STL Partners

Telco 2.0 Growth & Innovation

Cloud 2.0: Telcos to grow Revenues 900% by 2014

Summary: Telcos should grow Cloud Services revenues nine-fold and triple their overall market share in the next three years according to delegates at the May 2011 EMEA Executive Brainstorm. But which are the best opportunities and strategies? (June 2011, Executive Briefing Service, Cloud & Enterprise ICT Stream)

NB Members can download a PDF of this Analyst Note in full here. Cloud Services will also feature at the Best Practice Live! Free global virtual event on 28-29 June 2011.

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Introduction

STL Partners’ New Digital Economics Executive Brainstorm & Developer Forum EMEA took place from 11-13 May in London. The event brought together 250 execs from across the telecoms, media and technology sectors to take part in 6 co-located interactive events: the Telco 2.0, Digital Entertainment 2.0, Mobile Apps 2.0, M2M 2.0 and Personal Data 2.0 Executive Brainstorms, and an evening AppCircus developer forum.

Building on output from the last Telco 2.0 events and new analysis from the Telco 2.0 Initiative – including the new strategy report ‘The Roadmap to New Telco 2.0 Business Models’ - the Telco 2.0 Executive Brainstorm explored latest thinking and practice in growing the value of telecoms in the evolving digital economy.

This document gives an overview of the output from the Cloud session of the Telco 2.0 stream.

Companies referenced: Aepona, Amazon Web Services, Apple, AT&T, Bain, BT, Centurylink, Cisco, Dropbox, Embarq, Equinix, Flexible 4 Business, Force.com, Google Apps, HP, IBM, Intuit, Microsoft, Neustar, Orange, Qwest, Salesforce.com, SAP, Savvis, Swisscom, Terremark, T-Systems, Verizon, Webex, WMWare.

Business Models and Technologies covered: cloud services, Enterprise Private Cloud (EPC), Virtual Private Cloud (VPC), Infrastucture as a service (IaaS), Platform as a Service (PaaS), Software as a Service (SaaS).

Cloud Market Overview: 25% CAGR to 2013

Today, Telcos have around a 5% share of nearly $20Bn p.a. cloud services revenue, with 25% compound annual growth rate (CAGR) forecast to 2013. Most market forecasts are that the total cloud services market will reach c.$45-50Bn revenue by 2013 / 2014, including the Bain forecast previewed at the Americas Telco 2.0 Brainstorm in April 2011.

At the EMEA brainstorm, delegates were presented with an overview of the component cloud markets and examples of different cloud services approaches, and were then asked for their views on what share telcos could take of cloud revenues in each. In total, delegates' views amounted to telcos taking in the region of 18% by revenue of cloud services at the end of the next three years.

Applying these views to an extrapolated 'mid-point' forecast view of the Cloud Market in 2014, implies that Telcos will take just under $9Bn revenue from Cloud by 2014, thus increasing today's c$1Bn share nine-fold. [NB More detailed methodology and sources are in the full paper available to members here.]

Figure 1 – Cloud Services Market Forecast & Players

Cloud 2.0 Forecast 2014 - Telco 2.0

Source: Telco 2.0 Presentation

Although already a multi-$Bn market already, there is still a reasonable degree of uncertainty and variance in Cloud forecasts as might be expected in a still maturing market, so this market could be a lot higher – or perhaps lower, especially if the consequences of the recent Amazon AWS breakdown significantly reduce CIO’s appetites for Cloud.

The potential for c.30% IT cost savings and speed to market benefits that can be achieved by telcos implementing Cloud internally previously shown by Cisco’s case study were highlighted but not explored in depth at this session.

Which cloud markets should telcos target?

Figure 2 – Cloud Services – Telco Positioning

Cloud 2.0 Market Positioning - Telco 2.0

Source: Cisco/Orange Presentation, 13th Telco 2.0 Executive Brainstorm, London, May 2011

An interesting feature of the debate was which areas telcos would be most successful in, and the timing of market entry strategies. Orange and Cisco argued that the area of ‘Virtual Private Cloud’, although neither the largest nor predicted to be the fastest growing area, should be the first market for some telcos to address, appealing to some telcos strong ‘trust’ credentials with CIOs and building on ‘managed services’ enterprise IT sales and delivery capabilities.

Orange described its value proposition ‘Flexible 4 Business’ in partnership with Cisco, VMWare virtualisation, and EMC2 storage, and although could not at this early stage give any performance metrics described strong demand and claimed satisfaction with progress to date.

Aepona described a Platform-as-a-Service (PaaS) concept that they are launching shortly with Neustar that aggregates telco APIs to enable the rapid creation and marketing of new enterprise services.

Figure 3 – Aepona / Neustar ‘Intelligent Cloud’ PaaS Concept

C;oud 2.0 - Intelligent Cloud PaaS Concept - Telco 2.0

In this instance, the cloud component makes the service more flexible, cheaper and easier to deliver than a traditional IT structure. This type of concept is sometimes described as a ‘mobile cloud’ because many of the interesting uses relate to mobile applications, and are not reliant on continuous high-grade mobile connectivity required for e.g. IaaS: rather they can make use of bursts of connectivity to validate identities etc. via APIs ‘in the cloud’.

To read the rest of this Analyst Note, containing...

  • Forecasts of telco share of cloud by VPC, IaaS, PaaS and SaaS
  • Telco 2.0 take-outs and next steps
  • And detailed Brainstorm delegate feedback

...Members of the Telco 2.0TM Executive Briefing Subscription Service and the Cloud and Enterprise ICT Stream can access and download a PDF of the full report here. Non-Members, please see here for how to subscribe. Alternatively, please email contact@telco2.net or call +44 (0) 207 247 5003 for further details.