be replicated with a Cisco Viptela box running the underlay and NSX riding on top in the overlay. But I think that the market that VMware is going after is going to be building this from the ground up with VMware solutions from the start.

Tom’s Take

Not every issues is “Us vs. Them”. I get that VMware and Cisco seem to be spending more time moving closer together on the networking side of things. SD-WAN is a technology that was inevitably going to bring Cisco into conflict with someone. The third generation of SD-WAN vendors are really companies that didn’t have a proper offering buying up all the first generation startups. Viptela and VeloCloud are now off the market and they’ll soon be integral parts of their respective parent’s strategies going forward. Whether VeloCloud is focused on enabling cloud connectivity for VMware or retaking the branch from the hyperconverged vendors is going to play out in the next few months. But instead of focusing on conflict with anyone else, VeloCloud should be judged by the value it brings to VMware in the near term.