January 28, 2011

2 Min Read
Verizon Buys Terremark: Will Big Cloud Computing Deal Impact Small MSPs?

By samdizzy

In a cloud computing land grab, Verizon Communications is buying Terremark — an infrastructure as a service (IaaS) specialist — for $1.4 billion. Terremark, part of the Talkin’ Cloud Stock Index, operates 13 data centers in the U.S., Europe and Latin America, promoting cloud computing, colocation and managed hosting services to large enterprises and government agencies.

The Verizon-Terremark deal could signal the start of a buying spree in the cloud computing market, where hype and company valuations seem to be running out of control. Verizon paid a 35 percent premium over today’s Terremark closing price. This is Verizon’s second major cloud move of the week. A few days ago Verizon agreed to promote and resell Google Apps into small businesses.

We’re keeping an eye on Talkin’ Cloud Stock Index members like NaviSite and Savvis, which could see a temporary stock boost amid the Verizon-Terremark deal. The Talkin’ Cloud Stock Index climbed 50 percent in 2010 before cooling off last week. There’s some concern that cloud computing is reaching a bubble stage, where some market pretenders burst as true leaders emerge. If we are nearing a bubble, it could mean big service providers begin to buy up regional players and vertical market specialists.

Some some ways the consolidation started last year, when SoftLayer and The Planet merged, forming the largest privately held managed hosting provider and cloud provider. Smaller managed services providers (MSPs) have also been in merger and acquisition mode — with at least eight MSP M&A deals occurring so far this year.

No doubt, small MSPs have reached an inflection point. The big question: As big service providers merge, should small MSPs build out their own infrastructure or simply gain economies of scale by tapping into existing infrastructure? Even as some market consolidation starts, upstart managed services providers (MSPs) like ScaleMatrix are building out big cloud efforts. But we suspect most MSPs will partner up as cloud industry consolidation starts.

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