Telecoms are missing their cloud opportunity

For some time now I've been advocating to my core network provider customers (and anyone else who would willingly listen) a concept that I think is both central to the future of cloud computing and one of the great opportunities this market disruption presents. The idea is simple: who will be the cloud service aggregator to enterprises, large and small?

(Credit: Michael Gray)

Think about it. Even the smallest of businesses require multiple software systems to both meet minimal data management and creative expectations and (I would hope) to establish come competitive differentiation where it counts. Large enterprises scale this need to the hundreds or even thousands of services, meeting the needs of everything from simple departmental database applications to core ERP and CRM systems on which the enterprise itself is managed.

Picking and choosing vendors to meet these needs makes sense; no one vendor is likely to deliver and end-to-end, differentiated IT offering for each and every business it serves. Mix-and-match is the name of the game in the cloud, and it should be expected that every enterprise will have a variety of functionality delivered to it from a variety of cloud service vendors and platforms. Many of which might be on internal cloud systems.

So how does one manage such a hodge-podge of business systems, serving a large number of stakeholders with unpredictable, often dynamic functional, integration and operational requirements?

What I've been advocating is the need for a cloud aggregator and broker service. I don't claim that is unique, or even new. The term "cloud broker" is one piece of this, as is integration, aggregation and customer support services.

Allan Leinwand, founder of open source switch platform, Vyatta, wrote a very well thought out post recently describing a cloud network aggregation business that he nicknamed a CloudNAP (Cloud Network Access Point). His description is of a private networking service that would specialize in delivering value to cloud consuming enterprises in a very specific way:

This new provider -- let's call it CloudNAP (Cloud Network Access Point) -- would solely be in the business of providing a toll road between the enterprise and the public cloud providers. The business of selling connectivity to the Internet, or transit, is a common ISP offering. The CloudNAP transit service would be different, however, in that it would be focused on delivering connectivity solely between enterprises and cloud services providers and not between enterprises or between clouds. In order to make network connectivity to the toll road cost-effective for an enterprise, CloudNAP would offer POPs (point-of-presence) in multiple geographies. Each CloudNAP POP would have dedicated leased lines to the networks of the major cloud services providers such as Amazon Web Services, Microsoft Azure, Google AppEngine, the Rackspace Cloud, etc.

The CloudNAP network could guarantee performance between the enterprise and the cloud by working with the service providers to enable the use of quality-of-service techniques that are not available over the public Internet such a Multiprotocol Label Switching (MPLS) classes for WAN connections or IEEE 802.1p priorities for LAN connections. Perhaps CloudNAP could even restrict the use of connections to cloud service protocols and services like REST (representational state transfer) or HTTPS (Hypertext Transfer Protocol Secure) -- thus preserving the network for its intended use by the enterprise.

I think Leinwand is on to something here, though I think he is a little bit pessimistic about what could be done with existing core Internet services. I am certainly not sure that an independent business would--or even could--win at this game. My own thinking has led me to believe there are two likely winners in the cloud network brokering game: either the biggest cloud infrastructure service providers will be the enterprise's entry point into the cloud, or the telecommunications giants will extend their network service offerings to address cloud computing.

An independent firm would just be too beholden to both the cloud service providers and the ISPs to make the end-to-end story work seamlessly. If such businesses are created and establish footholds, I would predict rapid consolidation through acquisition into one of the two market options I described.

Now, my personal preference would be for the telecoms to take this market, as it would set up independence from the services being provided, assuming there is no attempt to push users into a service wholly owned by the telecom. The telecom option would also allow for aggregation of billing, monitoring, and auditing streams across most if not all of the marketplace. Having Google or Amazon or Microsoft also provide network services to their clouds and those of their partners would in effect lock the customer into a slice of the overall market, which would appear much less desirable.

Unfortunately, for a variety of reasons, the telecoms just aren't seeing this massive opportunity. Instead, they are all working very hard to build "enterprise-ready clouds"--those compute, storage, and occasionally software services that just about every other cloud service provider is targeting with dollar signs in their eyes. There is no doubt in my mind that the telecoms will capture a reasonable share of that overcrowded marketplace.

Add to that an insight into AT&T's revenue model that I got from Joe Weinman, the leader of that company's business portfolio development for emerging technologies (and my fellow panelist at CloudWorld last week). Joe noted once that AT&T does not recognize revenue that is passed on to another business. In other words, if they resell somebody's cloud service, the only revenue that AT&T would recognize would be the cut they took off the top. Thus, according to Joe, they are driven towards building all of these services themselves, as it allows them to recognize the full range of revenue for the services they sell.

Update: Jeff Kaplan of ThinkStrategies, and the moderator of the CloudWorld panel, emailed me to point out an excellent post he wrote covering the telecoms' dilemma in more detail.

However, just imagine for a moment that AT&T and their peers put aside the desire to "out enterprise" Savvis or Terremark or even Amazon or Google, and instead focused on doing what they do best: being the provider of services that act as a gateway to a much wider market of services. Imagine those services are sold much like mobile phone plans, with monthly base charges for a certain level of service, and overages charged by CPU hour or whatever other metric makes the most sense. The service, in turn, provides a single face to almost the entire cloud marketplace.

I personally think that would be a very welcome addition to the existing ISP services offered by the big guys, and something that would make cloud computing palatable to a larger number of enterprises that they would have been otherwise.

Oh, and just imagine if the telecoms were to further extend the Internet infrastructure itself to provide much of the QoS and other services that Leinwand noted. For example, imagine technology that extends the enterprise network into the Internet infrastructure itself, allowing the VPN and other services to behave exactly as if they were under the control of the enterprise network administrators. No need to buy a separate, dedicated private network for your cloud systems, but instead subscribing to a list of services directly through the Internet.

That's something that only the ISPs and telecoms can do, and it is--in my opinion--a requirement for the Inter-Cloud of the future. I only hope one of the core networking greats will take the chance and be the first doorway to the cloud.

[BobFrankston]

This misses the point of the Internet ? decoupling the elements. Instead the carriers would have all the liabilities and costs of owning and operating a private purpose-built network and offer little new value other than Procrustean billing. It would be a toll canal across an ocean of bits.

[BTRoundtable]

James, is there a role in this scenario for the Internet Society, perhaps to bring the stakeholders together and discuss the options?

Also, I'm wondering if Verizon and BT (both announced managed cloud services) have a different perspective than AT&T's.

[nubeblog]

Very interesting post. Funny to read from a Cloud Guru what he have been saying for almost two years now, and nobody was interested (may be we should change the label 'grid' for 'cloud' earlier) ;-)

I believe Telcos will be the winners in the Cloud race in the long run, because they control the pipes, and bandwith is critical for the full adoption of the Cloud Computing. But, Telcos only important metric is 'churn ratio'. If you can show them a new business model, or a new way to do their business that reduces the churn, you got them.
Probably we will see services like you describe in the (not so near) future. Some big Telcos R&D centers are already studying how to do it, but as far as I know, only between their own IaaS offerings and their customers.

Diego Parrilla
Business Development Manager & Product Strategist at Abiquo

[fazalmajid]

To antiphrase Chesterton, this is not an idea that has been difficult and not tried but an idea that has been tried and found wanting.

Specialized networks like voice or are being subsumed into the general Internet because the economics are inexorable. Arguments about the QoS or security benefits of dedicated networks have been rejected soundly by the marketplace, because Internet QoS is good enough for all purposes and the dramatically higher costs of dedicated networks exceed the value of the QoS enhancement (if indeed there is one, which is far from proven in the real world).

Telcos have been trying to offer cloud services for years, built as they are around an ideology of "intelligent networks". They never succees, because:

1) They always charge too much

2) Telco management is the antithesis of the environment needed for innovative services

3) What is delivered invariably fails to match the promises

Telcos would be much more profitable if they stuck to their knitting and provide a big dumb pipe instead of quixotic efforts to provide half-baked and unwanted intelligent network services. If your Internet service provider is not up to running your cloud applications, then there is something wrong with them and you would be well advised to switch. If anything, cloud connectivity provision is much cheaper to provide than general Internet transit because the ISP does not need to pay transit tolls to the tier 1 backbone ISPs by peering with the cloud providers directly.

[No_Spark]

A little over ten years ago I requested either ISDN or DSL service to my home in Western New York from the local phone company. The representative on the line had no idea what I was talking about. I asked to speak to someone higher up, they knew what I wanted but the cost was astronomical. I realized then that the phone company did not understand the value in moving digital data. I realized then that the phone company saw little more than phone sets. It hasn't changed.

The local cable company was glad to do the job, and they did it well.

I think a paraphrase from an early Harry Potter movie fits the phone company well;
"They don't see anything, but stick a fork in them and they feel".

[JohnGillam]

James - Very insightful and I would wholeheartedly agree with your views. Reading the comments it's interesting to see strong views on what the 'cloud' is perceived to be. My thoughts are Cloud is nothing more than a name for how we as consumers and enterprises will choose to consume IT services - it's not about technology it's about PAYG, low /zero commitment.

When we accept its no more complicated than that, then technology is just an enabler for different features and functions. Which will intern open up Cloud to all, dropping the perception Cloud = Internet access, and thus tainted with all the service trappings will be dispelled.

As you say why as an enterprise shouldn't I have a all of the Cloud benefits but also know it's secure and has end to end QoS and ticks all my compliance needs too.. .