OK, I’ve said that while the telcos could have remade themselves by deploying “carrier cloud”, I also said that I no longer believed they would do that. What then do they do instead? Their answer is “Partner with cloud providers.” That begs the question “Which?” Is the biggest partner the best?
Most of the partnership prattle so far has focused on Amazon and Microsoft, but I think that either of those would make a poor partner for the telcos. It’s like a goldfish partnering with a shark. The telcos need a relationship in which they can be at least an equal partner, and there are only three options that could fit that requirement; IBM, Google, and Oracle. Let’s look at what each could bring to the table, and what prospects a relationship could open for both parties.
IBM is hungry for cloud success. They have strong financials and they have strong credibility with the largest enterprises. Through their acquisition of Red Hat, they have what’s surely the largest open-source software base out there. They have manufacturing capability, labs that know how to create new technologies (like quantum computing), and they know how to partner with someone without trying to absorb them. All of these things make them an interesting play.
They also have some significant weaknesses, and the one that may be the most problematic in a telco relationship is that IBM has weak marketing/positioning, surely the weakest among all the cloud providers. They can sell cloud, but they can’t market it. If edge computing is the face that telco cloud would have presented, can IBM market it? It’s a stretch to say “yes” to that, even for someone like me who’s admired much about IBM for decades.
Another serious issue with IBM is that their strategic influence doesn’t extend to the consumer. The network market is, today, the consumer broadband and Internet market. While telcos may sit in their boardrooms and dream that success with business services will save them from their profit-per-bit woes, the fact is that business services are getting subducted into consumer Internet. Telcos have profit per bit woes, and their response is to try to lower costs. The fact is that businesses have the same drive to lower costs, and you can’t build your revenue stream by catering to someone fixated on spending less.
Google is a whole different story. Of all the cloud providers, Google has the greatest name recognition as an Internet player, a force in the life of the consumer. Google also understands, perhaps better than any cloud provider, the way to merge network and cloud, and to advance network technology in non-traditional ways, like SDN. The telcos have never feared Google as they have Microsoft or Amazon, and I’ve seen attempts to set up a partnership with Google for twenty years now. Google is also the premier technology thinker of the cloud. They understand “cloud native” and they already have more edge-sited assets than any other cloud provider.
They also have weaknesses. Despite their technical excellence, Google has been unsuccessful in growing its own cloud business. Enterprises know less about them than about any other provider, and their cloud marketing is uninspiring when inspiration is what management needs as the lead in a cloud story. Despite the fact that they probably know more about what telcos want from past contacts with them, they don’t seem to be able to pull together an organized, effective, story for the telco market. Finally, Google has a reputation for launching something with great fanfare and then dropping it. That makes them a bit of a partnership risk.
Then, finally, there’s Oracle. The fact that I list them last is a reflection of the fact that in the minds of most in the industry—including the telcos—that’s where they belong. They’re far from a giant in cloud computing today, having the smallest market share of any of the three we’re talking about. They have limited consumer visibility, except perhaps through Java. It’s hard to be impressed by their marketing/positioning since few have heard about them. They have limited market share and a smaller footprint than the bigger cloud players, too. But that’s the bad. What about the good?
Oracle has an industry-and-application-centric perspective on the cloud. Rather than trying to market abstract cloud features, they’ve worked to support specific horizontal and vertical things, including HPC. They’ve worked hard to create a cloud that has broad capabilities, capable of doing pretty much anything, but always with the goal of opening specific markets and fulfilling their requirements. They’ve also done a pretty good job of marketing/positioning in other areas, so even if their approach to the cloud has been perhaps more sales-focused, they could surely help with marketing.
I’ve done some cloud work internationally, working with telcos in markets where “carrier cloud” was an impossible goal. The cloud provider partner I recommended to most was Oracle, and the reason was a combination of the points above and one simple fact, which is that I believe Oracle poses no risk to the telcos. They’re not going to compete with them in offering business network services, which I believe every one of the Big Three will do. They need a relationship with a group like the telcos, because they need to position edge assets and they don’t have the real estate themselves.
Can we draw any conclusion from all this? Are second-tier cloud providers a better fit for telco partnership? To attempt an answer, we need to look at the mixture of telco goals and cloud provider goals.
It is inescapable that the cloud providers will become more and more involved in networking, simply because the hybrid cloud model is really about focusing the user experience piece of an application in the cloud, and that’s where all the changes, the dynamism, is. As more is done in the cloud, internal cloud network pathways become more and more important. As the Internet is used more as an on-ramp, which is a characteristic of cloud front-ends in the hybrid model, what’s happening is that more and more traffic is going just from Internet to data center. That also favors more internal cloud networking.
The big thing is that if the Internet and cloud front-end combines to support worker access to applications, then the remote workers at least, and likely eventually headquarters workers, will be taking the Internet-to-cloud-to-data-center path for workflow. That devalues the VPN, and actually promotes SD-WAN because it can create a secure virtual network that overlays on the Internet. SD-WAN is also a strong cloud networking strategy, at least in some implementations.
So in short, the cloud is going to drive virtual network change and cloud providers are going to get more involved in the network. That makes them, as soon as late this year, competitors to the operators. But this is likely limited to the big cloud providers, who might actually start fielding SD-WAN solutions that would make them even more competitive. The smaller providers, the ones I’ve been talking about here, are less likely be direct competitors to the telcos, unless the telcos want to go after their space, or both groups of companies take on the same new space.
That’s the on-ramp to an edge computing discussion, of course. The telcos have a low internal rate of return, which makes it possible for them to chase projects with lower ROIs. Edge computing is surely one, particularly in the near term. However, a true, global, edge model would be the greatest threat to current public cloud incumbents that would likely ever to be mounted. They almost certainly need to get into the edge business…or at least the giants do. This seems to set up another area of competition, but telcos have been almost universally reluctant to get into edge computing, many even opting to host 5G elements on public cloud services rather than deploy their own.
One reason for that reluctance is surely the long-standing truth that the telcos want to be connection providers and not hosting/cloud providers. Another is that hosting 5G elements would demand a fairly wide distribution of resources, beyond the footprint of operators’ current wireline footprint, which is what establishes their available real estate. Given that, it’s a big question whether a partnership with any provider with a limited footprint would serve the telcos’ goals.
Google has the largest footprint of the second-tier providers, by far. That would make them the best-positioned from a hosting perspective, but Google also has the largest network and would almost surely present the greatest risk of network competition to the telcos. Given that Google wants to gain market share on Amazon and Microsoft, both of whom are surely going to get more into network services, it’s hard to imagine Google staying out of that game.
Oracle presents the lowest risk to the telcos, and they have strong technology, but to be a credible partner they’d need to address the question of footprint. Can they present one broad enough to address 5G hosting needs? I think that if Oracle were to frame a partnership offer with an answer to that question, they could be the lead player. Oracle has been beefing up its service provider marketing, so they may be taking useful steps by mid-year.
IBM could also be a leader, and they have a specific IBM Cloud for Telecommunications offering to boot, but their marketing to the telco space has been insipid, likely in large part due to the fact that their marketing overall hasn’t been strong. Could they pull out a win here? I think they could, but for IBM there are so many areas they need to get smart in that it’s difficult to know whether they could prioritize this one. They have recently started telling a 5G story compatible with telco views, but the sad truth is that telcos are delusional regarding 5G “new applications”, and IBM might be smarter to quietly talk sense into them.
Despite the fact that one of these three cloud partners would be better for telcos than the major cloud providers, I think that all three would have to do something transformational in their marketing, sales, and even thinking, in order to gain any real shot. Meanwhile, pressure on telcos to do something—either partner or build out carrier cloud—is mounting, and it won’t be too long before they commit, and before it’s too late for their best options to become real options at all.