One of the most potentially dramatic developments in networking is an acquisition. We’ve just had two of them; the acquisition of NGINX by F5 and the acquisition of Mellanox by Nvidia. Will either or both of these deals have an impact on the industry, do they signal an impact already being felt, or are they a not-uncommon example of a vendor simply doing a silly and sometimes desperate deal? One deal is about software, the other about hardware, so what’s in this for the industry?
Both F5 and Nvidia are companies transitioning their focus in an age of both growing and shrinking opportunity. F5 has been about server load balancing and security, and Nvidia has been about graphics display systems for computer systems. Neither of these starting points suggest a desire to get involved in network transformation, which is why we need to look deeper into the deals and what probably lies behind them. When we do that, we’ll look at the future the deals seem to be aiming toward.
NGNIX is a premier web and application server provider, competing with popular servers like Apache. If you look at their own take on the deal, you see what I believe are two clear signals of direction. The first is that the cloud is transforming applications into a highly agile front-end piece that’s increasingly based on microservices and “events”, and a back-end piece that’s traditional online transaction processing (OLTP). NGNIX does the first part and F5 the second. The second direction is the orchestration and containerization of application deployment, and the need to frame application front-end services in those terms.
The componentization of applications has been going on for thirty years or more, but until the last decade or so it’s been componentization in building applications rather than in deploying them. That means the application components that used to be bound into a common load image are now network-distributed. That process is the real meat of virtualization. It’s not so much about making hosting virtual, but rather about making a whole pool of hosts look like a single structure. Things like microservices, orchestration (and Kubernetes), service meshes, and the like are the heart of this higher-level virtualization process. Because technical companies (including both NGNIX and F5) are historically bad at articulating their story at any level other than geek-speak or press platitudes, this whole process is badly understood.
That’s why F5 may have made an incredibly smart move here. There are a zillion pieces the new application ecosystem that’s wrought by this massive virtualization shift, and nearly all of them are in open-source form, promoted by a host of disconnected and small players. NGNIX actually has a lot of the most critical pieces baked into its own offerings, and it also has a massive installed base. You could have justified the purchase price ($670 million) for the base alone. Add in the critical application virtualization ecosystem and you have a very sweet deal indeed.
The big question here is whether F5 really knows what it’s doing. It’s easy to recount network technology acquisition failures, and actually rather difficult to identify great successes. F5, like most network companies, has had somewhat insipid marketing and positioning, and as a hardware player it’s far from certain that they really have a handle on what’s going on in the software space, particularly the container-and-Kubernetes space that’s actually central to the value proposition for NGNIX going forward. They plan to continue the NGNIX brand, but will that then limit the symbiosis, and will they end up messing with NGNIX strategy anyway? We’ll have to see.
Let’s look now at the Nvidia deal. The company’s own news release talks about how Nvidia as “unite two of the world’s leading companies in high performance computing (HPC)”, which noticeably plays on Nvidia’s own shift to GPUs as computing tools instead of purely graphics processors. I know Mellanox from work I did in an ad hoc group working on an NFV implementation back in 2014. Their specialty was (and is) high-speed interconnection and networking. They have InfiniBand and Ethernet products and also custom packet system-on-chips, and these are a great element in a hyperconverged data center or in a cloud, including a carrier cloud.
Carrier cloud, I think, is the reason this deal is a smart play for Nvidia. Remember that for five years now, my model has said that an optimal carrier cloud deployment would add over one hundred thousand data centers globally by 2030. Those data centers, focused as they would be on hosting service components, would be unusually dependent on high-performance networking, which is what Mellanox can provide. Mellanox, having worked in the NFV space, knows the system interconnect requirements for feature hosting.
GPU chips or other Nvidia products don’t come rolling off your lips when you think “carrier cloud”, but they might well do just that. The reason is that feature hosting, unlike cloud applications for enterprises, isn’t particularly dependent on an Intel chip architecture. For hosting microservices, which is where feature hosting in general and event hosting in particular, should be going, is a great GPU application. Combine that with a great interconnect strategy and you have something that could be very big indeed.
Which it needs to be, because Nvidia is spending just about exactly ten times as much for Mellanox as F5 is spending for NGNIX. Yes, Mellanox has a pretty solid business that Nvidia is buying, but the Street is skeptical that the price may be too high unless there’s significant leverage to be gained, and that’s where Nvidia has to step up its game.
The challenge in doing that is formidable, because cloud computing in general, and carrier cloud in particular, is really about software, meaning that hardware is just what you run software on. That mindset comes hard to a hardware vendor of any sort, but particularly hard to chip vendors. Not only is cloud and carrier cloud software-centric, any attempt to gain access to or to accelerate the space is going to require world-class positioning, which hardware vendors are always very bad at. Very bad.
Both our acquisitions, then, have a lot of common elements. First, the Street thinks that basic business fundamentals will have a challenging time justifying the M&A. If this is about buying revenue, then both these deals are almost surely mistakes. Second, to make the moves more than that simple business play the Street isn’t accepting, both the acquiring vendors are going to have to do singing and dancing like they’ve never done before, and back that up with some significant architectural advances.
Behind everything here, and much of the other things happening in networking, is a combination of a switch of technology from hardware-centricity to software centricity, and the new model of agile multi-component (microservice) applications. This combination unlocks the real value of the cloud, it underpins the changes in networking to support an elastic community of services, and it challenges traditional vendor (and even user) planning. It is very difficult for even platform software vendors (Wind River comes to mind) to promote their role in a transformation that higher-level software has to drive. For Nvidia/Mellanox, it will surely be even more challenging. For F5 and NGNIX, there’s a big advantage in that NGNIX actually has a lot of the key technology that will need to be promoted.
The important thing for both companies is the positioning. Right now, carrier cloud and even the future of traditional public cloud services are tied to broadly useful but largely disconnected developments in the open-source space. Operators don’t want to be integrators (many don’t even have the skills to be software integrators at all) and even planning out a cloud transformation is difficult without specific technical objectives and an architecture that can bind them into a deployment. These are both great acquisitions, but to sustain their greatness there’s a lot of work still to be done.