The fact that Verizon has the cash on-hand to make a $2.4 billion deal for its Verizon Telematics division to acquire transport management services provider Fleetmatics — as the corporation announced Monday morning — just one week after staking a $4.8 billion claim to the core services of Yahoo, suggests that Verizon is certainly not hurting as a company.
You would think both acquisitions were parts of a larger cloud services plan. Clearly Verizon appears to have an interest in providing cloud facilities that are close to its customers. Although you can say that Yahoo and Fleetmatics address completely separate customer bases, the common tie is that both incent their respective bases to utilize cloud services that consume compute, bandwidth, and storage. Taken just unto themselves, both acquisitions look like two parts of a smart, cloud strategy.
But at no time during Verizon’s Q2 2016 earnings report last week was the word “cloud” even mentioned. What’s more, when a Morgan Stanley analyst asked executives about their plans for Terremark, whose global data center network Verizon acquired in 2011, CFO Fran Shammo deferred talk on the topic until Q3, at the earliest.
“On the data center sales, we are coming to an end of the process,” said Shammo [our thanks to Seeking Alpha for the transcript]. “And we will probably come to a definitive answer in the third quarter as to whether we’re going to move forward or we’re not.”
Financial analyst Trip Chowdhry, who runs Global Equities Research, LLC, caused a stir after last week’s Yahoo announcement by comparing it with the Terremark deal. In an analyst’s note that was picked up by Barron’s last week, Chowdhry called the Terremark deal “a total disaster” for Verizon, and predicted déjà vu with respect to Yahoo: “Basically, we are seeing a replay of the previous movie, VZ buys Terremark, but with a different actor, YHOO replacing Terremark.”
Chowdhry did not go into specifics about the causes of this disaster, as he perceives it. It’s quite possible that Terremark’s failure to perform, from many perspectives, is not endemic to the cloud service provider industry.
Indeed, back in 2013 — just one month after Terremark put forth its plans for a sophisticated, multi-tier cloud network architecture — the provider took the fall for having hosted the original edition of Healthcare.gov. This despite then-Secretary of Health and Human Services Kathleen Sibelius blaming Verizon, not Terremark, by name, for having forced her department for dealing with IT issues for which, she said, Verizon should have assumed responsibility.
Say what you will about Yahoo — having squandered its opportunities with Tumblr, having missed an opportunity to capitalize on Big Data, having under-utilized Katie Couric — the media company and would-be SaaS services provider (now by way of a subsidiary named Aabaco) has never had to escape a stain as indelible as being roasted before Congress as the root cause of everything wrong with Obamacare.
Still, one would think there may be some value yet to be harvested from a strategic pairing of Yahoo’s services with Terremark’s infrastructure. While analysts with Technology Business Research have plenty of praise for Verizon, and hope for the Yahoo deal, in a conversation with Datacenter Knowledge today, they cautioned that selling or spinning off Terremark may still make the most sense for the telco.
“Infrastructure integration is a whole, separate ballgame,” stated Stuart Williams, TBR’s vice president for research. “Even with all the cloud abstraction layers that you can wrap around something, sometimes it’s just easier to jump from one to the next.”
Apples and Orange-colored Apples
Yahoo’s data center infrastructure, Williams agreed, is largely homegrown. Verizon has its own services infrastructure which, due to the nature of pre-existing telco services (at least, prior to the advent of CORD) will already be distinctly different from that of both Terremark and Yahoo. So welding services together on the same platform, in an attempt to discover what synergies may lie there, may not be as viable a plan for Verizon as building new cloud services around the most advanced infrastructure in its portfolio. Maybe that’s Yahoo now, and maybe not.
“I think the challenges are in the engagement models, not so much in the infrastructure,” said Williams. The business arrangements that Terremark’s customers have made up to now are based on large enterprise-oriented services consumption models, he explained. Yahoo has been dealing with a different class of customer altogether. So, Yahoo’s infrastructure and its service agreements will be constructed and supported entirely differently.
Advertising technologies, streaming media, user profile data — all these profiles that Yahoo brings to Verizon, are all serially interrelated use cases, he continued. One leads to the next; each link in the chain was designed to integrate with the link before and after. So Yahoo’s infrastructure model will have been built to support its business model (as, arguably, was that of AOL, another recent Verizon acquisition).
While cloud infrastructure, at least theoretically, is not supposed to take on a different texture with respect to different classes of customers/consumers, from Williams’ perspective, it unavoidably does. And that makes Terremark and Yahoo, in his opinion, fundamentally different cases from one another — meaning, the latter may not necessarily follow the trail of the former. “That’s why I’m a little bit more optimistic about it,” said Williams.
“The data layer that flows within, and all around — the e-mail, the portal, search, news, finance, sports, etc. — all the engagement that goes on within that little ecosystem, is extremely valuable,” said Seth Ulinski, TBR’s senior analyst for advertising technology. “They’re monetizing not just their media assets, but also monetizing other publisher assets.”
Ulinski pointed to Yahoo’s 2014 purchase of video ad technology provider BrightRoll, and its private exchange of assets from video content owners, as more of an incentive for Verizon to make its purchase than anything infrastructural. Today, it’s too easy and relatively inexpensive for any organization to grow its data infrastructure organically, Ulinski and Williams agreed.
It’s the integration of existing data center assets with one another, and the amalgamation of the business models around them, that typically gets sticky. Service providers and consultants may offer assistance and guidance for small to medium enterprises ... which Verizon is certainly not. Given this fact, and under these circumstance, it may end up being to Verizon’s benefit to let Terremark go.