Big Switch Networks: Back From the Near-Dead

SDN Startup Raises $48M as New Products Strike Gold

F. Scott Fitzgerald once said "There are no second acts in American lives." He may have been right about people. But there are second acts in software-defined networking. Big Switch Networks has proved it. A few years ago, Big Switch was failing to find customers for its much-ballyhooed SDN revolution. The revolving door was spinning as senior management changed regularly. It looked like Big Switch was set to burn through its venture funding and disappear.

But this week, Big Switch proved the doubters wrong. It announced a fundraising of $48.5 million, and the addition of two new directors to its board, Gary Morgenthaler of Silicon Valley stalwart Morgenthaler Ventures, and Dan Warmenhoven, who was CEO of NetApp (NTAP) for 15 years until 2009. It's a confirmation that Big Switch's Act Two has been a big success. A new product strategy, launched in 2014, turned the company around. "It was a hairy period and we took some risky decisions, but we now look back and say it worked," Big Switch Co-Founder Kyle Forster said in a frank interview with the Daily Cloud. "We've been averaging almost 40% quarter-on-quarter growth for several quarters now."

In 2014, Big Switch revenue more than tripled to a figure in the double-digit millions. "We are the leader among the SDN startups and we are 40% larger than the next player in the group," Forster said. But while some of those startups, such as the number two player Cumulus Networks, are not doing badly, Big Switch's real competitor is Cisco Systems (CSCO), which brought out its ACI architecture specifically to counter the SDN threat. "We see Cisco ACI in every single deal. It's our biggest competitor."

Back in 2010 when Big Switch was founded, it had a similar business plan to Nicira, the other high-profile SDN startup. "We took half of the Stanford team. Nicira took the other half," Forster said, referring to the academic group led by Martin Casado that pioneered SDN technology at Stanford University. In 2012, VMware (VMW) bought Nicira for $1.26 billion. Venture investors threw more millions at SDN startups, amidst Silicon Valley exuberance over an "SDN revolution" that would transform networking. However, it soon became apparent that SDN was failing to make big inroads into the enterprise market. Some SDN startups re-focused on the service provider market; some sold out cheaply; even VMware's SDN business, renamed NSX, is not doing as well as it ought to, according to our sources, given the high price VMware paid and VMware's strong enterprise relationships.

Big Switch's first generation of products were similar to Nicira's, and they weren't selling. It was SDN software, but it was a partial networking solution, not a complete one. "In 2013 we were having a tough time," Forster admits. "We had to rewrite the business plan. We had started as an OEM company but we had to change everything and go direct to the enterprise. It was a scary time." The company also made several key appointments, including Juniper veteran Doug Murray as CEO and Cisco veteran Jeffrey Wang as VP of Engineering.

The change was about more than new faces or a new selling strategy. Big Switch had been selling an overlay solution, in other words a centralized software controller that manages an entire network, but not the switches that actually carry the network traffic. The new strategy was to build a complete solution. The new product, Big Cloud Fabric, carries the traffic and provides the higher-level management functions. It is software, but works with so-called "white box switches" (i.e. cheap switches, typically made in Asia and with minimal software of their own) to carry traffic.

In Q3 of 2014, Big Switch went to market with that new product. It remains a challenge to persuade customers to bet their network on a small startup, since networking is such a critical part of any data center. But the gamble has paid off. Big Switch has benefited from its original close relationship with Microsoft, which today has the Big Cloud Fabric in 22 data centers. It's also benefited from the fact that its second product, Big Monitoring Fabric, enables customers to try out a Big Switch solution without putting all their traffic on it. Monitoring is a form of "eavesdropping" on the traffic to watch for problems, and typically doesn't impact the traffic flows themselves.

Today Big Switch revenue is divided roughly equally between the Fabric and the Monitoring product. About 70% of the company's customers are enterprises and the remainder service providers. One customer, Clemson University, is much more than a university, providing data center services to major enterprises including an international automobile manufacturer.

"We just did a review and 80% of our customers are Fortune 500 companies," Forster said. "We've gotten very lucky. It's a confluence of trends, bare metal switching in hardware, and SDN on the software side, and those trends are finally coming of age just when we have products ready."

Big Switch's success is all the more noteworthy because it has been achieved at the same time that Cisco has brought ACI to market, by most accounts a very effective answer from the dominant player in networking to the SDN challenge. Forster said that Big Switch's strength is that it has developed a networking switch fabric that is optimized for private cloud infrastructure. And of course, the hardware costs of a Big Switch solution will always be lower than those of a branded company like Cisco. "We build a product with a very specific cost, designed for massive scale and for multitenant operations," Forster said. "Legacy networking still doesn't work all that well for private clouds."

In Forster's view, the success of SDN startups like Big Switch does not pose an existential threat to Cisco, as some believed at the height of SDN euphoria in the 2010-2012 period. But the situation is far from rosy for the networking giant. "Cisco is in an ok position. But it's not the same as five or ten years ago. The writing is on the wall for one large core data center market. The trend is to more segmentation in the data center switching market." The growing power of software functionality also poses challenges to network monitoring specialists, companies like Gigamon (GIMO), which typically sell pricy dedicated hardware appliances. As for VMware, it continues to sell an overlay solution that requires the customer to find the underlay (the actual switches) from another company. Today, that other company is sometimes Big Switch. The two rivals are now occasionally partners. "We can serve as an underlay to NSX," said Forster. "It's a funny twist of fate."

Now that Act Two is over, the company is embarking on Act Three: expanding its market and its geographical reach. "Building a startup is like knocking down bowling pins," said Forster. "You go into your first market, and that leads you to your second market, and that then takes you to the third, and so on.

"Today, we're doing great work knocking down bowling pins."