In a move that I found both surprising and unsurprising at the same time, Comcast acquired Masergy Communications, a provider of managed SD-WAN and SASE. It’s surprising because network operators haven’t traditionally purchased either technology or managed service providers. It’s unsurprising both because these aren’t traditional times in networking, and because Comcast knows it has a potentially major upside in the deal.
SD-WAN is a hot technology, one of the hottest in terms of user interest. Managed services are also hot and getting hotter, and I’ve blogged about both these truths in the past. Rather than reprise those stories, I’ll address the broad trends in the context of Comcast’s move, and its motivations.
There’s been a lot of talk about the global aspirations that Comcast supposedly has for the deal, speculation that it would somehow launch Comcast into a player in enterprise networking. I don’t think there’s a chance that’s true. The deal isn’t aimed at global opportunity at all; Comcast has a US footprint and they’d have no special credibility selling to buyers outside the US. As far as enterprise network opportunity, Comcast doesn’t stand any real chance of taking over enterprise network business from the telcos, and they know it well.
What the heck is this about, then? Occam’s Razor, in action. This is about SD-WAN.
Comcast is one of the premier suppliers of broadband Internet connectivity in the US. Since SD-WAN relies on broadband Internet, Comcast would appear to have a great opportunity in providing SD-WAN services to enterprises. Appearances can be deceptive, as Comcast learned with their initial SD-WAN push. The problem is that SD-WAN is something enterprises want to do once and only once. A supplier who can offer SD-WAN within the Comcast footprint is way less attractive than one who can offer it everywhere, which Masergy can do.
Suppose you’re a Comcast sales type calling on a US enterprise in your territory. You have this great SD-WAN strategy for the sites the company has that happen to match the Comcast footprint. You sing your best song, but the best outcome you can hope for is that 1) the buyer is willing to engage with multiple SD-WAN providers to get all their candidate sites covered, and 2) the other SD-WAN provider they contact for what your Comcast stuff can’t cover is stupid enough to leave any of the deal on your table. If either of these isn’t the case, you’re back to beating the bushes.
What Comcast needs is an SD-WAN strategy that covers the globe, so it doesn’t have to push buyers into a multiple-SD-WAN solution. Masergy has that. They’re a global MSP. They already run over any broadband provider in the world, including Comcast. They can provide sales and support globally, too. There are few SD-WAN managed service providers out there who are truly major players, and Masergy is one. Comcast needs an MSP, not SD-WAN technology, for that global support scope, and nobody is a better candidate.
Then there’s the competitive dynamic. Masergy is a truly great partner for a communications service provider like Comcast, and also for all of Comcast’s competitors. One could spend time better by wondering why nobody else did this deal first, than wondering why Comcast would want to do it now, and that’s for the Masergy SD-WAN MSP story alone.
It’s not the only story, either. The only fly in the Masergy-marriage ointment for Comcast is the price they have to pay for the deal, which hasn’t been disclosed by either party but which my Street sources tell me was “unexpectedly high”. It shouldn’t have been unexpected, of course, but it is a fact that without something to add some luster to the deal in the near term, the result might be a hit on Comcast’s bottom line and share price. How to avoid that? Have other stuff to sweeten the deal.
Comcast has an obvious revenue kicker in that they can promote their own cable broadband within their footprint, increasing their broadband sales to businesses. That not only creates direct revenue, it creates reference accounts and easier sales traction. However, that source is something the Street would expect, so it would have factored into their expectation of the strike price for the deal. There has to be something else.
There is, and it’s the other stuff that Masergy offers. They have eight SD-WAN elements in their order book, six unified communications elements, four contact center elements, and five managed security elements. I’ve pointed out before that the most critical thing an SD-WAN MSP needs is something to upsell into, to differentiate from the hoard of competitors and sweeten the revenue and commissions. Masergy can offer that, so much so that the deal can likely get Comcast salespeople an opening to call on enterprises. You can’t sell if the buyer won’t set up an appointment.
Some of those sweeteners are also valuable in their own right. Multi-cloud? It’s in there. AIOps? Also in there. Security services and SASE? In there, too. With the Masergy deal, Comcast steps up to be one of the most credible MSPs in the market…with the obvious “if…” qualifier.
If they can play it right. The big question is synergy. Masergy has probably already tried to engage enterprises for SD-WAN, and they cover the whole waterfront, footprint-wise. Our hypothetical SD-WAN/MSP salesperson, having called on enterprises, now leaves behind two pools; those that already bought and those that rejected Masergy. What can Comcast say to get their own shot? Not “Masergy is now us”, or even “look at what we are when you pull Masergy into our tent”. The whole has to be greater than the sum of the parts, and that has to be extremely clear from the very first.
They’re not doing that so far. Their press release on the Masergy deal is b..o..r..i..n..g. They talk about what Masergy adds to Comcast, but not what Comcast adds to Masergy, and that’s the question on which the whole value of this deal will rest.
If you’re a Comcast competitor, you have to see this deal as the classic shot-across-the-bow threat. Most competitors will be telcos, and rather than buy another MSP (who probably won’t have all the assets of Masergy), you’d likely engage with an SD-WAN technology vendor and launch your own MSP service. Masergy’s technology is hidden in their MSP positioning, but there are many (dozens of) SD-WAN products out there, as well as SASE solutions, security approaches, operations automation, and so forth. Big telcos also have global presence already. If I were a telco, I’d be dusting off my MSP business plans and looking for best-of-breeds. If I were a vendor who had something arresting in one of Masergy’s technology areas, I’d be prospecting telcos for my wares. Both will surely happen, starting now.
Comcast absolutely has to hit the ground running on this, and they’ve not done that with the bulliest of their bully pulpits, the announcement itself. If they’re not careful, this deal could hurt them more than help them, but if they are, it could make them a real player in the network of the future.