Verizon Expands Cloud Computing Portfolio with Terremark Acquisition
On Thursday, Jan 27 2011, Verizon purchased Terremark for $1.4 billion in a move to accelerate it's "everything-as-a-service" cloud strategy. This marks the beginning of a new era in cloud computing, firstly emphasizing the presence of telcos in this space and possibly spurring cloud acquisitions over the course of the near future.
Verizon last year announced "Computing As A Service, SMB" in partnership with VMware and Terremark. The offering is based on the VMware platform and hosted in Terremark's data centers. All of Terremark's offerings are also powered by the VMware platform and in 2009 VMware purchased a 5% stake in Terremark. The choice of a common platform accelerates the possibility of a unified architecture for integrated service offerings in the future.
Both Verizon and Terremark appear in the leaders quadrant above Amazon in Gartner's Magic Quadrant report. While a majority expressed optimism in Verizon's move:
As revenue growth slows in the traditional phone business, it makes sense for telecom companies that serve business customers, such as Verizon, to "creep deeper into the information-technology environment," said Steve Hilton, an analyst at research firm Analysys Mason.
The acquisition of the Miami-based cloud services and data-center-hosting provider will expand Verizon’s ability to provide IT services to corporate customers. Terremark currently has 13 data centers scattered throughout the United States, Europe and Latin America, and offers IAAS (Infrastructure as a Service), security and managed services. Verizon will be competing with major cloud-services players such as Amazon.
Many service providers are trying to take advantage of the shift to the cloud by emphasizing their ability to control not only the computing infrastructure, but also the pipes between the customer and the cloud.
AT&T, Qwest and Verizon all have cloud businesses, and Verizon even offers customers guarantees about how fast data will travel between one cloud and the other. Plus, if Verizon wanted to make a bold move as competition in the enterprise heats up (earlier this week HP announced that it would offer an IaaS product) now was the time to do it, before Terremark became too expensive.
Some opinions were not as optimistic:
The deal nets Verizon 13 data centers across the world, including a 750,000 square foot center in the U.S., Amsterdam and Brazil. While Verizon is spinning the purchase as a way to advance its cloud services, the deal really boils down to buying a lot of real estate for servers. Verizon can either continue to rent out the data centers or it can plant its own servers. They can be used for either additional data storage or to run applications remotely and stream the results through the Internet.
I would say it is somewhere in between. I highly doubt Verizon can culturally sell much of anything which does not require a multi-year commitment and does not come with a hefty early cancellation penalty. So competing with Amazon or other cloud vendors in small units of processing/storage and small units of time is not likely.
On the other hand, Terremark does bring more than data centers. It brings decent competence in managed services, something Verizon can use as it grows its corporate business. Terremark also brings government vertical and international, particularly Latin American presence which extends Verizon’s reach in both.
- Vinnie Mirchandani (Deal Architect)
As for the present, Terremark will continue to operate as a wholly owned subsidiary and will retain its brand name and management team.