Telecom Ramblings is proud to be a media sponsor for Capacity North America 2010. Perusing the agenda for the conference, I noticed that a rather large portion of the event will be spent on the subjects of carrier's prospects in the content delivery and cloud computing marketplaces. It seems to me as if these are two sides of the same coin, just at different stages in development. Carriers started their invasion of the CDN space more than two years ago, while the cloud is only now maturing from an unusually poorly defined buzzword into a set of actual products. But both involve new revenue streams that derive from stacks of servers, and differentiation has thus far come not from who has the better bandwidth but from who has the optimal scale and geographical distribution of those piles of servers and who has built the right feature set into the software that operates those piles of servers.
The first wave of carriers trying to enter the CDN marketplace subsided last year, and as tsunamis go it was rather disappointing. Despite all the hoopla, only one carrier really made any sort of marketshare dent - Level 3 - and even there it has taken a great deal of effort just to claim the territory they have thus far. The idea that owning the network gives telcos an advantage over a pure CDN remains theoretical -- even Level 3's quantifiable advantages thus far have instead come mostly from synergies with their Vyvx division moreso than owning the pipes. Akamai remains the 800lb gorilla, and felt far more pressure from the combination of the recession and an explosion of venture capital funded competition driving down pricing than from the presence of carriers in the market.
Are we now gearing up for round 2? One could argue that the sector as a whole spent round 1 figuring out what the rules are and what chasing the CDN opportunity might mean for them. Certainly this was how the carriers that have partnered with Edgecast, Limelight, BitGravity, and others have approached things. And those self-builds from BT, Teliasonera, and others may not have materialized in force but they probably at least made strides in learning what they can and can't do. Also in the wings is Alcatel-Lucent's Velocix-derived effort to enable carriers with a CDN in a box. Yet taking on Akamai directly is something nobody in the sector seems to be planning, expectations seem more humble this time around and hence might actually be more effective.
Meanwhile, 2010 seems to be the year the cloud began to truly emerge, and telecoms are gearing up to take advantage of the opportunities arising with it, and it seems to me that there are similarities here. That bandwidth is fundamental to the cloud is self-evident, but what telecoms must prove is that ownership of the network actually does give them an edge. As we have seen in the CDN space, that actually isn't so easy in an environment where raw bandwidth remains a commodity - as long as it doesn't involve high speed trading. If owning the network doesn't give them an edge, then something else had better. Otherwise they might be going up against the likes of Google, Amazon, and Rackspace in the area of who can manage piles of servers better in a very dynamic, software driven environment. Being a deliberately dumb pipe would be better (and far cheaper) than being the dumbest of the smart pipes.
On the other hand, cloud computing such a young space that the so called 'established' cloud providers aren't really that established. There is no 800lb gorilla who owns all the customers already. And really, it may be wrong to lump all of the cloud-based services together as a unified marketplace on the basis of a buzzword. There may be areas where telecoms do have the necessary advantages to dominate and develop new sources of revenue.
So when Capacity North America 2010 comes around in a few weeks, I will be curious to hear what carriers have to say about their prospects in content delivery and cloud-based services. There is opportunity in both areas, and they must of course give chase if the right opportunities come along.
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