Telcos will be a force in Cloud Computing

This is a cross post from Cloudave.com

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

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