Cisco memo: We can't build anything
Earlier this morning, The New York Times wrote about an internal memo in which Cisco Systems outlined its plans for software defined networking. More importantly, it also shared the news that it has invested $100 million in Insieme …
Context & Ripple Effects
Cisco's memo lands after a year spent retrenching from its consumer ambitions — the quiet pullout from the living room, the abandoned social-network bet, and January's shutdown of Umi — leaving the company refocused on its enterprise networking core just as that core comes under attack.
The Insieme play was already circulating in March, when The New York Times' Bits blog profiled the bold networking start-up built around three top Cisco engineers; today's memo confirms the structure — a $100 million 'spin-in' with an outside valuation — and makes explicit that Cisco sees software-defined networking as the threat worth pre-empting. It follows hard on the $5 billion NDS acquisition announced in mid-March, part of a rapid run of moves since the Skype regulatory fight in February.
First-order effects
- Cisco has committed $100 million to Insieme, giving it a dedicated vehicle to build data-center switches that answer the SDN startups before they take enterprise customers away.
- The spin-in structure lets Cisco fund the project off its own balance sheet while giving engineers equity upside — a retention tool aimed at keeping its top switch architects inside the franchise.
Second-order effects
- Rival networking vendors selling conventional switches face a vendor whose response is to compete against itself with a cleaner architecture, forcing them to decide whether to build their own overlay/SDN offerings or cede the data-center narrative.
- Enterprise buyers evaluating network refreshes gain a credible in-house alternative to the startups, which raises the bar any young SDN vendor must clear to win Cisco's installed base.
Third-order effects
- If the spin-in model works, expect large infrastructure incumbents to institutionalize it — seeding internal startups with equity structures rather than betting the mothership — as the standard defense against architectural disruption.
- SDN's premise of separating control software from switching hardware puts Cisco's high-margin integrated-switch economics at risk over time, making this memo less a product announcement than a hedge against the commoditization of its core business.
The trend: Incumbent network-equipment makers are responding to software-defined networking not by retooling in place but by spinning out venture-style teams, marking a shift from monolithic R&D to hedged internal startups.