Verizon said it would be making a major investment in data centers for, among other things, cloud computing. The result will be an addition of space for over 5 thousand servers and an expansion to about 200 data centers worldwide, including sites in Australia and the UK. While “the cloud” gets a lot of play on this deal, it’s really more about enhanced services and a shift in their profit model from selling bits to selling experiences. A couple decades ago, new services meant new network equipment. These days, it means servers and software, and it’s being driven today by a rush to create a meaningful strategy for content delivery and monetization. While that’s the hottest issue in the market, it’s an example of the broader issue of generating revenue in an age where transport and connection matter a lot less.
The next generation of carrier “services” will be experiences. The foundation of experiences is software, running on a connected set of data centers—a cloud. But media hype about the value of the cloud has been several miles wide and a lot less than an inch deep, and most operators would echo the Pacnet exec quoted in a recent article; he’s glad he’s not the only one working through the fog of the cloud. For operators, in particular, the imprecision of “cloud” is a challenge because they want an architecture on which to build their infrastructure plans. They had that for networks, and now they need it for clouds. All those datacenters need to be filled with gear, and how that will work and how it will make money are now the critical question for operators–and vendors.
HP picked former SAP CEO Leo Apotheker as its new CEO, a move that surprised many in the industry but that doesn’t particularly surprise us. The criticism of Apotheker stems largely from the fact that his tenure at SAP was hardly stellar; the company lost market share to Oracle throughout and he was unable to stem the tide. But truth be told, the problems at SAP were more related to the conservatism of SAP’s marketing processes and board, something that Apotheker had little chance of changing.
This is a software age in IT, and also an age where software and hardware form a one-stop ecosystem. Who should HP have picked? A hardware guy from within? That’s bad on two counts, given companies’ tendency for internecine warfare and given that hardware isn’t where it’s at. Who has succeeded against Oracle? Nobody. Apply both those truths and you have no candidates at all. Apotheker actually understands the role of software well, and understands the relationship between software and all of the competitive hardware platforms. He’s the best choice they had, in our view, but he’s also a good choice.
He’s not a perfect choice. The missing skill is networking, the understanding of which is critical to position the hardware/software ecosystem for virtualization in the data center and beyond it, in the cloud. We think that networking is the card that HP will need to play against Oracle and against IBM as well. True, Apotheker has no evil preconceptions in the space, but he doesn’t have the broad grasp of the current market issues, or at least hasn’t demonstrated that grasp. Given that Cisco’s entry into the datacenter IT space has already started to force competitors like IBM to give more thought to a networking mission, and given that HP has networking products already, exploiting networking is not only essential, it’s something that has to be done in the short term. Can Apotheker do that? We don’t know at this point, and if he can’t do it or find someone to delegate it to, then HP will face some challenges.
Rep. Waxman, the House sponsor of an attempt to pass legislation to direct the FCC’s decisions on net neutrality, has withdrawn the bill for lack of support. This ends, at least for the moment, another of Congress’ attempts to create telecom policy through explicit legislation. It’s not the first time bills have been dropped; since 1996 virtually every attempt to change policy has died without coming to a vote.
I still believe that Title II classification with reasonable wholesale rates (the Canadian model, for example) is workable, and in fact might be more logical given the range of services that are likely to migrate to IP without being part of the Internet. IPTV and carrier voice, as well as enterprise services, fit that model. The FCC has to weave a complicated ruling to protect both the Internet and the business model for IP-converged services. Title II is the best way to do that.
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