Telcos must embrace The Cloud...

The realization that OTT operators had the smarter, more nimble business model was already a hot issue by 2007. Everyone was agreeing that telcos must “find new business models” to save them from being reduced to “dumb pipe operators”.

It was all very well saying that, but it was more an expression of need than an actual solution: for what might these new models be? Where will they come from and who will invent them?

By 2012 an answer had emerged. The cloud was evolving and it was opening up endless possibilities for new ways of doing business. It was already happening, but it was not the telcos who were driving cloud services – instead it was companies like Apple, AWS, Google and Microsoft.

It was hardware and software vendors, booksellers, and businesses from other sectors that were first to grasp the opportunities It was the telcos, with their sophisticated communications infrastructure, that made this possible, but they were not so quick to adapt as the new generation of smart entrepreneurs renting their bandwidth to launch new business.

These new OTT cloud providers were thinking like media companies, while telcos were thinking more like their printers. The printer counts the number of pages, while the media company counts its audience: so do telcos focus on their hundreds of thousands of subscribers, while cloud operators think in terms of millions of users.

Today service providers should be thinking at least as much about services as about connectivity – in the way they thought about investments in Internet and mobile infrastructure years ago. Firstly that means looking for new services and sources of revenue. Second, and perhaps more important, it could mean their survival.

In 2012 AWS, Google and Microsoft accounted for 40% of all the Ethernet ports shipped worldwide. That gives some idea of the massive investment in Ethernet technology they are making, and yet the total being less than 50% also tells us that not one of these giants is yet big enough to dominate the scene and dictate its own cloud connectivity 'standards' for global usage. So we face a possible “platform war”.

Past experience of platform wars show that they move towards a winner-takes-all scenario: when cost and choice become the primary decision criteria for most users, two different platforms can rarely co-exist, and certainly not on an equal footing. Winners can grab up to 70-80 percent market share, leaving crumbs to one-time market leaders.

The alternative would be to find a better balance between competition and co-operation. The outstanding success of Carrier Ethernet happened because vendors collaborated to create and certify global standards in the name of MEF – rather than battling each other to see whose technology could take the lead.

It was still a “winner takes all” situation, but here the winner was everyone: the users who could buy certified services and equipment without having to waste time choosing technologies, the service providers and vendors who made faster sales, and world business for the acceleration of high performance, lower cost WAN services brought about by Carrier Ethernet.

A key factor in the success of the MEF was when they brought the service providers on board to join the collaboration, rather than remaining a consortium of box sellers.

In the case of cloud services there are even more stakeholders to be considered: equipment vendors, service providers and carriers, as well as the giant data center operators like Amazon, Microsoft and Google that currently dominate the cloud, plus a growing number of OTT companies like Netflix, Skype and What’s App that rent inexpensive, flexible and fungible infrastructure from the operators and do business without the CapEx burden that a carrier takes on.

These OTT services may not yet be directly competing with service providers, but things could change if providers simply try to copy their successful business models rather than build on their own unique resources that include an established customer base and extensive infrastructure. If every mobile, compute or storage application has the potential to become a cloud service, then service providers need to be alert.

Is it enough to be simply looking for new business models? Analysing the successes of FaceBook, YouTube, eBay, Amazon, Google, NetFlix, Skype and their ilk teaches us a lot about the many individual and diverse ways the cloud can serve as a new business environment.

But would it be better in the long term to ask not how the cloud CAN work, but rather how it SHOULD work, as a global concept? Ethernet deployment is getting faster with CE 2.0, but it can still take weeks, whereas services can be deployed instantly.

The MEF did not stop at asking “what might we be able to do with Ethernet?” but went on to ask “what characteristics should Ethernet have if it is to migrate to the WAN and become the world’s transport of choice?” The way forward for the cloud should be similar. Cloud services need a robust and secure connectivity layer – can that be deployed at cloud speeds? Carrier Ethernet is fast but the cloud’s virtual machine population runs into millions.

The technology stream – Cloud stakeholders including leading Cloud Service Providers, Datacenter Operators, Cloud solution providers, equipment manufacturers and major enterprises are already getting together in the CEF to create common, global standards for the cloud. This will do much to build public and business confidence and reduce the delays that go with making choices.

Remember that, for all the hype and apparent success of cloud computing, there is still an overwhelming majority of business out there that does not yet feel able to trust the cloud.

But what if the giant OTT providers don’t join in this process? They could find themselves side-lined to their own cloud island – albeit a very big one – while the rest of the world moves to shared standards. Better by far to be part of the CEF, sharing what has already been learned in order to accelerate cloud development for everyone.

Just as FaceBook’s contribution to the Open Compute project aims to make the pie bigger for all, rather than grabbing for the biggest slice of a small pie, so the development of new global cloud standards will create an unlimited business opportunity for everyone.

The CEF is already bringing service providers and network equipment manufacturers together to shape cloud computing and plan cloud service futures built around open technology standards, interoperability and deployment agreements.

In a recent announcement five priority ‘fundamentals’ were identified under the acronym VASPA, namely: Virtualization, Automation, Security, Programmability, and Analytics. Working groups are already being established under those five areas.

As a consortium, the CEF has the potential to become one of the biggest players in the development of cloud services, as a standardized model is the only way to prevent market fragmentation, to grow the market and create new innovation opportunities for everyone.

But if the giant data center operators and OTT service providers also join the project, things will really take off. The most secure cloud delivery platform is still in service providers’ hands so, as part of the CEF, even today’s mega cloud providers will be better off, and everyone will then be creating and shaping the cloud future.

Just as the MEF, by bringing together vendors and providers, became the model for a $50 billion Carrier Ethernet services market, so must an all-inclusive CEF become the model for a $200 billion (and growing) cloud services market.

By Jeff Schmitz - Chairman of The CloudEthernet Forum