As Verizon refocuses cloud ambitions on marketing and core networking strengths, the company works to differentiate as a hybrid IT enabler, says Molly Gallaher Boddy, analyst at TBR.
While Verizon hones its focus on networking services and digital advertising, its cloud road map remains murky.
Verizon reported a 6.7 percent decline in overall revenue for 3Q16 following the divestiture of parts of its wireline business. While Verizon is, at the corporate level, a business in transition, this is particularly true of Verizon’s cloud business. With the end of Verizon’s public cloud compute services in April, the company entered a period of considerable change. TBR estimates Verizon’s cloud revenue declined roughly 10 percent from 3Q15 as the company determined the most effective way to use its networking and security strengths to better position itself in an ever-crowding cloud market.
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Much like telecoms peer CenturyLink, Verizon is likely nearing the sale of its data center business. On its 3Q16 earnings call, Verizon executives indicated they would provide more concrete information about the sale of data centers early in 4Q16. Divestiture of data center assets would allow Verizon to focus more closely on hybrid IT enablement than cloud infrastructure, with the company’s approach to hybrid IT likely to center on value-added services.
Verizon is simultaneously investing heavily in content-centric and digital video assets such as AOL and Yahoo, suggesting, on a corporate level, the company’s future may lie in digital advertising rather than cloud solutions. While these changes help illuminate how Verizon will shift its overall business, they also create numerous go-to-market messaging difficulties for Verizon as partners and customers struggle to understand Verizon’s future cloud road map and value proposition.
Verizon’s pending acquisition of Yahoo could encourage increased efforts in areas such as cloud analytics, but more likely signals the end of Verizon’s infrastructure ambitions.
With Verizon considering the sale of its data center assets in the wake of exiting the public cloud compute market, the company has increased investment in new areas. Verizon’s purchase of AOL, followed by the announcement it intends to buy Yahoo, suggests Verizon is most interested in increasing its digital advertising and website content presence. While content and video are cloud-delivered, these purchases will likely cause Verizon to further rationalize its portfolio, moving from cloud infrastructure to a future centered on digital advertising.
While TBR believes Verizon’s recent purchase of AOL and pending purchase of Yahoo mean a future more focused on digital advertising and content delivery, there is still an outside chance Verizon will look for ways to more closely unite media and content-centric assets with its cloud business. One potential area of overlapping strength between Verizon’s cloud business and the purchase of AOL and pending purchase of Yahoo is cloud-based analytics. Should Verizon leverage any remaining storage capabilities and the new wealth of customer data gained from its recent purchases, the company may have more opportunity to eventually rival cloud analytics competitors such as Google and IBM.
To best use core strengths, Verizon continues to shift its cloud strategy to focus more closely on software-defined, managed networking and value-added services capabilities
Since ending its public cloud compute, Reserved Performance and Marketplace services in April (Verizon still offers public cloud storage and a Virtual Private Cloud option), Verizon is increasing focus on core networking strengths by providing customers with the managed software-defined and networking technologies they need to effectively access applications from either cloud or on-premises settings.
This shift in strategy allows Verizon to draw on its heritage as a telecoms while partnering with various networking and virtualization peers. While there is significant opportunity for telcos like Verizon to benefit from the growth of the cloud market, this opportunity will not necessarily come from providing customers with cloud infrastructure, but rather from giving them the necessary management, security and services that underlie mixed cloud and on-premises environments.
