Verizon’s acquisitions provide an enterprise path to the cloud

At the end of last month Verizon acquired CloudSwitch, adding value to Verizon’s January acquisition of cloud data center provider Terremark. Around the world, big telecommunications providers such as AT&T, BT, Telstra and Verizon have been hard at work, diversifying and seeking new business opportunities as revenue from domestic and international voice traffic continues to decline. While existing expertise and infrastructure made networking and data hosting a logical new endeavor, recent moves such as the Terremark and CloudSwitch acquisitions tap into a growing enterprise requirement for easy and controlled paths out of the legacy data center and into the cloud.

The world’s biggest telephone companies are increasingly well established providers of co-location and hosting services, typically serving large international corporations with deep pockets and widely distributed workforces. Although smaller data center companies such as Savvis and Rackspace have successfully diversified from simple hosting to the provision of cloud computing solutions, the telcos have typically proved less able to manage the transition on their own.

InfoWorld’s David Linthicum commented at the time that Verizon acquired Terremark that “Verizon has the same problem as many other telecommunications giants: It has fat pipes and knows how to move data, but it doesn’t know how to turn its big honking networks into big honking cloud computing offerings.” Verizon is not alone. Elsewhere, Orange (a subsidiary of France Telecom) is simply reselling a GoGrid product to deliver a private cloud solution to customers, removing the need to develop and deploy a solution of its own.

NPRG Senior Analyst Ed Gubbins notes that

locating and building data centers, outfitting them with the necessary equipment, efficient energy supplies and software and building a capable staff is no small task for a company like Verizon with lots of other business segments it must attend to. “It takes time,”‘ Lowell McAdam, Verizon’s chief operating officer said . . . “That’s not our core competency.”

Terremark and competitors are proving more nimble and more able to adapt to changing data center usage patterns. It seems likely that Terremark executives will gain increasing control over Verizon’s existing data center facilities, accelerating the speed with which these can be transformed for the cloud. It remains to be seen, though, whether strategies that worked for Terremark will prove as successful when transplanted into Verizon’s very different organization.

Verizon’s $1.4 billion acquisition of Terremark in January gave the company a cloud computing capability and, as Bloomberg BusinessWeek reported, access to new markets. Although almost certainly requiring much less cash (terms were not disclosed), last month’s acquisition of Massachusetts startup CloudSwitch may ultimately prove more significant to Verizon’s ambitions. CloudSwitch, the winner of the LaunchPad showcase at GigaOM’s 2010 Structure conference, sells software to simplify the process of moving applications from an enterprise data center to the cloud.

Combining CloudSwitch software with existing Verizon data centers and bandwidth creates an increasingly compelling proposition. Customers no longer simply buy the pipe down which their data moves or access to the server on which their data or application is hosted. Instead, they are buying into a complete package, including networking, hosting and the software that links all of it to their existing on-premise data center. Each of these pieces may exist separately elsewhere, and each of those individual components may be cheaper or better than Verizon’s. But Verizon’s ability to package and brand a rounded set of services is likely to prove compelling, especially in industries where IT is simply a necessary cost of doing business. Verizon isn’t just selling bandwidth or storage or data processing; Verizon is selling peace of mind, and at the moment no other data center provider offers quite the same combination of capabilities.

With CloudSwitch, Verizon is no longer simply one choice among many for networking or hosting. Verizon has become a compelling choice for any enterprise that wishes to explore a hybrid environment in which existing on-premise applications are gradually transitioned out to hosting partners and, ultimately, the cloud.

Question of the week

Is acquisition the only way for telcos to compete in the cloud?
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Paul Miller

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