Verizon Cloud Survey Says Time To Sell Terremark?

Verizon Enterprise Solutions released its 2016 State of the Market: Enterprise Cloud report Monday. The top-line finding: Enterprises are quickly shifting critical production workloads into public and hybrid clouds. Now they need to figure out how that model does, and should, fundamentally change business operations. Interestingly given that optimistic outlook, today Reuters also reports that Verizon is considering selling off its Terremark data-center unit as well as “the business formerly known as MCI, which provides landline and Internet services for large business customers,” assets with an estimated worth of $10 billion.

Terremark, which Verizon purchased for $1.4 billion in 2011, forms the basis of the company’s cloud offering.

Drew Lydecker, president of Avant Communications, agrees with both the report’s findings and the advisability of Verizon selling Terremark and refocusing on its traditional core competencies. The complexity in IT today means there will be a multi-provider strategy up and down the line, says Lydecker, from enterprises to shops with a few hundred seats. There’s plenty of services and connectivity revenue to go around. He cited a company with 500 users that bought desktops as a service, IaaS and UCaaS from partner Evolve IP, but that’s just the beginning.

“They’ll probably buy DRaaS from another provider, and so on,” he said. “Even SMBs will consume multiple cloud providers. Maybe not as many as the large enterprise, but multiple.”

That squares with the Verizon report, which finds 53 percent of enterprises use two to four cloud providers, with 26 percent employing more than 10.

Given that market potential, why would Verizon follow HP and, rumor has it, CenturyLink, and exit the IaaS business now?

“I’m not surprised to read that Verizon, and many others, are contemplating major changes,” says Rick Beckers, president and CEO of Cloud Tech 1. “Some are getting in, some are getting out. I’ve not seen such activity throughout the stack, from SMB to enterprise, since Y2K — on the client as well as the vendor side of the equation.”

Beckers, whose company has been actively working the cloud space for several years now, says it’s “game on” time.

“Verizon and others courting buyers for their data centers is indicative of what happens when a major force applies pressure to the marketplace,” he says. “There will be shake-outs. Some, who are perhaps a little nervous about the volatility, will take advantage of the opportunity to sell off and go back to their core competencies, to streamline their business and reduce their debt. Others will be actively in the market to buy these assets, to jump in with both feet and reap the reward associated with the risk.”

Lydecker says it’s overly simplistic to see these departures as only, or even mainly, about price pressure from AWS, Google and Microsoft Azure. It’s also about …

… core competencies.

“We love working with companies that are truly focused on particular things that they’re really good at,” he says. “Companies that deal with cable, and Internet circuits, and consumer services, and cloud services and colocation — that’s a lot to focus on. I believe you can be good at some of these complex things only if you’re all in.”

“All in” certainly describes many of the respondents profiled in the Verizon report, which is based on data compiled from enterprise-focused sources, including an October survey of Verizon’s enterprise-level cloud customers; commissioned research from the Harvard Business Review; and studies from Forrester Consulting, Gartner and IDC. The report also cites a recent survey by Cloud Cruiser showing that three-quarters of companies say they plan to include hybrid cloud as part of their strategies; Verizon defines “hybrid” not as making individual workloads portable but as mixing on-premises and public and private cloud.

“AWS, Azure, SoftLayer, the hyper-scale clouds, that’s just the start,” Lydecker says. “If you look at the $100 million cloud providers, the Rackspaces and down, the ones focused on private and hybrid cloud, their businesses are growing at an alarming clip. It’s just proof that there will be lots of winners.”

For partners, the takeaway is that cloud has moved beyond a way to level the playing field; it’s now incumbent on advisers to weigh an outsourced option for every IT function. Among recommendations from the Verizon report: Managed service providers must supply specialized skills and knowledge, augment internal capacity, and free up the internal team to focus on governance and on monitoring how well the cloud platform aligns to business needs. Partners also must realize that IT budgets are growing slowly, if at all, and customers still spend most of that money just keeping the lights on. Still, it’s important to carve out funds for connectivity; where customers rely on cloud services for mission-critical workloads, dedicated cloud connections may be worth the cost.

The report also says security is largely off the table as an inhibitor. In Verizon’s last two cloud surveys, less than 5 percent of companies had experienced a significant data breach that was directly attributable to a cloud-based service, including SaaS applications.

If it sounds like a rapidly shifting landscape, it is. But Lydecker says that confusion means there’s a need for expert advice.

“The more chaos the better,” said Lydecker. “Chaos equals opportunity.”

Follow editor in chief @LornaGarey on Twitter.