Cloud Computing Service Success for Operators: Can It Be Done?

Operators have been fascinated by the public cloud opportunity, and new initiatives like that of Orange Business Services seem to promise that this fascination could be gaining some traction in the real world.  But Verizon at the same time is clearly pulling back from its public cloud computing commitments.  What’s really going on with operator public cloud services?

In a prior blog, I noted that operators had initially seen cloud computing services as an almost-natural fit.  These services require a major investment, and they offer a relatively small return, which fits the public-utility model most operators still adhere to.  Publicity on cloud computing suggested an oncoming wave of adoption that could carry everyone to riches, a trillion-dollar windfall.  It didn’t happen, of course, and after the blog I cited, I heard more from operator planners who were eager to offer some insight into their own situations.

All of those who contacted me agreed that the biggest problem they faced with cloud computing services was the unexpected difficulty in selling the services.  Operators are good at stuff that is marketed rather than sold, where publicity stimulates buyers to make contact and thus identify themselves.  They’re also often at least passable at dealing one-on-one with large prospective buyers, like the big enterprises.  They’re not good at pounding the pavement doing prospecting, and that seemed to be what cloud computing was really about.

One insight that operators offered on this point was that their initial target for cloud computing was the large enterprise CIO types, the same people who are instrumental in big telecom service buys.  They found that for the most part enterprise public cloud was driven by line department interest in “shadow IT” and that the CIO was as likely (or more) to oppose the cloud move as to support it.  Certainly they were not usually the central focus in making the deal.  That meant that operators would have to reach out to line departments, and that broke the sales model.

The second problem operators reported was the complexity of the cloud business case.  Operators believed rosy predictions of major savings, but while there might indeed be strong financial reasons to move at least some applications to the cloud, they were difficult to quantify.  Often there had to be a formal study, which of course either the operator had to do or had to convince the prospective buyer to do.  Several operators said they went through several iterations of this, and never came up with numbers the CFO would accept.

The final issue was security and governance.  Operators said that there were always people (often part of the IT organization) who asked specific questions about cloud security and governance, and those questions were very difficult to answer without (you guessed it!) another study.  This combined with the other issues to lengthen the selling cycle to the point where it was difficult to induce salespeople to stay the course.

If you contrast Orange and Verizon, you can see these factors operating.  In both cases, the operators were looking at headquarters sales targets.  Verizon has the largest number of corporate headquarters of any Tier One, and so it seemed to them they should have the best chance of doing a deal with the right people.  Orange seems to be proving that’s true only to a point; you can present the value proposition to headquarters, but it still has to be related to a compelling problem the buyer already accepts.  Multinationals, the Orange sales target, have a demonstrable problem in providing IT support in all their operating geographies.  The cloud is a better solution than trying to build and staff data centers everywhere in the world.

The question, of course, is whether the opportunity will be worth Orange’s building those data centers.  In effect, their approach is almost like a shared hosting plan; if a bunch of multinationals who need a data center in Country X combine to share one (Orange’s cloud service) the single data center would be a lot more cost-effective than the sum of the companies’ independent ones.  If there are enough takers to Orange services, then it works.  Obviously one customer in every data center would end up putting Orange in the “inefficient and unwise” category of data center deployment.  We can’t say at this point how well it will go for them.

It does seem that the Orange model of exploiting headquarters relationships and specific problems/issues is the right path for operators looking to get into public cloud services.  This would have the best chance of working where there were a lot of headquarters locations to sell to, obviously, which means fairly “thick” business density.  However, as I said, Verizon had that and couldn’t make a go of things, so what made their situation different?

Probably in part competition, less the direct-to-the-wallet kind than the hearts-and-minds kind.  US companies know the cloud well from players like Microsoft and Amazon, and they perceive network operators as come-from-behind players who are next-to-amateurs in status.  Probably in part geography; in the EU the operators are held in higher strategic regard, and most of them have faced profit pressure for a longer time, so they’re further along in the cycle of transformation.

The real question is what cloud needs the operators could more broadly fill, and the answer to that may be hard to deal with if you’re an operator.  My model says that there are no such needs, that there is no single opportunity that could pull through carrier cloud computing service success.  The only thing that might do it down the line is IoT, but the situation changes down the line in any case.

As operators manage to deploy carrier cloud for other missions, they’ll achieve economy of scale and a coveted low-latency position at the edge.  Those factors will eventually make them preferred providers, and once they take hold then carrier cloud computing services will quickly gain acceptance.

The only problem with that story is that it’s going to take time.  Between 2019 and 2021 is the hot period according to the model, the time when there’s finally enough cloud infrastructure to make operators truly competitive.  Even that requires that they deploy cloud infrastructure in other short-term service missions, starting even this year.  That may not happen, particularly if 5G standards take as much time to mature as NFV specifications have taken.

This could be a long slog, even for Orange.  My model says their own situation is right on the edge, and execution of both deployment and sales will have to be perfect or it won’t work and they’ll end up doing what Verizon has done.