Verizon to struggle in move to hybrid cloud strategy, analyst warns

Verizon's (NYSE: VZ) cloud team faces a difficult few months as the company transitions away from the public cloud market, predicted TBR analyst Molly Gallaher Boddy. However, the operator stands to make gains in the space if it is able to ramp up its consulting and network and security services around a hybrid cloud model.

"TBR believes Verizon's exit from public cloud allows the vendor to leave a market that is already dominated by a few large providers, such as Amazon Web Services, and provided limited long-term opportunity for Verizon," Boddy said in an analysis of Verizon's cloud business following the release of the carrier's first-quarter earnings results. "Verizon's large public sector customers may be encouraged to move to Verizon's Virtual Private Cloud, allowing Verizon to reap the benefits of providing a public cloud-like option without investing further in public cloud compute capabilities. In addition, though Verizon will continue to offer public cloud storage, its exit from public cloud compute will help it deepen its partnerships with cloud providers and rebrand itself as a vendor-agnostic managed services provider that supports customers using a variety of cloud solutions."

TBR noted that Verizon's total cloud revenue declined 1 percent year-over-year to $137 million in the first quarter, with its public cloud business falling 3.5 percent during that time. However, revenues from the carrier's professional services for cloud operations grew 3 percent "and is expected to sustain growth" throughout the rest of 2016, Boddy noted.

Verizon in March stopped offering two of its public cloud service offerings, signaling the challenges of being able to effectively compete against providers like Amazon Web Services (NASDAQ: AMZN) and Google (NASDAQ: GOOG). Specifically, Verizon discontinued its Verizon Public Cloud Reserved Performance and its Marketplace. The carrier said that customers have the option to move their data to the telco's Virtual Private Cloud offering.

However, TBR warned that Verizon will continue to face new challenges with its pivot: "Verizon's transition into hybrid cloud enablement and away from public cloud puts it in direct competition with other companies that have made similar strategic moves, such as Hewlett Packard Enterprise (HPE) and Dell. TBR notes that Verizon's push toward hybrid cloud enablement and managed services will create new challenges for the company, as it will need to rapidly expand its consulting capabilities, taking on new employees able to offer customers a variety of professional services."

Added the research firm: "We believe Verizon will struggle to deliver year-to-year cloud growth over the next two quarters during this transition period."

To compete, TBR said it expects Verizon to take a vendor-agnostic approach to the cloud market, and pointed to the carrier's recent steps to connect to clouds including including IBM SoftLayer and Microsoft Azure. Verizon isn't alone in connecting to other cloud offerings; Ericsson made a similar teaming with Amazon Web Services in February.

But if Verizon pivots successfully, TBR said the carrier may well find success. "Verizon's large public sector accounts are in need of cloud management solutions, particularly add-on security options, which comprise an area of strength for Verizon. Verizon will look to generate new opportunities by expanding and modernizing all of its cloud managed services and developing a wider range of cloud solutions and integration capabilities. TBR believes Verizon will smooth its transition out of public cloud by transitioning large vertical clients to its Virtual Private Cloud, which will keep these organizations within the Verizon cloud ecosystem and create opportunities to upsell a wider set of managed services."

For more:
- see this TBR post

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