Maximizing Your Investment When "Buying the Cloud"

For Tier 1 service providers looking for ways to re-invigorate growth and generate improved returns on invested capital, the 20%+ CAGR in cloud services must look pretty tantalizing.  The ability for service providers to harness these services and combine them with existing network and transport offerings presents a huge opportunity to accelerate growth, especially in the Enterprise space where growth has been hard to come by recently.  Some service providers are accelerating their approach with acquisitions, and the initial activity may drive a cloud “feeding frenzy” in the near future.  As an example, Verizon recently spent $1.4B to buy Terramark, and assumed $600M in Terramark debt.  This acquisition has been viewed extremely positively for both sides – providing Terramark customers who may have been concerned about Terramark’s viability with the assurance that they’re going to be around, and providing Verizon with additional data center resources and a significant accelerator to its cloud strategy.  

But if the feeding frenzy starts, how will providers justify the likely premiums they’ll pay for the assets?  Using Verizon as an example, they are immediately faced with justifying a 35% premium over Terramark’s market value.  While it is likely that the two business will operate separately for the immediate future, the sooner they can effectively cross-sell and upsell offerings across the two product portfolios, the sooner the new combined entity can accelerate revenue growth and start to justify the market premium. 

And the big operational problem here generally isn’t necessarily just the “selling” part.  Its dealing with the new cross-organizational order after the customer says yes.  Efficiently fulfilling these orders across disparate corporate operational silos may require a new approach to order fulfillment – one where the legacy vertically integrated systems no longer control the process, and one where a flexible and agile “orchestration” layer is introduced to keep everything running smoothly across the legacy silos.

The payoff is huge.  Verizon paid a 35% premium over market value in their acquisition of Terramark, meaning that it has (depending on how you look at it) someone around 500 million good reasons to start technically integrating, and creating the ability not only to sell, but effectively DELIVER an integrated set of products that stands apart from its competitors, positions the company as a global leader in XaaS offerings, and delivers on its ‘Everything-as-a-Service’ strategy.