Here's the single biggest reason telcos have failed in the cloud

Telcos thought networking expertise would win the cloud, but they were spectacularly wrong. Here's why.

Image: iStockphoto/NorthernStock

Remember how telcos were supposed to be relevant in cloud computing? How being experts in networking resources was expected to translate into big cloud dollars? How their built-in stable of small, medium, and large enterprises was thought to be a golden ticket against book (Amazon), packaged software (Microsoft), and ad sellers (Google)?

Yeah, that didn't work so well.

It's not that telcos' expertise in network infrastructure isn't needed. As Pivotal's Richard Seroter pointed out to me, "having a network helps...but it doesn't seem that telcos know how to capitalize on that unique dimension." In other words, while they've fixated on their networking assets, successful clouds take the network as essential table stakes, and drive adoption through other services.

Turns out it's hard to run a cloud

Perhaps stating the obvious, former 451 Research analyst (and current Pivotal director) Michael Cote has written: "Telcos becoming cloud providers doesn't seem to work." While obvious now, it wasn't always thus, as 451 Research has uncovered in writing about Centurylink and its failed efforts at cloud computing:

[It used to be believed] that a connectivity provider should be better positioned to take advantage of cloud computing infrastructure because it controls the means of access to those resources, leading to a natural synergy. So far, none of the major carriers has managed to make that work, hampered by scale, traditional mindsets in network operations, and sales. Companies like AT&T, Verizon, Orange, BT and other global carriers got started on similar telco transformation efforts many years ago with varying degrees of success, and with major detours toward trying to out-Amazon Amazon in the IaaS space with network-focused cloud services.

At times, these vendors have managed to at least ape the best strategies of their biggest competitors (AWS, Microsoft, and Google). Centurylink, for example, tried to get out of its comfort zone, chatting up developers. It did so, however, with a telco lisp, trying to pretend its traditional IT audience had magically transformed into a developer audience...and failing to speak appropriately to either.

SEE: AWS isn't the cheapskate's cloud, and Amazon doesn't care (TechRepublic)

Nor is Centurylink alone in its cloudy failure. All of the telcos have failed to varying degrees, though perhaps not due to the reasons suggested by 451 Research. Instead, these telco providers have failed because they've failed to offer much more than a network.

More than a network

Let's be clear: A network is critical. Indeed, early on, that was part of Google's value—blistering fast networks. Cloud guru Randy Bias early on highlighted Google's strategy of "buying dark fiber and deploying it between its data centers for the past decade." This gave them a serious networking advantage over competitors like AWS and Microsoft.

Unfortunately, the magic isn't about networks.

SEE: Oracle hopes to win the cloud by going cheap on data centers. Good luck with that (TechRepublic)

No, as Gartner analyst Lydia Leong pinpoints, cloud "is a software business, where feature velocity matters." AWS grokked this first, piling on feature update after feature update. Over time, Microsoft and Google have managed to make progress against AWS by matching some (though by no means all) of these features, and carving out their own software strategies.

For Microsoft, it's all about helping enterprises take legacy workloads and bring them to the cloud (or blend on-premise and in-cloud strategies). For Google, it's all about lowering the bar to AI-based productivity. Both of these have found an audience, and both confirm that robust networks are not enough (or, in the case of AWS and Microsoft, even mandatory).

Today, competition has more to do with data center coverage than network speeds (though, again, network performance is important), but even the gargantuan data center build-outs of AWS, Microsoft, and Google (to the tune of $31.5 billion last year) don't really match the software build-outs at these cloud leaders. Software is eating the world, and it's starting with the cloud. Telcos never figured out software, and that is the biggest reason they failed.

Also see

About Matt Asay

Matt Asay is a veteran technology columnist who has written for CNET, ReadWrite, and other tech media. Asay has also held a variety of executive roles with leading mobile and big data software companies.

Editor's Picks

Free Newsletters, In your Inbox