IBM deal puts final nail in the Verizon enterprise cloud coffin

We’ve been expecting it for a while, but Verizon’s sale to IBM confirms the giant has officially given up on the cloud.

Financials of the deal have not been revealed, but it ends a pretty dire couple of days for Verizon’s enterprise IT business. Following up the confirmation it would be selling 29 US data centres to Equinix, IBM will now purchase the cloud and managed hosting service, effectively putting an end to Verizon’s ambitions in the field.

“Last week, Verizon agreed to sell its cloud and managed hosting service to IBM,” said George Fischer, Group President of Verizon Enterprise Solutions.

“Additionally, Verizon agreed to work with IBM on a number of strategic initiatives involving networking and cloud services. This is a unique cooperation between two tech leaders to support global organizations as they look to fully realize the benefits of their cloud computing investments.”

What this strategic partnership actually is remains to be seen, and IBM are staying pretty quiet at the moment, though a sceptical individual might assume it’s nothing more than Verizon attempting to claw some dignity from a failed venture. Telecoms.com of course would want to stay firmly on the fence, but some might believe considering Verizon’s track record in the sector, Big Blue will want to keep the Big V at arms distance.

The turbulent journey began back in 2011 after Verizon bought cloud services company Terremark, though there was very little success from the outset. Prior to the acquisition, Terremark was a promising little company, though Verizon was unable to capitalize on this momentum in the public cloud space as AWS ran riot.

“There is a fundamental shift under way in how enterprises consume IT resources, and concluding this transaction is a turning point in Verizon’s push to provide integrated, enterprise-class cloud solutions and accelerate growth in this important segment,” said Robert Toohey, then-President of Verizon Business, during the time of the Terrmark acquisition.

“In the coming months, we’ll leverage our collective strengths to roll out a differentiated portfolio of secure, on-demand cloud computing solutions to be delivered through a unified enterprise IT platform.”

The acquisition was supposed to accelerate the businesses ‘everything-as-a-service’ strategy, through adding Terremark’s offerings, but also effectively buying a large number of enterprise and government customers.

Verizon gave up its public cloud business last year, and this move now signals the death of the private cloud side of things. The team will continue to provide enterprise connectivity services, though that will be little compensation for the potential fortunes to be made in the wider cloud computing sector.

It’s a sad story, but one which could have been foreseen. As AWS continues to build its lead in the public cloud sector, those with genuine ambitions like Microsoft, Google and IBM all invested heavily to expand their geographical footprints with new assets and acquisitions. Verizon instead decided to sink $4.8 billion into Yahoo to build its media services business. It would appear Verizon had given up on the cloud game long before these sales saw the light of day.

It’s a lesson which has been learnt by many executives through the years, though each seem to think they can succeed where others have failed. In truth, diversification is a very tough job to master, and relies partly on a vibrate cash cow core business to avoid distractions. Verizon ultimately failed to diversify its business into the enterprise IT space in the way some of its international competitors have succeeded (think Deutsche Telekom) perhaps due to a lack of commitment and failure to invest at the same ferocity as competitors.

Complications in its core telco business possibly proved too much of a distraction, however the saga surrounding Yahoo certainly didn’t help. If the $1.4 billion bet on Terremark has taught Verizon execs anything, it’s that they need to remove the unnecessary distractions to make the $4.8 billion bet on Yahoo work out.

On the IBM side of things, it’s a relatively sensible move. Its transition to the world of cloud has been successful, and the brand is recognized as one of the four main players in the arena. Why not buy a struggling competitor and integrate customers into the IBM platform? Some may even be grateful to be moved across to a platform which is receiving the care and attention a successful cloud business requires.