Oh dear. The trade press is at it again. Microsoft jumps on Metaswitch, which it announced it's acquiring, and everybody takes things at face value rather than seeing the forest through the trees.
The consensus story is that Microsoft is buying Metaswitch Networks —after it bought Affirmed Networks—because it wants to be a service provider supplier.
I have a secret for you: Nobody wants to be a service provider supplier. It's the worst job in town—somewhere below dishwasher and busboy. I mean, take a look at the pain that Nokia and Ericsson have gone through. Or how Cisco is constantly grousing about its service-provider business weighing it down.
RELATED: Raynovich: Service provider segment and China trade war weigh on Cisco
Don't get me wrong. Metaswitch has great technology —very high-end cloud communications technology, built on microservices. So why might Microsoft like that? Because it's a cloud provider for enterprise. And enterprises like communications services in the cloud. The Metaswitch and Affirmed acquisitions are about beefing up Microsoft's communications stack at the edge—so it can draw more enterprise customers to its cloud platforms.
How does that work? Let me explain.
If Microsoft ramps up the Azure Edge Stack and connects that efficiently to 5G, it can plug enterprise customers directly into the cloud, using whatever network they want. This is what Azure Edge Zones are all about. And just because it can connect to "5G" does not mean that service providers have to sell it or even control it.
We know enterprises are excited about the prospect of building "private" wireless networks. Why can't they build their own 5G networks, connected to WiFi and the cloud at the same time? What's even to stop the cloud providers from building out 5G, using cheaper cloud technology, as Rakuten has done? If Microsoft builds an anchor there —such as the Azure Edge Stack —it could see this as a whole new market that sucks up even more enterprise mindshare and data into its cloud.
Sure, in some cases, service providers might be used to connect the enterprise to public 5G networks. But enterprises could fill plenty of gaps using the edge platform with 5G capabilities and private networks. All they have to do is stick a box in the manufacturing facility, connect their own 5G, or a hybrid combination of WiFi and CBRS, and then plug into the cloud directly using fiber or broadband with something like software-defined wide-area networks (SD-WAN).
Yikes. This is not a pretty picture for the service providers. All of their fancy industrial app fantasies could fall straight to Microsoft. At what point do they have control over the situation? They don't have much leverage. They often don't even own the connection to the towers.
If you don't think all of this can go horribly wrong for service providers, let's look at the strategic progression of the major North American telcos over the past five years:
• Telcos run up hundreds of billions of dollars in debt buying content and advertising companies in an effort to try to compete with Netflix and Hulu;
• They put all their technology platform eggs in the network functions virtualization (NFV) basket, sponsored by ETSI;
• Talked up a huge 5G story—without explaining how they will pay for the infrastructure.
Now let's take a look at what's happening in reality:
• The economy is in recession and people are spending less money on telecom services, which are deflationary in nature;
• Cloud is still growing;
• Netflix and Hulu are still winning;
• The market has shifted from NFV to microservices apps in the cloud. Everybody is using Zoom. Microsoft and Amazon are building out 5G edge infrastructure and Microsoft is expanding its communications apps and software.
Maybe Microsoft just sees the opportunity to up its communications game and is building a vertically integrated communications stack in its own cloud. Based on microservices. Which can connect to 5G. Or WiFi. Or CBRS. So that it can sell more cloud services. To enterprises.
If the cloud providers, including Microsoft, own the bulk of the 5G edge infrastructure as well as the cloud apps, what's left for service providers to own? Billing systems? Optical switches? Oh wait— Microsoft does that now, too.
The service provider supplier angle is an afterthought. Microsoft doesn't care about that. It's like asking Amazon if they care about using UPS or FedEx to deliver their products to customers. The trucks are just middlemen. They'll use whoever can get their products to the customer the fastest -- including their own drones.
Once this starts panning out, what's left for the middle-men service providers?
They'll just become hollowed out, dumb pipes. Again.
R. Scott Raynovich is the founder and chief analyst of Futuriom. For two decades, he has been covering a wide range of technology as an editor, analyst, and publisher. Most recently, he was VP of research at SDxCentral.com, which acquired his previous technology website, Rayno Report, in 2015. Prior to that, he was the editor in chief of Light Reading, where he worked for nine years. Raynovich has also served as investment editor at Red Herring, where he started the New York bureau and helped build the original Redherring.com website. He has won several industry awards, including an Editor & Publisher award for Best Business Blog, and his analysis has been featured by prominent media outlets including NPR, CNBC, The Wall Street Journal, and the San Jose Mercury News. He can be reached at [email protected]; follow him @rayno.
Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceTelecom staff. They do not represent the opinions of FierceTelecom.