With its purchase on Monday of Xsigo Systems, Oracle is beginning a move into network virtualization, a potentially game-changing technology that is already disrupting old-school networking vendors like Cisco Systems and Juniper Networks. The deal comes only a week after VMware bought Nicira - another network virtualization startup.

Oracle did not release financial terms of the agreement to buy Xsigo, a maker of virtualization technology that moves data more efficiently in and out of data center servers, but VMware will pay $1.26 billion for Nicira.

The two acquisitions are a reflection of how seriously major tech vendors are taking the emerging network virtualization technology and its potential to shift network intelligence from proprietary hardware from companies like Cisco and Juniper and move it into software running on commodity systems.

Nicira vs. Xsigo

Besides selling into the same market, though, Nicira and Xsigo have little in common. Xsigo sells hardware that provides input/output virtualization that replaces a server’s multiple Ethernet and Fibre Channel interfaces with a single high-speed Ethernet or InfiniBand link.

Nicira provides an intelligent layer of software that sits on top of data-center servers and manages and controls the resources and capacity of networking gear. Nicira’s technology covers a much broader segment of network virtualization, also called software-defined networks, or SDN.

Because Xsigo and Nicira are so different, some analysts say the acquisitions have little in common. “This won’t effect Juniper or Cisco, and it’s not the same type of news as VMWare plus Nicira,” Andre Kindness, tech analyst for Forrester Research, said of Oracle’s purchase.

Others disagree. Michael Genovese, analyst for equity research firm MKM Partners, sees the acquisition as the start of Oracle getting deeper into networking in the data center. “I call it more of a warning shot than a full battle shot across the bow of Cisco’s and Juniper’s businesses,” Genovese said.

Oracle in Network Hardware

While Xsigo does not make Oracle a competitor in that arena today, the company is giving notice that it could head deeper into the network virtualization hardware business. That would happen If Oracle goes after a bigger fish, such as Brocade or Extreme Networks, Genovese said. And at that point, Cisco and Juniper would have much more to worry about.

“Oracle hasn’t done very well in hardware to date, but they want to be a bigger player in the infrastructure (of data centers),” he explained. “This (acquisition) is somewhat of a networking play.”

Oracle became an enterprise hardware vendor in 2010, when it completed the $7.4 billion purchase of server maker Sun Microsystems. Since then, Oracle has bundled its databases and business applications on Sun hardware to provide all-in-one hardware/software packages.

Xsigo is important to Oracle because customers using its server virtualization technology, called Oracle VM, would benefit from having network connections sitting in a virtualized platform.

“The proliferation of virtualized servers in the last few years has made the virtualization of the supporting network connections essential,” John Fowler, Oracle executive vice president of systems, said in a statement. Xsigo is already used today with Oracle databases in the data centers of HiFX, a foreign-exchange broker; Investec, a specialist bank and asset manager; and Bitbrains, a managed service provider.

What About Cisco and Juniper?

With startups and tech giants leveraging network virtualization to close in on their core businesses, Cisco and Juniper can’t afford to stand still. Juniper has launched its own software-defined networking platform called Q-Fabric and Cisco has invested $100 million in SDN startup Insieme. Cisco Chief Executive John Chambers has said the company plans to eventually absorb the startup, which is led by three Cisco engineers.

However, Cisco and Juniper have not embraced the open standards used in other software-defined networking technologies favored by Web businesses and cloud computing companies such as Google, Facebook, Microsoft, Yahoo and Verizon. In fact, Cisco has been trying to slow the adoption of SDNs by confusing customers with claims that its products are compatible with other SDN technologies, said MKM Partners analyst Genovese.

While that strategy may work in the short term, Cisco won’t be able to stop the movement away from switches and other proprietary hardware that has powered networking for years. “They can’t stop the trend, and the trend is towards programmable, open, software-defined networks,” Genovese said. 

Business customers want more efficient networks in which capacity is maximized and they have control instead of vendors of proprietary hardware. Cloud computing has accelerated the need for such networks and old guard networking vendors will need to adapt or watch their businesses erode.

Oracle expects to close the Xsigo deal in the fall.