Changing up: Verizon shifts cloud into enterprise gear for new style IT delivery

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1 Changing up: Verizon shifts cloud into enterprise gear for new style IT delivery Analyst: William Fellows 15 Oct, 2014 The company's recent analyst event in Boston was a coming-out party of sorts for a second generation of the Verizon Cloud. It is being re-architected to attract enterprise workloads, and has been re-positioned as a lever for transformation a departure from the mass-market IaaS orientation that trumpeted its introduction in The 451 Take Verizon's strategy to be an ICT provider to the enterprise is not unique. All network service providers (NSPs) aspire to offer a bundle of network infrastructure and cloud services. What is unique is the proprietary IaaS platform it has built, re-skinned by Cloud senior VP Siki Giunta to become a single cloud offering and the lever for enterprise transformation toward new style IT services with a dedicated deployment model at its core. Context Verizon built its proprietary platform for private and public IaaS using a resource pool pricing methodology and its marketing messages focus on its ability to offer a secure connection to these IaaS environments. While many of its processes (e.g., ordering, provisioning, billing, support) are being re-architected with an ICT framework in mind, Verizon is still in the early stages of offering a seamless customer experience and back office support systems for bundled network and cloud. For example, security operations and tools for its private and public cloud are separate from its Managed Security Services tools, processes and SOC personnel cloud customers can purchase Copyright The 451 Group 1

2 Verizon's premium monitoring and analytics MSS à la carte. We'd like to see deeper integration of the MSS people, processes and systems into the core of Verizon's cloud offerings while still offering premium security services as an added feature. NSPs are positioning integrated offers and this is a natural combination. Verizon Cloud Now under the leadership of Global senior VP Cloud Siki Giunta, Verizon's cloud assets there were seven when she landed earlier this year from CSC are being consolidated into a single cloud offering and marketplace accessed by a single cloud console. Verizon's objective is to integrate all capabilities into a single cloud offering and interface: instances and resource pools, security, networking, managed services, virtual and dedicated offerings, online, PAYG, private and public, certification, low-cost and next-generation technologies. To that end, Giunta has pivoted Verizon cloud toward a focus on the transformational role it plays for enterprises. It's no longer going head-to-head with Amazon on cost or volume. Indeed, the re-skinning of Verizon Cloud sees it positioned as workload and capability-centric, versus the IaaS and product-centric first-generation offering. It has a workload-centric view of the world. It no longer talks about VMs, and instead of S, M, L and public/private cloud, its engagement model will be based around risk levels and multi-tenant or non-multi-tenant. The Verizon Cloud uses a modified Xen hypervisor, which itself abstracts and runs users' hypervisors, initially Xen and VMware, followed by Hyper-V in Q1. There are two engines at the back end of the previous offering: the AMD-SeaMicro SSD-Arista horizontal memory stack, and an Intel-Sanmina SSD-Arista vertical memory stack to serve different application needs. It's working with Intel on a third-generation engine and storage configuration. The cheaper it can get the engine, the better the margin it can make. By year-end, the company will roll out a continuous upgrade capability that will enable 'hot fix' upgrades of the platform without customers having to disconnect so that new releases can be introduced. Verizon also embeds VPC functions such as firewalling directly into silicon, giving it a claimed advantage over typical approaches where VPC features are built as software. Verizon offers Public cloud, Virtual Private cloud, Private Dedicated cloud (all hosted by Verizon), as well as a Private on-premises deployment managed by Verizon, with public/private (L2/L3) connections, dynamic bandwidth, usage-based billing and dynamic failover between them. It already has partnerships with Oracle, SAP HANA and a software-defined storage offering from Hitachi. Copyright The 451 Group 2

3 Verizon is aiming to move all of its Cisco UCS-based Terremark ecloud (Enterprise Cloud) customers on its first generation (some 400 beta users) onto the second-generation platform within 12 months. For the 400 beta users, this means a contract upgrade (to production status) and a new user interface and console. Two users have been moved so far. Verizon is adding Intel's Mashery API to support OpenStack, enabling Verizon Cloud to play its part in an orchestrated cloud environment. Mashery will also be used as a control pane and service management API, and for geo-location services, enabling customers to see who is touching it (when, where) for any governance requirements (this is in addition to the baked-in security). Verizon partners with Racemi and RiverMeadow Software for migration tools (its 2009 acquisition of migration tool CloudSwitch isn't visible). Ultimately, it would like to provide a factory-type capability that would industrialize this capability and allow end users to do it themselves. Innovations Cloud Spaces Specifically, Verizon is using a new Cloud Console and a device it calls Spaces to support its workload focus. A Cloud Space is a manifest for any running any customer-defined project on Verizon cloud, which could be a workload, an application or a managed service The Cloud Space determines the best execution venue (which cloud infrastructure) for running its tasks. The next challenge is to make a Cloud Space operational across multiple locations and multiple types of resources. The ultimate goal is to enable customers to specify hybrid (third-party IaaS) resources directly from a Cloud Space, to meet the needs of mixed management domains. As well as some fundamental changes to the network to support this, Verizon will likely need some additional orchestration smarts in order to deliver this capability. Cloud brokering for DevOps So to what extent will Verizon offer a cloud broker capability? It's offering transformation engine services from Racemi and RiverMeadow. What about a decision engine? Verizon believes that IT should maintain responsibility for managing SLAs where possible. Where it does see a multi-source scenario is brokered DevOps, with, for example, an HTML5 user interface development team working in Eclipse on a Verizon Public cloud, collaborating with developers using Pivotal to develop a Java back end, on a Verizon Virtual Private cloud. This comes together via continuous integration using Git and Jenkins on the Verizon Virtual Private cloud and code passed to QA for testing on a public cloud and then promoted to production with autoscaling, cloud bursting and HA between Copyright The 451 Group 3

4 Verizon off-premises Public cloud and Verizon on-premises Private cloud. Direct connect to AWS added While the company would prefer to sells its own proprietary cloud services, Verizon recently added Amazon Web Services to its roster of secure-cloud interconnect (SCI) partners. This provides AWS direct connect customers a secure connection from Verizon's private IP network. Its other partners include Microsoft Azure and Equinix. This is not unique in the space but offers customers a solution for hybrid requirements; Level 3, for example, also offers cloud connect to AWS and Microsoft Azure. So as far as a technology broker capability is concerned, Verizon can ingest, adapt and operate third-party cloud workloads. While Verizon is adding new inbound ingestion facilities via SCI, it says moving workloads backwards and forwards is still pixie dust. Verizon's approach will help users bring their existing workloads onto its cloud, but in the long term it's not the answer. Instead, it's looking at the likes of Pivotal to support this. Verizon believes the use of its SCI mechanism will give it a good idea of how much people want brokerage. Business model Created in 2012, Verizon Enterprise Solutions wasn't, at least at that time, a growth engine for the company. Straddling its wireline, wireless and strategic services reporting buckets, VES incorporates products that are declining in terms of revenue contribution as well as growth engines such as cloud. At the time of creation, VES rolled up the Verizon Global Wholesale business, Verizon Business, the enterprise assets of Verizon Wireless in the US and Terremark (plus CloudSwitch, nphase, Hughes and Cybertrust). At that time, it was about 25% of Verizon's business. Management didn't indicate whether VES is now a growth engine; however, with the cloud business now firing up, new business appears to be strong. VES has some 1,800 customers although a smaller number drive most of the revenue 31,000 staff and is working on some 2,100 projects. VES says it sees financial services firms that have been deep into grid and virtualization now looking for next moves using cloud. The manufacturing sector is mostly looking for someone to take care of the transformation to new style IT services, and do it as quickly as possible. Healthcare, by comparison, has the furthest to catch up and is security-driven. These may be generalized observations of its customer and prospect base, but Verizon notes the connecting thread here is that across all vertical markets the difference between 'then' and 'now' is that IT is an active partner as it seeks to be the service provider to the organization. Importantly, VES says engagement is predicated on enterprises having multi-sourcing arrangements. Customers include JetBlue and Flowers.Com. Copyright The 451 Group 4

5 It's now organized around network, cloud, mobile, connected machines, security and professional services. Verizon recently incentivized and retrained its 1,000+ global salesforce on positioning its cloud portfolio. Gone are days of slinging VMs and discussions about size of virtual machines. Now, Verizon salespeople and its overlay cloud team talk in terms of workloads. It is a more strategic, and often a simpler, conversation for both Verizon and the customer. Verizon sales engineers get to understand customer requirements in terms of data flows, usage requirements and a particular application's ability to scale. Per the company, it saved a global technology innovator 37% over AWS by leveraging less hardware, but with better performance, something it claims that providers with catalog options like small, medium and large are unable to provide. VES's cloud sales program mandates the sales force each carry five key account prospects and that 30% lead to RFPs. It has an 'MPLS attack' plan in place, believing all of its MPLS network customers are cloud customers in waiting Verizon cloud is bonded to the network. Europe Verizon says it sees a strong, highly competitive EU market with dominating incumbents where legislation of data storage is key. It says there is a high proportion of bundled managed services 60% more bundling than in other markets. As well as a high focus in security, there are complex multi-cultural issues around doing business in Europe, plus a later launch and slower rollout of LTE and a slower adoption of cloud. It says it is seeing the consumption of cloud by corporate IT picking up, and consumption by lines of business (LOBs) via IT, but not by LOBs directly yet. Competition Verizon's enterprise ambitions are in competition with those of fellow telecom and network service provider players including AT&T, Vodafone, CenturyLink, Telefonica, Orange, NTT and BT. All face the challenges of moving beyond connectivity, declining legacy revenue and new competitive arenas. They are also facing competition from incumbents such as IBM, HP, CSC, Capgemini and Accenture; IBM in particular now that it has 'bonded' to AT&T, enabling AT&T Virtual Private Network (VPN) customers to use AT&T NetBond to connect their IT infrastructure to SoftLayer's cloud services. CSC has also bonded to AT&T's network services. Copyright The 451 Group 5

6 SWOT Analysis Strengths Verizon Cloud misfired as an answer to AWS and a 'bring all your workloads and we'll run 'em' approach. Its unique architecture has been repositioned as enterprise workload and capability-centric versus a basic IaaS service. Opportunities The pivot executed by Siki Giunta takes Verizon into the domain where enterprises are seeking trusted partners for consumption-based managed services and security, low-cost delivery of new style IT services, agile DevOps and dedicated, then public, cloud expertise. In adding OpenStack API compatibility, it hopes to drive wider benefits than it can deliver alone. Weaknesses Verizon Cloud will need to be relevant outside of the company's existing customer base if it is to be a growth engine for Verizon Enterprise Solutions and not only a replacement for declining legacy businesses. Threats The key challenge for VES is to reach other buyers in Verizon accounts in order to sell them new style IT services, including cloud, and to retrain sales engineers and adjust compensation to support this. It's no longer positioned to take on AWS, Microsoft and Rackspace, but will nevertheless compete against them as they improve their enterprise capabilities. Reproduced by permission of The 451 Group; This report was originally published within 451 Research's Market Insight Service. For additional information on 451 Research or to apply for trial access, go to: Copyright The 451 Group 6