Carrier that helped invent the idea of cloud now has to buy one

Verizon buys Terremark to figure out how to build flexible, dyamic IT

Verizon Communications, which is giant in phone service and Internet access, but a bit player in cloud computing, is going to fix that by paying $1.4 billion for Terremark Worldwide -- one of the more sophisticated cloud-computing and hosting companies in the business.

The acquisition is the first big one of 2011, but it piles on a long list of cloud and virtualization mergers and acquisitions from last year.

Terremark's two primary competitors, Savvis and Rackspace, are the ones analysts are mentioning today as the most likely next candidates.

The ongoing consolidation makes it clear that the likelihood a provider will fail or be acquired continues to be one of the first criteria end-user companies have to consider when looking at cloud providers.

Verizon Business offers some online storage and cloud services from its 220 data centers in 23 countries, but has focused more on small-business services, VoIP, Internet access and other infrastructure issues than on offering platforms or applications.

In 2009 it augmented its first effort at cloud-computing services with one built around VMware's cloud software because Verizon's first effort was too rigid.

Terramark, on the other hand, offers hosting and cloud services from 10 data centers worldwide, and customizes the level of abstraction and security for customers. Services range from high-security, dedicated private-cloud implementations for large government agencies to shared-resource clouds for enterprises to pay-as-you-go infrastructure plans for smaller businesses.

Terramark services are designed for all but the very largest companies that usually end up hiring global carriers as their infrastructure companies anyway, according to Chris Drumgoole, SVP of client services development at Terremark, who says the company has been growing about 30 percent every quarter since 2009.

That flexibility made it more attractive in many ways than cloud computing companies with more capacity but less ability to tailor it, according to Mark Kelleher, managing director of financial analysis firm Brigantine Advisors told the Wall Street Transcript.

In 2009 virtualization- and cloud-computing software leader VMware bought a five percent stake in Terremark, which uses VMware vCloud software as the basis for much of its cloud infrastructure but also uses hypervisors and cloud-management software from other vendors, Drumgoole said.

For Verizon the acquisition provides a built-in level of credibility and customer base in cloud and the ability to say it hosts not only the software and hardware of the cloud, but the networks linking parts of it together.

Verizon calls the plan, which it intends to pitch as a soup-to-nuts enterprise IT menu of outsourced functions, the "Everything as-a-Service" strategy.

Kevin Fogarty writes about enterprise IT for ITworld. Follow him on Twitter @KevinFogarty.

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