Telco Cloud Computing Revenue Opportunity is Still on Training Wheels

CenturyLink, like many other telcos, sees cloud computing as a key opportunity in the enterprise and business services segment of the communications business. There are several reasons for that belief.

Data centers now are primary generators of capacity demand. For example, Cisco’s latest Global Cloud Index estimates that global data center traffic will grow nearly 300 percent between 2013 and 2018.

By 2018, 76 percent of all data center traffic will come from the cloud, while 75 percent of data center workloads will be processed in the cloud.

But that might not even be the most significant prediction. Quantitatively, the impact of cloud computing on data center traffic is clear, Cisco argues.

Most Internet traffic has originated or terminated in a data center since 2008.

Where in the past most traffic (voice) functionally originated and terminate at a central office, though that traffic was passively transmitted to an end user telephone, now most global traffic originates and terminates at a data center.

At the same time, it is possible to argue that “cloud” now is becoming the architecture for computing in the present era, directly embedding the need for wide area and local area communications into the basic fabric of computing itself.

Where one might have argued that the addressable market for WAN transport providers was perhaps $232 billion in 2012, the addressable market now is much bigger. In fact, Bill Barney, Global Cloud XChange CEO argues the addressable market is six times larger.

That includes involvement in the $600 billion "software" business, as most software now is delivered or used "in the cloud."

The market also touches the $965 billion enterprise "information technology" business and the $103 billion data center business as well.

That doesn't necessarily mean WAN transport and services will displace most of the revenue in the extended ecosystem, only that WAN providers now play more central roles in those other areas, and for that reason will be generating additional revenue within the ecosystem.

That noted, cloud services still represent only about five percent of enterprise information technology spending. That is virtually certain to grow, as public cloud remains the first option for a minority of enterprise IT managers at the moment.  

According to Gartner, 75 percent of organizations use public cloud services today, “though sparingly,” while 78 percent plan to increase their investment in cloud services in the next three years.

Some 91 percent of organizations across all industries plan to use external providers to help with cloud adoption, Gartner says. That accounts for the belief that cloud computing can be a new revenue source for capacity suppliers, directly or indirectly.

In some cases, capacity suppliers own data centers as a way of generating direct revenue from data center clients, not just profiting from the communications into and out of the data centers.

By 2018, “data center to end user traffic” will constitute 17 percent of total “data center” traffic. About nine percent of traffic will move from data center to data center.

About 75 percent of global data center traffic will stay within the building, moving from server to server. That illustrates the value of generating direct revenue from data centers. Even if most clients will move data between servers in the center, that in-building traffic still eventually moves out onto the wide area network.

For most suppliers,  the primary revenue opportunity therefore is capacity.