Today's news is relatively straightforward: the ever-astute Verizon announced its intent to acquire SP vanguard Terrmark for $1.4 billion, a nice 35% premium over current trading levels.
Transactions of this sort shouldn't be a surprise to anyone who's following this space. Undoubtedly, there are many more like them to come.
And here's why ...
If you believe in the secular trend that -- over time -- more IT will be delivered as a service vs. consumed in a traditional fashion, you quickly realize that telcos can have a compelling position.
They've got lots and lots of pipe. They know how to deliver a related form of service -- communications. They know how to price their offerings and bill for them.
Their strategic motivations are usually clear as well. More ordinary network services are quickly becoming commoditized. There's only so much content you can sell people. And, before long, you go looking for the next big market to attack.
Indeed, early on, many people thought that IT-as-a-service would go to the telco carriers, and that would be that.
It's hard for big, successful companies to get into new markets. Delivering IT services is a decidedly different game than delivering networking and communication services. Sure, one needs the other, but it's not the same: you're talking to different people who are looking for different things.
And just because you're good at delivering, say, a nice MPLS service doesn't mean that someone is going to trust you to run their SAP instance.
At its heart, you need a rare breed of people who know how to define, build, sell and deliver attractive IT services for the enterprise IT crowd.
The business models can look unattractive as well: selling IT services is a high-touch proposition (think sales and pre-sales people). There's enormous up-front costs to build an organization with enough critical mass and brand recognition to make a go of it.
Some telco organizations have created relatively separate business units to do this. This is motivated by the recognition that -- yes -- selling enterprise-grade IT services is a different proposition than selling communication and networking services. It requires a different skill set and a different business model.
Two EMC partners come to mind: Alphawest and Orange Business Services (OBS). Both have successful telcos as parents. Both have created relatively independent subsidiaries to address this fast-moving marketplace. And both are enjoying considerable success.
And There's The Acquisition Option
But there's a third approach: acquisition.
If you remember your IT history, during the first major wave of the internet, ISPs were popping up everywhere. They learned the space, and built healthy business models in the process.
Many of them were later gobbled up by the larger telcos who recognized the opportunities. As just one example, USI formed the nucleus of a large and successful business unit at AT&T.
These telcos weren't just buying a balance sheet, they were buying people who understood the space.
As one example in our space, our global partner Dimension Data was recently acquired by NTT. Yes, DiData has a great business, but -- from NTT's perspective -- they have expertise in many IT-related disciplines that will inevitably be successful as NTT starts to attack the IT-as-a-service space.
Not to gossip, but there's a *lot* of activity and discussion in this space right now around these themes.
Congratulations To Terremark -- And To Verizon
Good job to the Terremark folks -- you built a great business around unique value propositions.
You enjoyed considerable success, and now -- as part of Verizon -- you've got the potential for scale and reach that you couldn't have dreamed of otherwise. Sure, there will be some bumpy spots at first -- true when any large company acquires a smaller company -- but things should sort themselves out before long.
And, of course, congratulations to the Verizon team for making a strategic acquisition before all the good ones were snapped up. I offer up those thoughts given EMC's string of acquisitions over the last few years -- set the strategy, make your play, pay what you have to -- and do it before anyone else does!
And The Lessons For All Of Us
You still don't believe in the secular shift of the industry to an IT-as-a-service model? This latest transaction should show you that large telcos see this inevitable shift starting, and are willing to let their M&A dollars do the talking.
Now for the fun part -- what do the next three transactions look like?