Telcos will be a force in Cloud Computing

This is a cross post from

Ben Kepes asked me to write my thoughts on Jeff Kaplan’s post Can Telcos dominate cloud computing, in which Jeff argues, that based on their history, this is 'unlikely'

 While there is nothing wrong with delivering reliable services, in today’s rapidly evolving cloud computing environment reliability is quickly becoming table-stakes as businesses of all sizes seek cloud computing services which can give them greater agility, better economies and added functionality to reduce their operating costs and strengthen their competitive positions. These are not attributes which people associate with telcos…

…Telcos are still struggling to figure out managed services, which have been around for over a decade, as a new wave of Software-as-a-Service (SaaS) and cloud computing services become mainstream.

Jeff also throws in a comment about Telcos failing it their own markets:

 In fact, even responding to new ideas and business models in their core communications business continues to be a struggle for the telcos… Now, Skype is the largest international long-distance carrier.

This is a red herring and I will tell you why later.

First let me be very clear; in this post when I talk about cloud computing, I mean utility computing, IaaS or Cloud Computing services. I am excluding PaaS & SaaS from that definition. These are different propositions and to the best of my knowledge only BT, Telstra & Telecom NZ have commercial propositions launched.

Within that definition, I do believe telcos will have a large role (maybe not dominant), here’s why;

All cloud services require a network, who better to provide you that? SLAs that are currently conspicuously absent in cloud computing will become table stakes as businesses demand greater surety from their providers (just look at the buzz when gmail goes down). Unless you can deliver the end to end service, you aren’t easily able to do this

Telcos know about reliability. I just don’t get Jeff’s point above. If reliability is table stakes then can you seriously consider an internet delivered model as being better than an integrated private network and cloud model?

Cloud Computing is only just becoming mainstream. Really, just look at the numbers. The vast majority haven’t moved. Cisco, IBM, Microsoft and HP have only just entered the market. Customers look at these guys for legitimisation of any trend. No offence to any existing provider, but most companies are risk averse and naïve about today’s market leaders. By endorsing cloud computing, these vendors will make the cloud computing market much more real to end customers.

The other critical component of these vendors entering the market is their view on Telcos as a channel. That is the vendors that are going make cloud computing real for the majority of business users are all looking to work with Telcos for local delivery. Just look at the recent announcements (Cisco, IBM Juniper), they are all partners Telcos are familiar with.

It is also my belief that Governments are going to force regionalisation to occur within the cloud market. When Governments realise what this movement to the cloud will do for their tax intake (less IT spend, combined with less employment) they will figure out ways of protecting that. This again is advantageous for Telcos as they can enforce geo boundaries and they are generally large regional players.

Telcos have access to capital in the sort of multiples most start-ups would kill for. And make no mistake; it takes lots of cash (see this for speculation on Google’s spend) to build this sort of stuff.

Convergence of data and IT means this is a logical extension of Telco services. This is important because as Jeff accurately states, Telcos are under financial pressure. The difference between Cloud Computing and tolls is incumbency. One of the reasons Skype was successful is that they disrupted the incumbent Telco business model, a business model that Telcos are still very eager to protect. That is not the case in cloud computing, all that utility hardware is an upside for them. That’s why Jeff’s comments about Skype are a red herring, completely different challenges.

I’m not clear if Telcos will dominate this industry, compared to many other types of organisation they are slow to move and aren’t that innovative. That certainly isn’t universal and I would question whether it’s altogether relevant to mainstream customers. But I do believe that when the dust settles, some Telcos will be major providers in this space.


Disclosure – I work in the ICT industry – the views in this post are my own and may, or may not be, shared by my employer

PaaS – the game is on

Back in December I wrote a piece about how Cisco, through its partial acquisition of VMWare could make some very serious inroads into the PaaS market. Then in January the NYT leaked a story about how Cisco was getting into the server market, which in my view supported my hypothesis.

Today my RSS reader is loaded with bits about how IBM with its network partner (and arch Cisco rival), Juniper is extending its Blue Cloud construct.

Techchuck does a great job of describing it here, stating that the

“[technology will allow] businesses to install hybrid public-private cloud capabilities across IBM’s 13 "Cloud Labs" spread across the world. The companies have created technology that would allows enterprises to extend their private clouds to remote servers in a secure public cloud at the click of a button. Once the technology is installed in the Cloud Labs, businesses can easily switch clients workloads when resources become constrained...” My emphasis added.

 This is a great leap forward toward much more widespread adoption of Cloud computing as it addresses several issues for corporates (not SMEs) .

These being security and control. Juniper (and Cisco) are key players in Telco private network constructs, if you could extend your private network into the Virtual data Centre (VDC), then a major performance and security hurdle is overcome. After all you want the servers performance to feel like it would if it were in your LAN / WAN. It also addresses security because all that stuff is encrypted.

The second thing is control, read this from Mercury News

While many companies say they can deliver computing power on demand, most are using relatively old technology, analysts say. They aren't able to move software programs around the planet, dialing up a data center in Dublin, Ireland, when a server farm in San Jose reaches full capacity.

IBM demonstrated it can do exactly that at an event at its Silicon Valley Lab on Monday morning, as Rahul Jain, IBM's cloud architect, clicked on a box representing a computer in San Jose and dragged it over to a panel representing a data center in Dublin.

Notice how the CUSTOMER does this, not the service provider!!  This is gold because the customer feels like they are in control (which they are) and the service provider doesn’t have to have personnel doing it.

To me this is PaaS at a level of maturity that will significantly improve adoption. This is true convergence (network, IT, and services) in action. Most importantly it targets a segment (corporates) with money (banking excluded), who experience genuine costs and are willing to pay… wow an initiative with a viable business model!

Can one of the big boys ‘make’ the cloud market

I caught myself yesterday making the statement, that should one of the really big companies enter the cloud computing market they could literally make the market.  By this statement i meant that with all of the sales & marketing resources at the disposal, could one company accelerate the growth of the cloud computing market and physically grow it. (against what is a good question given my thoughts on market analysts).

Yesterday Microsoft announced it was going to finally going to deliver Office via browser (others call that SaaS but they do things their own way). So the question is, with its enormous marketing budget, market clout and channel could Microsoft (insert IBM,  HP-EDS) make the cloud market? Could a  regional Telco, like BT  (who has bought into the cloud vision) , with its reach and sales channels make the cloud market in the UK?

I think this can happen. I genuinely believe that a large company could cause this type or market distortation. To me there is some evidence of this, I’m told subprime mortgages didn’t exist 5 years ago for instance….bad topic but a clear example. MP3 music players – iPod anyone?  

Is the collaboration war just Google v Microsoft?

Pop quiz.

Who is the second largest software company in the world?

Who is the second largest provider of on-premise email & collaboration software?

The answer to both is IBM. The interesting thing about IBM is that they have been virtually anonymous on the SaaS front. Up until now that is.

I recently attended a seminar co-hosted by IBM & Saugatuck on SaaS. For the most part this was a bit of a disappointment (I’ll describe the IBM play in more detail below). The most interesting thing was the declaration of IBM’s own SaaS plans code named ‘bluehouse’. Interestingly this isn’t top secret, IBM has told the world all about it, it just hasn’t been picked up.


Collaboration services delivered on the Web
"Bluehouse" is the code name for a future software as a service offering from IBM designed for companies with five to 500 employees. "Bluehouse" extends the value of the Lotus Foundations family by providing extranet collaboration services for open social networking, instant messaging, file sharing, project management and web conferencing.

The suite outlined by IBM is very comprehensive, much more impressive than MS’s somewhat disappointing announcement of last week & includes email, unified Comms, document shaving, social network applications, video collaboration & a bit more.

Various aspects of blue house are very interesting. Firstly in a SaaS world the barriers that notes has in getting into an entrenched MS go away. Secondly brand value means that to many corporates this is a credible alternative Thirdly IBM hasn’t really got a lot to loose. This article (which is 3 yrs old) claims notes had 23% market share (which just feels way too high). The point is IBM is loosing the email race. But now with SaaS they could tank the price of email etc & get back in the game in fairly short order. Fascinating play that should definite spice up the email wars.

As an interesting aside. Go to the Software top 100 site & type in Google…. What docs that tell you???

More on the IBM SaaS model.

IBM appear to have done the math & realised that SaaS is actually quite threatening to their core hardware & software business. The rationale? In a SaaS world the ISV builds their ‘stack’ only once & will likely never move. That is the buying decision for H/W & S/W is centralised & baked in. So vendors like themselves miss out on all the business on-prem software drive & if they don’t get the ISV on their platforms ( DB2 , websphere , hardware etc) at initiation there’s no way back in.

So IBM’s play is to get to the SaaS vendors at start-up. Kinda boring but pretty real I guess.