Last week VMware (s VMW) spent a whopping $1.26 billion on Nicira, a pioneer in the software-defined networking sector so  it could get a toe-hold in the emerging software-defined data center business. However, it won’t be long before the company is going to start facing competition from others. One name to watch is Contrail Systems, a Sunnyvale, Calif.-based company that has raised $10 million in Series A funding from Khosla Ventures and an unnamed strategic investor.

Software-defined networking after years of staying in the shadows is having its moment under the sun in 2012. The sale of Nicira has only increased the glare around the software-based networking trend. But this is just the start, argues Contrail CEO Ankur Singla, who until recently was Chief Technology Officer and VP of engineering at Aruba Networks. His co-founders in the company are  Pedro Marques who was at Google (and was a distinguished engineer at Cisco and Juniper) and Harshad Nakil, who in his past life was the lead architect for routing and switching platforms at Cisco. “I think there has been very little innovation in large systems and software defined data centers,” said Vinod Khosla, who led the investment in the company. Contrail is going to  attack “the cost/performance standards typical of traditional vendors” he added.

How? Contrail is building a federated and standards-based virtualized network control solution that is OpenStack enabled, which  is likely to come to market in 2013.  It will join a crowded field – Nicira, Big Switch and IBM are some of the players in the “controller” market — and more will emerge.

Singla says that Contrail’s approach is different from its competitors because it is both more distributed and can interoperate with a greater variety of equipment because it uses both BGP and XMPP protocols. Singla is of the opinion that large enterprises such as big financial institutions and energy companies will need their own web-scale cloud in order to run data-heavy custom applications. “The future is having any app or any workload run anywhere in the data center and that means that the network has to be very fungible,” said Singla. (VMware is a believer in this software-defined datacenter.)

In other words a network that is both virtualized and programmable. It is not as easy as it sounds, mostly because of the closed nature of systems at work, Singla said. Just as Cisco embraced BGP in its routers and was followed by others routers makers and led to decentralized routing and thus allowing Internet to become a totally decentralized system, what Contrail is proposing is a new standard that is based on BGP and L3VPN. In order to inter-operate, all they have to do is get a buy-in from their peers.