Alphabet, Alibaba, Amazon, Apple, Baidu, Facebook, Microsoft, Rakuten and Tencent, which operate the biggest hyperscale data centers, also now are making initial moves to “own the edge” as well. Though in 2019 they might collectively spend about five percent of total capex on edge computing, by 2023 they could be devoting as much as 50 percent of capex on edge computing, according to a forecast by Technology Business Research.
The obvious question for connectivity providers is whether, and how much, new potential “partnerships” with some of the hyperscale providers might represent value and revenue for connectivity providers.
Up to a point, edge computing facilities will scale faster if partnerships can be struck between ecosystem participants (central office owners, cell tower owners, connectivity providers and data centers, for example).
The tricky task is striking deals that spread revenue in ways seen as fair by the participants. And, of course, eventual channel conflict seems somewhat inevitable. That noted, the multi-cloud trend and market for edge data center space and support (from racks to compute cycles) might create several niches.
AWS already has signed Verizon, Vodafone, KDDI and SK Telecom as access partners, and also appears to be leasing data center space from the carriers. So, at the very least, it appears each of the telco partners will earn some data center leasing revenue from AWS, which is placing its servers in telco racks (presumably often in central offices).
The telco partners likely also gain some amount of dedicated access (capacity) revenue from AWS and any enterprise customers using the AWS edge computing service.
There is some potential indirect benefit, as often is the case, even from partnerships with little direct incremental revenue, as the availability of AWS edge computing services makes the connectivity service more valuable.
The AWS partnership does provide near-term value in allowing each of the telco partners to tout their presence in the edge computing market, at low investment costs to them.
On the other hand, it is hard to see much incremental revenue upside from this sort of partnership. As always, the biggest revenue and profit returns will flow to providers that own the infrastructure and the services, as always is the case for owner’s economics.
Still, when markets are young, revenue upside is likely small and investment costs high, that “creep in” at low cost strategy reduces risk. Telcos gain some marketing platform advantages and some “rent rack space” revenue.
Greater levels of investment and risk come with business models “up the stack,” including operating an owned “edge computing facilities as a service” business. Another step up is to sell edge computing capabilities directly, not simply selling colocation space to third parties.
More intense models including some forms of system integration, owned business-to-business apps, and finally, direct sale of full retail apps to end users. Those sorts of efforts have been difficult for telcos in the past, but are not impossible.
On the other hand, it is hard to see how edge computing becomes a significant revenue generator for telcos unless they participate at some level beyond selling rack space.
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