I've been talking about SDN and OpenFlow for a while. It is slowly becoming a reality. This article is one of the warning signs: Here's What Happened When Cisco Lost A $1 Billion Deal With Amazon
Let me put the financial impact into more down-to-earth terms.
How does Cisco make money? Well, you buy a switch or router and that's good. Then you buy more and that's good too. Then you grow so large that the routing table has gotten too big to be calculated by the CPU/RAM on all the old equipment. Therefore to buy the next device you also have to buy upgrades for all previous devices. It's like instead of buying 1 item you buy 1+N*M items, where M is the cost of upgrading legacy devices. When N is small this is barely noticed but when N is large... oh it's good to be a Cisco salesperson.
The reason it is so good is that the customer can't buy that CPU/RAM upgrade from anyone but Cisco. These are specialized CPU modules. Being the only supplier you are locked in. They can extract inflated prices because your only choice is Cisco or throw out the entire network and buy from someone else. That's even more expensive.
Yes, you don't need to upgrade everything for every new device. Yes, there are ways to grow a network that minimize route table growth on all equipment. This is a general economic trend; don't get pedantic. On average, adding new devices leads to new upgrades that you can't get anywhere else.
Then came software defined networking (SDN).
Spoiler alert: With SDN you'll be able to buy your network hardware and network OS from two different vendors.
With SDN the routing table is calculated by an external system that does the calculations for all devices and uploads the results to each device. Each device, therefore, is cheap to make. Cost scales linearly with the number of ports. As the network grows the external system that does the calculations needs to get more beefy. The network elements do not. They just keep running.
This external route calculator is a Linux box running either open source or proprietary OpenFlow software. You manage it like you manage any server. It can be a virtual machine running in your private VM system that you keep allocating more RAM and vCPUs or it can be physical boxes that you upgrade with parts that have dozens of companies competing to make. There's no lock-in. Heck, you can even change software vendors and not have to throw away any old hardware.
That's why Cisco is afraid. The amount of money made on a sale is about to go from 1+N*M to 1. That should make Cisco afraid.
Why do I sound so confident? Because we've seen this in the past. A big Cisco switch is like a mainframe and the world of desktop computers is coming to destroy it. Network equipment is the last place in this industry where you are required to buy the hardware and the software from the same company.
In the bad old days you had to buy your network NICs and switches from the same vendor. They had you locked in. Once open protocols came about, you could buy a NIC from anyone and a switch from anyone; companies that didn't adjust their business model went out of business. (and suddenly NICs were built into motherboards! at last!).
Let's talk about mainframes. In the bad bad old old days you had to buy your hardware, OS and applications from the same company. An IBM mainframe ran an IBM operating system and 90% of the applications you can buy for it came from IBM.
In the 1980s C and Unix made a radical change to this... you could write software once and without too much effort get it to run on any Unix or Unix-like operating system. This was the "open systems" movement. You still had a hardware+os lock, but the hardware+os+applications lock was broken. Sun would sell you SPARC+Solaris, HP would sell you H9xx+HPUX, IBM would sell you RS6000+AIX and you could move applications between them. People today forget how radical it was to be able to port software to another OS by recompiling it instead of having to rewrite it from scratch.
In the 1990s/2000s Linux made a radical change to that... you didn't even have to buy the OS from the vendor. This toppled Sun, HP and IBM who had a difficult time adjusting to the concept of selling hardware (Intel/AMD chips on generic motherboards) and leaving the OS to the customer to provide. IBM is a different company now. HP focuses on... service or something (still not sure). Sun went out of business and sold their assets to some guy with an airplane fetish.
We consumers will be the winners. A new era of competition will happen at the hardware level. The "smarts" run on cheap Linux servers, and competition is hot there, driving down prices. The real fun will be the new competition spawned when network elements become a commodity. "Commodity" means lower prices and the reduction of profits.
There will also be competition on the software side. With SDN you can change your software without throwing away your hardware. (Could you imagine someone trying to sell you a replacement IOS for your current Cisco hardware today? You can't, because the hardware is not 'open'.) I'm excited about two particular areas of competition. On the capacity side: Mathematically it should be possible to calculate 1000 route tables simultaneously instead of doing 1,000 individual calculations. On the optimization side: The blob of data sent to the network elements can be optimized multiple ways. I look forward to seeing optimizations for size and speed of execution, just like C compilers compete.
Decomposing networking into its basic elements (hardware, route calculation, etc) enables competition on a finer granularity thus opening the space to new companies and new ideas. Competition is good.
What is happening right now is Cisco is trying to decide if they want to follow a path like Sun, HP, or IBM... or can they find an entirely new path?
We live in interesting times!