FOCUS CLOUD SPECIAL
Issue 19, January 2012
The network and customer-access parts of the story are there as well. “The merger leverages and complements CenturyLink’s existing assets, particularly one of the world’s most capable networks, and its hosting business,” Doerr says. “The merger has opened up new cross-selling opportunities for both Savvis and CenturyLink.”
LETTING THE INNOVATOR LEAD
The way in which both Verizon and CenturyLink went about integrating the data center services companies they bought was also similar. Both chose to retain the new subsidiary’s brands, allowing the companies to lead the charge on the data center services market.
Agatha Poon, research manager at Tier1, says this was a wise move that “let the innovative company lead an innovative strategy”. In Terremark’s case, it gets “additional resources from the bigger company [while] still being able to direct the Cloud strategy,” Poon says.
CenturyLink has largely let key members of the Savvis leadership team lead its newly acquired hosting business. “Savvis is now officially referred to as Savvis, a CenturyLink company, and is an autonomous managed- hosting entity
umbrella,” Savvis’s Doerr says. The merger gives CenturyLink
colocation, hosting and cloud offerings that can now be delivered on a global network, providing CenturyLink with access to new international markets, Doerr says.
Other large telcos-turned IT0-service
-providers place a lot of focus on targeting the enterprise market with customization on a vertical-by-vertical basis, Poon says.
A good example of this strategy is London- based BT Group. According to Poon, BT tackles the market according to a formula where it goes after four industry verticals across four geographic regions. “Finance [for example] is one of the verticals BT is good at, so it will invest resources to make sure it has a package of services tailored for that vertical,” she says.
In summary, the big players compete on comprehensiveness,
geographic niche-vertical solutions.
NOT ALWAYS JUST A CLOUD PLAY The aforementioned acquisition of Paetec by Windstream was a somewhat different deal from Terremark and Savvis acquisitions. The US$2.3bn acquisition of the US provider (announced in August) significantly increased Windstream’s network infrastructure. Paetec’s 36,000 route miles of fiber in portions of 39 states and the District of Columbia made Windstream owner and operator of a 100,000-fiber-route-mile network.
under the CenturyLink
Data centers and cloud are a big part of this story. In May, Paetec launched a portfolio of cloud- based services and announced a nationwide expansion of its data center footprint. The plan included adding 13 data centers by the end of 2012 to the seven Paetec already had.
Paetec’s Cloud portfolio includes virtual and dedicated servers, managed storage and hosted
IS 2012 THE YEAR FOR MERGERS & ACQUISITIONS?
It is not only the telecommunications space that is likely to see mergers and acquisitions in coming years. Changes are also taking place in the IT vendor space, as companies look to software for bigger margins.
Cloud computing also contributes to this. In many cases it hides the underlying hardware in a data center from the customer and this is also forcing IT vendors to start reaching into new areas to grow revenue beyond current rates.
Speaking at the Gartner Data Center & IT Operations Summit in London last year, Gartner Research VP & Distinguished Analyst Carl Claunch put Cisco, IBM, HP and Oracle forward as examples of four very different companies that have made moves into new areas recently to retain revenue margins.
He said they highlight just how much the industry is changing as the number of mergers and acquisitions in the technology industry grows.
“In some cases we are now see people who have never competed before
coming head to head,” Claunch said. He said there is still about £150bn in cash available in major vendors for
acquisitions, which could create further turbulence in the market.
“We are going to see as a result continued turbulence, and a concentration of providers as they combine, [meaning] not only are you now relying on them, but frankly, they will start to change and have different needs and interests,” Claunch said. “Sometimes when you put together two cultures, they pick a new way to behave that might not be what you are used to.”
Claunch said much of this is being driven by the bottom line, which is forcing companies to expand what they can offer to the end user.
He said in recent times HP and Cisco have been growing their software portfolio, because of the “outstandingly high margins”. Oracle, however, through its purchase of Sun has reduced its software margin. IBM already counts software as 20% of its revenue as it realizes the increasing expense of maintaining its strong emphasis on customer relationships, which can be expensive to maintain.
Cisco, realizing its market share, has deviated from networking into servers. By Penny Jones
Examples above are just a few of some of the most prominent acquisitions that took place in the space. There were some smaller but similar acquisitions over the year. So much activity in fact that Rackspace CEO Lanham Napier’s made statement to Forbes in February that Rackspace was “not for sale”.
Napier told Forbes the hosting and Cloud giant would continue to grow organically, saying he viewed the ongoing consolidation as creating a market advantage for Rackspace, which differentiates itself through its “culture”.
If he is right, this advantage is only going to grow, according to analysts. Poon says she expects the consolidation trend to continue in 2012, which will bring more and more vertical integration.
See more cloud computing trends at www. datacenterdynamics.com/cloud
RECENT MERGERS IN THE TELCO/ CLOUD SERVICES SPACE
Verizon bought Terremark for US$1.4bn CenturyLink bought Savvis for US$2.5bn Windstream bought Paetec for US$2.3bn
Time Warner Cable bought NaviSite for US$230m
Telecom and Data Systems buys OneNeckIT for US$95m Telefonica bought Acens for €75m Interoute buys Quantix. Sum undisclosed
Exchange. Windstream provides public, private and hybrid Cloud, as well as Cloud storage.
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