While lost on many investors, embracing open-source technology -- as opposed to having a closed-off technology platform -- can mean a huge difference in strategy. And that, ultimately, affects investor success.

Data center switching upstart Arista Networks (ANET 1.33%) is more open-source; incumbent switch maker Cisco (CSCO -0.22%), perhaps due to its front-runner status as a legacy business from the 1990s, has stayed more "closed."

Arista has built its business model on software-defined networking, constructing its switches from whatever outside hardware is the latest and greatest in price and performance. That's because Arista's "secret sauce" is not hardware, but its EOS operating system, which can run on commoditized ("merchant") hardware. This allows for a huge amount of flexibility and cost savings, and Arista's torrid growth over the past few years is testament to that. Cisco, on the other hand, has traditionally sold custom hardware and software together, in an attempt to tie end users into its (expensive) technology platforms.

Arista's latest product drop, the new 7170 Series switch, exemplifies its open-source approach, and shows why it has an inherent advantage in the new age of enterprise tech. It also packs a super-cool new chip from an outside vendor that should set it apart from the competition.

Arista's new 7170 network switch

Arista's new 7170 switch. Image source: Arista Networks.

Barefoot in the switch

The new switch utilizes a new type of programmable chip from upstart chip company Barefoot Networks. Specifically, the chip platform is called Tofino, and it runs on the P4 open-source programming language. Apparently, this particular chip is more programmable than chips from industry-standard networking chip company Broadcom (AVGO 5.32%). So one could say that Barefoot (still private) is trying to do to Broadcom what Arista has been doing to Cisco --- disrupting.

Why is the programmability of the chip important? Because the more programmable each switch is, the easier it is to configure it according to its function within the data center. Every data center, whether on the premises or in the cloud, requires lots and lots of switches, sending traffic to particular servers or computers, or back out into the network, according to whatever commands the system receives. Modern data centers tend to have a "leaf-and-spine" system: "Leaf" switches connect the data center to the network, transferring outside data to the "spine," which interprets data and then sends it either to the core servers for computing or storage, or back out to the network.

Traditionally, switches had to be more specialized according to function in this setup. But Barefoot's chips, each of which contains about 11 billion transistors, allow even greater flexibility than Broadcom's industry-standard chip. Apparently, Arista's software will be able to program each Barefoot-enabled switch according to whatever function is needed. That would save a lot of headaches, since IT pros would have to buy fewer types of distinct switches overall.

According to the joint press release:

The multi-functional platform increases server performance by offloading Hypervisor vSwitch networking functions such as tunnel termination, security policy enforcement and address translation onto the leaf switch, allowing more work to be accomplished by the compute pool, saving equipment costs and lowering power and cooling.

That's just one example of how moving certain functions around among switches within the data center can save data center owners money on power and cooling, thus reducing total cost of ownership.

Open-source advantage

By having software at its core, and by not having to service legacy platforms, Arista just seems to be more flexible than competitor Cisco, as evidenced by the quick implementation of Barefoot's chip. Of course, there's nothing keeping Cisco from using Barefoot's chip as well, as the P4 language is open-source. Still, Arista's being first to market with a Barefoot-enabled switch shows its agility and aggressiveness, which is why the company grew over 40% last quarter, while Cisco's "infrastructure platforms" (traditional hardware) only grew 2%.

Arista's first-to-market switch with a Barefoot chip shows that Arista and Barefoot, which embrace more open-source platforms, are going to be the big beneficiaries of the new age of networking. Investors looking at the space should appreciate which companies are embracing or benefiting from this trend -- and which companies have to adjust their legacy models to this new reality.