Joe Weinman wrote an article on cloud computing titled 10 Reasons Why Telcos Will Dominate Enterprise Cloud Computing. Lets go over them point by point, but first let me point out I think Joe is an excellent guy and a friend of mine, however he is not going to get a free pass on this. Without further ado:
(1) Enterprise sales capability — … Unlike their consumer or start-up counterparts, enterprise CIOs do not want to go online to initiate and manage a relationship. They want dedicated account teams collaborating closely with them and their teams for the long term, in many cases with a permanent on-site presence….
This is not a competitive advantage. Large dedicated account teams are not an insurmountable barrier to entry and I would argue, are the easiest thing to build up. Existing relationships can only take you so far, and in the end what is really going to drive business is can you offer a better product for less.
(2) Lifecycle service and support — … advanced tooling for service monitoring and management; portals for network and application performance, usage monitoring and configuration and provisioning changes; and even e-bonding between enterprise systems and service provider systems.
I think this might be harder than it appears on the surface. “…portals and application performance, usage monitoring…provisioning changes.” Really? Almost all of the current billing systems, portals and application monitoring and provisioning services are outsourced. If they are outsourced, how is that a barrier for anyone? Lets take a look at how it worked out for the iPhone, arguably something one can consider a core competency that is much more closely related to the heart of what a telco does, than say large server farms: iPhone activation. So much for e-bonding between Apple and ATT.
(3) Reliable operations at scale — Rather than offering services that still remain in “Preview Release” or permanent “Beta” purgatory after many years to avoid any implied service reliability or feature stability commitments, service providers go through a comprehensive suite of pre-launch interoperability, certification, and scalability engineering and testing. In fact, telcos are used to engineering services for four or five nines of availability, even as they scale up to tens of millions of customers.
Joe, seriously? See the iPhone provisioning issues above. The cloud isn’t a collection of salespeople and after-sales support. Cloud is software and you can’t build good software via contracting. Why? Because the telecom companies simply do not have the talent in-house to do what it takes and body shops aren’t going to have really top notch guys working for them. Back in the glory days of ATT labs, when people like David Presotto, Rob Pike, Ken Thompson et al. were at ATT, the telecom companies had the best software talent in the world. With the current outsourcing trend, their best talent is on the far side of an Infosys contract. And guess what, your competitors can just as easily send a check for the same work, probably to the same people and get the same level of work. Scratch that competitive advantage. Outsourced software coders are not going to get you software tools like Amazon Dynamo, Facebook’s Hive, Microsofts Azure, Google’s BigTable. Any recent compute related advancements from any telco company that compare to Hive or Dynamo?
(4) SLAs with financial penalties — Not only won’t enterprises accept “Well, after all, it’s still in beta” as an excuse for service outages, they demand meaningful SLAs (service level agreements) with clear metrics for evaluating achievement of those SLAs, backed up by monitoring and management systems, and financial penalties such as credits or refunds if service levels aren’t met….
I don’t see the competitive barrier here. SLAs are an actuarial game that anyone can play. Edited to add Ben Blacks take on SLAs here and here .
(5) Full enterprise solutions portfolio — …. Related services such as network access and transport, MPLS VPNs for backhauling to the enterprise datacenter, application management, global load balancing, asymmetric Web acceleration, network-based firewalls and other network-based security services, content delivery, Voice over IP, Video over IP, managed messaging, Web conferencing and remote access can offer synergies when combined with cloud computing and storage.
Global load balancing? Do we see a telecom company solution in this space? No. We see Amazon CloudFront, Brocade GSLB, Akamai, Limelight et al. Web acceleration – quick, name the top 10 web properties in the US. They appear to be doing ok, without telecom expertise in GSLB, inconceivable as it may appear. Video over IP? Hulu, youtube? Managed Messaging, Web Conferencing? Sametime and WebEX by Cisco. I don’t understand this point, maybe someone can help me here.
(6) Integrated hosting and network services — … It generates cost advantages in a number of ways. First, having hosting facilities on net — that is, in the same locations as core network backbone switching and routing facilities — eliminates expenses associated with building additional access facilities to reach a third-party datacenter. Integrated providers also can access network facilities at cost, rather than at market prices. And larger providers should be able to achieve more compelling economies of scale. Having hosting facilities on net also means better performance by reducing router hops and associated physical propagation delays.
Building really large datacenters at scale for commercially competitive businesses means there are certain restrictions on where you can build them. Namely, putting a few hundred megawatt facility in heart of Manhattan is going to be non-competitive. Lets take a look at what Microsoft has been up to with their Chicago facility. I quote Mike Manos: From the article
“If I’m going to go spend $500 million on a data center and 82 percent of the cost is wrapped up in my power bill, I want to make sure I get every dollar of my 82 percent. The concrete and land are not significant compared to the cost of power.
This means that “[eliminating] expenses associated with building additional access facilities to reach a third-party datacenter” is a non-starter compared to the power savings you get from building a large facility in the right place. Electricity is the determining factor in placement of facility, not core routers.
(7) Vendor independence — Service providers tend to be software and hardware vendor-agnostic. The reason for this is that their broad customer bases have wide ranges of requirements and preferences, and service providers are strategically intent on reaching as wide a market as possible. Consequently, lock-in to a specific storage, server, operating system, hypervisor, middleware, database or application vendor would be self-defeating by limiting market penetration. This contrasts with some of the existing players, who mostly seem to have at least some proprietary elements to their platforms.
Hedging all bets means you are going to revert to mediocrity. Again, Cloud is software, at scale. If you are all things to all people, you aren’t going to solve anyone’s problem to their full satisfaction. If you are going to build individual blocks for each customer, you are not going to be able to deliver the application level scaling that you get from building a few core primitives and then scaling horizontally to the maximum. What you are then are in the services and solutions business, and the only leverage you are going to get is multiplexing of your SG&A across a body of customers.
(8) Global footprint — It’s not news that today’s enterprises have gone global. Whether it’s a global base of employees, customers, supply chain partners, offshore contact centers or skill base for innovation, reach and footprint are critical. Large, integrated global service providers have the capability to provide services locally and consistently virtually anywhere in the world to support today’s increasingly interactive applications with proximate infrastructures that reduce response time — and with the sales and support resources to directly engage with regional or local leadership, or corporate executives headquartered anywhere from Shanghai to Dubai, Bangalore to Brussels, or Sydney to Sao Paulo.
Proximate infrastructures are a solved problem. See Akamai. I don’t buy the sales argument. Those are replicable.
(9) Financial stability and market commitment — In today’s tumultuous economic environment, enterprises are more focused than ever on the financial stability, brand and business viability of service providers providing key parts of their infrastructures. Commitment to hosting and cloud computing as part of their provider’s core business is important, as opposed to cloud services being a potentially temporary excursion from different core businesses such as online retailing or advertising. Over the last few years, high and rising stock prices have permitted some new economy players substantial flexibility in capital investments, but recent drops of fifty or sixty percent may slow such adventurism for the foreseeable future.
Online retailing and advertising are enabled by large server farms, not the other way around. Very large compute at scale and the associated software to manage that vast infrastructure is actually the core competency of those companies. Copper plant maintenance is the telecom core competency.
(10) Technologies are easier to replicate than relationships and operations — Don’t the famously highly paid developers at the new economy companies have an edge in creating new technologies such as automated provisioning that enable cloud services to rapidly scale up and down? If they do — which is arguable — it isn’t sustainable. Such technologies have been around for years from companies as small as BladeLogic and as large as IBM (e.g., Tivoli Provisioning Manager), with variations such as VMware’s vCenter and VMotion fitting into the mix. For every highly paid developer at an online bookseller, there is a highly motivated developer at a start-up or large global software firm, developing software tools for others, like integrated service providers, to incorporate into their tooling and management platforms…. Much harder to replicate are global networks that have been built for literally hundreds of billions of dollars of investment, and the experienced skill base, long-term enterprise customer relationships, management tools, support organizations, service culture, and local access and regulatory relationships that enable services to be delivered successfully at scale.
If it was just that easy, where is the pudding? Jonathan Heiliger from Facebook said “I am not sure whether to be embarrassed or pleased for the OEM and system vendors in the audience,” Heiliger said, “but you guys just don’t get it.” I’ve never heard anyone from a telecom come out and say something similar, and that is because they just don’t get it. One one side we have the iPhone fiasco. On the other side we have EC2 and S3 and Gmail and Bing and Facebook. Apparently those highly motivated developers at startups or large global software firms aren’t quite delivering for someone.
Vijay Gill's Blog 
This is all missing the big picture.
#1. The people who use clouds don’t care about anything other than compute time.
#2. The people who use clouds but arent #1, are all lost.
#3. The people who sell clouds by having a large infrastructure, are also lost.
#4. Telecoms are the people who were left behind in the 90’s and will never catch up.
#5. The users who are deluded that “the cloud” will solve their problems, will never be people who really needed “the cloud” in the first place. (recap of #2)
So in the end, the cloud serves next to nobody who really needs it. Is that a shock?
Vijay, you’re completely right in disagreeing with your friend. I once compiled a slide that sums up the telecommunications industry in one slide and that gives some fundamental reasons why telecommunications companies and clouds don’t go together.
http://internetthought.blogspot.com/2008/05/telecommunications-in-one-slide.html
One that is implied but not stated on the slide is that by definition telco’s with a network are local in their business. For instance you might think AT&T is an important telecommunications company, but on my side of the Atlantic it is an unknown entity to almost everyone. Even FLAG or Level3 are relatively local in their approach to the world as they work where their network is. Service and application providers however are global in their businesses and completely agnostic to who your networkprovider is. Whether it is AT&T or the fiber Coop Onsnet Nuenen.
The only way cloud computing can become something a telco could aspire to is, if it becomes a commodity. If it becomes such a simple thing to do, that everyone can do it. (Think e-mail, basic webservices, voicemail etc) If it is a commodity than they can sell it as part of their subscription, but otherwise a customer always has a reason to go to a specialized company.
hmm, I thought I had posted this comment, but I’ll try again.
I agree with everything your saying and for a more fundamental reason than the one’s your mentioning. Telco’s are by definition local companies. They are stuck to their foodprint. You might think of AT&T as a major corporation. For me in The Netherlands it is a company that doesn’t warrant any real attention. Because of it’s limitation to its footprint a telco will have major problems trying to reach out to customers that aren’t connected to its network. Just think of AT&T providing services to Verizon customers. It is not in their DNA. Opposing loyalties start to conflict. The application/service business couldn’t care less who it supplies to. The network boys however want the application/service boys to upsell their network.
I tried to explain this in one slide once:
http://internetthought.blogspot.com/2008/05/telecommunications-in-one-slide.html
I do believe there are fundamental differences in the ways the 4 elements of the telco foodchain work.
1. The physical network is a completely different beast than the access to networks bit. The best example of that is Reggefiber in The Netherlands, who has no interest in having any active equipment in its planned 1 million homes FTTH roll-out. It is about high capex, low opex, monopolies and penetration rates.
2. Access is yet again a different beast. The best access provider is the one that provides uniform access anytime, anyplace, anywhere over whatever infrastructure available. So whether it’s wifi, fiber, GSM, 3G and whether it is in the USA or India, there should be access
3. Services looks sexy but is very difficult. There are two kinds of services.
a. Unique one’s that often have a winner takes all character, ie Google, Youtube, why settle for anything less. What is often forgotten that there are many contenders, but very few winners. Youtube is an excellent example of an unlikely winner against Yahoo, Google and Microsoft. These are driven by quality. I personally think clouds function here. Though you may see several clouds winning if they offer different benefits to different groups.
b. Commodity services which can be provided by anyone with half a brain and an open source service. This is a dangerous world for independent providers as their service can also be bundled as part of a telco’s offering. (think e-mail, webhosting etc)
4. Last but not least, Content. This is the sexiest bit. (only because of the sexy actors and singers)It is not sexy if you look at hit/miss ratio. You can dump enormous amounts of money in content and still end up with absolutely nothing, whereas another guy with zero money and lots of talent can become the next Michael Jackson.
A few things to add:
#1 AT&T account teams stick to their bread and butter: Selling Voice, Transport and occasionally IP/Data products (Internet, L3VPN) as well as hardware sometimes. They don’t bother to risk damaging a relationship by throwing in a product that the traditional AT&T account management team is not familiar with or knows they cannot compete with. For example, look at the failure of the AT&T ICDS (CDN) product. The sales teams out there cannot sell it, even if they had an interested customer, they cant match the price or performance of whats out there. They have to do what they do today: give it away as a freebie. The same fate will be met with any AT&T cloud computing product.
#2 AT&T continually fails when it comes to iPhone provisioning or upgrades. Even more comical, the USi acquisition put all their gear in the -same- facility as the AT&T Mobility equipment. One would think that if you have cloud computing in the same POP where the GGSN and iPhone support applications live, there would be some sort of synergy. Clearly, if you cant control your own house, how do you intend to run your customers?
#3 AT&T systems work is mainly outsourced to IBM and Tech Mahindra. There is no secret sauce within AT&T here that you couldn’t find elsewhere or from the same companies.
#4 AT&T still tracks service outage metrics in voice minutes. Even for data. If your metric are skewed to begin with, how can you even begin to write SLA’s for a new service based upon legacy concepts?
#5 AT&T still uses Alteon (which I believe is End of Sale / End of Support) for its CDN load balancing. Nuff said.
If we are to believe that AT&T is serious about entering in this space, they need to start bringing in talent and putting those with the know-how in roles that can direct actual change. That means taking the power out of the old guard, which never, ever happens at a telco. Joe may be smart, but I don’t think he has any idea how far away AT&T is from being progressive in this space.
VJ – Nice said. I do think we’ll see “packaged services” (e.g. corporate email via cloud) being offered successfully by carriers, but pure infrastructure (ala Amazon EC2) is going to be bought from Major Vendors who also appear to be leaders in this space… Management can survive buying unified messaging from Big Carrier and experiencing problems ’cause its “telecom” and we all use Big Carrier, but purchasing compute infrastructure from same and having it fail when leaders like Google, Amazon, etc. are available is not a safe bet…
(With respect to many buying decisions in corporate america being made on the golf course) Fully agree… I’m just saying that it wouldn’t surprise me if the golf clubs were now in the hands of account managers who moved over from traditional corporate America to these fancy new cloud “startups”… 😉
With all the talk about what AT&T has outsourced, it begs the question of what they haven’t outsourced.
I believe they haven’t outsourced their legal and lobbying. Legal for FCC and PUC management, lobbying for congressional management.
AT&T is fundamentally a regulatory management firm.
If they can outsource everything but regulatory management, this is a textbook example of regulatory capture.
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I think it is both incorrect and silly to think this or that provider will “dominate” the cloud environment. In addition to the reasons cited, from a technical perspective I want *more* CDN and cloud providers and I don’t want exclusive relationships with any of them. Even if only regional in scope, I want a variety from which to choose so they can act as simple building blocks store+compute foundation for a metric-based application-layer offering (a la cedexis, 3crowd, dyn, etc).