Over the last few weeks and months, mergers and acquisitions in the cloud space have started heating up, as the potential profits from cloud-based services, including voice, really take hold. It’s like someone poked the bear, and he's finally waking up to the fact that it's spring and he's missing the fun; or Godzilla is starting to rumble in his underwater mountain hideaway, knowing Mothra is on the way. (See TeliaSonera Snaps Up Cloud Minnow and GTT Acquires More Cloud Prowess.)
And just today, The New IP analyzed AT&T's integration of NetBond with Amazon Web Services. (See Partnering in The New IP Fashion.)
First, a bit of history: Five to six years ago, Tier 1 service providers jumped into cloud in a big way by selling infrastructure as a service to other service providers, but that never really reached its full potential, says Heavy Reading Senior Analyst Caroline Chappell. With consumer voice services in decline, service providers are now waking up to the fact that delivering enterprise cloud services is where the money is at. "The penny has dropped," says Chappell. "Enterprise cloud services are hot. It's where people are going to make money."
If you take a look at the financial performance of the cloud elements of the providers already on board, you can see a healthy cloud business developing, including companies such as CenturyLink, Ericsson, TeliaSonera and Verizon, she says.
Partnership aside, Chappell says she is seeing three types of acquisitions happening, depending on the maturity of who is buying. The first type is based on buying customers, and increasing data center footprint and infrastructure-as-a-service capabilities. Companies that don't have very much to start and want to extend basic services such as storage into cloud would fit into this category, including companies such as GTT, mentioned above.
The second type is acquisition of applications such as security, unified communications and richer cloud offerings, similar to what TeliaSonera is doing, Chappell says.
The third type is similar to what CenturyLink, Ericsson and Verizon have done in buying advanced companies with advanced orchestration capabilities. In this case, what's happened is that the most mature providers have "realized that where the competitive differentiation lies with cloud is in that orchestration layer making it all work," Chappell says. With advanced orchestration capabilities, providers can put any type of workload in the cloud, and it will all work together seamlessly. "The mature guys are really proving out telco cloud," she adds.
How NFV fits into the puzzle
Now let's talk about network functions virtualization (NFV) and how that fits into this picture, because it can be confusing, as Chappell notes and many of us will agree. NFV is separate from cloud but related, in that when the mature operators first realized that Amazon could make a business out of delivering enterprise cloud services, voice revenue had already been in decline, and operators saw enterprise cloud services as a way to strategically grow their business.
At the same time, they recognized that anyone in the enterprise cloud services business can utilize network virtualization to support services such as voice, but allow them to save money at the same time.
Caroline says that her research is showing that the mature providers offering enterprise cloud services are the most advanced in terms of putting NFV and software-defined networking (SDN) in place because they have the advanced knowledge required to support these adjacent technologies.
"If an operator hasn't seen the cloud before, they haven't got a clue. They have much bigger hill to climb," she says. "It's not a coincidence that operators already doing enterprise cloud services are the most visionary in terms of NFV. They have the knowledge in-house and need to serve their enterprise customers better."
To be sure, virtual network functions are different from enterprise applications, but as Chappell notes, it's not a foreign language to them, and it's easier and cheaper to offer services such as virtualized security services or firewalls as cloud services that customers can self-provision and self-procure at no cost to the provider.
This is where complex orchestration comes into the picture, and why the mature guys are acquiring where they are acquiring. They are up against the likes of Amazon, Google, HP, IBM and Microsoft -- competitors that already have the required knowledge in-house.
OpenStack engineers are still quite rare and expensive, Chappell says. "Buying a company is a good way of getting them." As such, Chappell expects further consolidation in the cloud space. "It makes sense," she adds.
— Elizabeth Miller Coyne, Editor, The New IP