Some asked if the price is too high -- the fact is this type of strategic deal is valued at the size of the dream not the size of the revenue, it is a good deal as long as the dream is both bold and real enough. Given Nicira is quite comparable to Insieme (*), and they are slightly bigger, the valuation seems to be very reasonable. It is the beginning of a vendor war of physical versus hypervisor switches and VMware just fired the first shot.
With this deal, customers wonder why neither Cisco nor VMware bridges the gap between network admins and server admins but instead they each encouraged more silos between the two camps (VMware is saying physical network is merely a dumb pipe and Cisco is selling the value of their physical boxes)? At the end of the day, both companies have to match their products with their business model.
Despite the short-term constraints they have, they did earn a spot on the SDN bandwagon with the money spent, they validated the SDN space, and they both have said it is only the very beginning! :)
I'm truly excited about the SDN opportunity ahead!
(*) Here is my comp table, the opinion here does not necessarily represent my employer. Big Switch Networks is still a stealth mode start-up.