Cloud service acquisitions gain momentum, and everyone's jumping on board

Samantha Bookman, FierceTelecomMonday's $167 million purchase of managed services provider MindSHIFT by electronics retailer Best Buy indicated a seismic shift in the perception and popularity of the cloud services concept. Best Buy's move into this arena is not entirely surprising--the company has made some notable acquisitions, such as Geek Squad and Napster--but will other consumer-focused businesses follow suit? Are we going to see cloud services kiosks in the middle of Wal-Mart or Kmart?

That depends. Best Buy's acquisition is largely meant to bolster its Geek Squad computer repair and services arm by offering cloud storage services to customers. But its target is not so much the individual consumer as it is small- to medium-sized enterprises (SMEs), according to a Data Center Knowledge article; Best Buy estimates that market to be somewhere in the $40 billion range.

But even though the acquisition of MindSHIFT is notable, Best Buy isn't first out of the gate in offering cloud services across its retail footprint. It may be, as Forbes notes, trying to gain an edge on its brick-and-mortar competition, retailers like Radio Shack and Wal-Mart, but it's also responding to the competitive challenge represented most clearly by online juggernaut Amazon.com (Nasdaq: AMZN) which, alongside its popular Kindle reader, launched a cloud storage offering of its own, and which according to Sean Ludwig of VentureBeat has been eating Best Buy's lunch in the retail segment, where "the company is slowly becoming Amazon's showroom floor instead of being a place people purchase electronics."

Best Buy, of course, isn't the only company moving outside its traditional business focus to offer cloud services. On the same day that the MindSHIFT deal was announced, Twin Valley Telephone, a small independent telco serving residents and businesses in Kansas, purchased ISG, a data center, cloud and managed services provider. The ILEC plans to target business customers with a managed services offering via wholesale and private label reseller channels. In a similar vein, New York-based Warwick Valley Telephone acquired Alteva specifically to expand its range beyond traditional PSTN service and into VoIP and cloud-based services.

Those are two very small deals compared to the large-scale moves of providers like CenturyLink (NYSE: CTL), once a small ILEC itself that has climbed via a series of acquisitions into a competitive position with bigger telcos AT&T (NYSE: T) and Verizon (NYSE: VZ), and Windstream (Nasdaq: WIN), whose pending acquisition of PAETEC caps a two-year-plus growth drive that included its purchase of Hosted Solutions, a move that added five data centers and a total of 68,000 square feet of data center capacity to its portfolio.

This consolidation trend of companies of all sizes absorbing cloud services providers appears to be gaining steam, and that's largely due to the expansion of interest by business customers along with the realization that certain managed services are needed to operate more affordably. But customers still need to look before they leap, as Terremark's Kerry Bailey pointed out in a recent interview with FierceTelecom. "There are just so many companies, especially as they go into new business models to deliver video and delivering consumer services, they need to scale and move with demand and cloud has just been able to do it."

He also noted that businesses in particular need to pay attention to the quality of the service they're subscribing to. "I think the issue around cloud is this idea that there are commodity clouds that are trying to work their way into being enterprise clouds, but there's a chasm that needs to be crossed that sits between the commodity clouds and something that's truly enterprise class."

It's one issue that Best Buy is hopefully addressing with its MindSHIFT acquisition: a higher-quality cloud and managed services experience for its SME business customers who demand reliability, security and service, than a retail consumer-focused provider will offer. It remains to be seen how well the added service offering will add to the retailer's bottom line--something that could be the true bellwether of how ubiquitous enterprise-class cloud services will become.--Sam

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