May 2, 2017
It took a few months, but Verizon finally revealed today that it's selling off its enterprise cloud services division to IBM.
Light Reading was the first to report that a deal was on the table back in February. A follow-up report was filed on our sister site Enterprise Cloud News two weeks later speculating that IBM Corp. (NYSE: IBM) would be the buyer. (See Verizon on Verge of Enterprise Cloud Sale – Source and Why IBM Is the Best Fit for Verizon's Enterprise Cloud Business.)
Verizon Communications Inc. (NYSE: VZ) has steadily backed away from enterprise cloud services, selling off its data centers to Equinix Inc. (Nasdaq: EQIX) for $3.6 billion late last year, and now divesting of its cloud and managed hosting business. In today's announcement, the telco provided very few details on how the IBM deal will go down. No dollar value was assigned to the transaction, and Verizon has only said that it in addition to selling its cloud business to IBM, it will also work with the company on "a number of strategic initiatives involving networking and cloud services." The deal is expected to close later this year.
The sell-off is a sad statement for Verizon, which first gave up on its ambitions in the public cloud sector, and is now signaling that it can't compete in private cloud either. That said, Verizon is remaining focused on enterprise connectivity, which is part of what led the company to acquire XO Communications in February. (See Verizon Completes XO Fiber Buy; 5G Stage Set.)
In Verizon's latest earnings report, the telco reported in $2.47 billion in total enterprise solutions revenue, down from $2.5 billion in the year-ago quarter.
Overall, Verizon is training more of its resources on 5G wireless development and on the video market while it backs away from enterprise cloud. In the latter area, the company spent $4.4 billion to acquire AOL in 2015, and is expected to close on a $4.48 billion deal for Yahoo in the coming months. Verizon has also invested internally in building up its digital media services business, launching the new Media Xperience Studio last month, and bundling media services into the new Exponent business unit focused on software and services sales to other network operators. (See Verizon Adds Smarts to Digital Media Services and Verizon's Exponent Exports Its Expertise.)
Want to know more about cloud services? Check out our sister siteEnterprise Cloud News.
On the IBM side, the deal with Verizon makes sense given that Big Blue has already highlighted cloud as one of its top business priorities. IBM currently has a leading market position in private cloud services -- reporting cloud revenue of $13.7 billion in 2016 -- although it, alongside Microsoft Corp. (Nasdaq: MSFT) and Google (Nasdaq: GOOG), trails Amazon.com Inc. (Nasdaq: AMZN) by a large margin in the public cloud market. (See AWS Maintains Its Public Cloud Dominance.)
The deal is also interesting for IBM because it means that the company's head of Cloud Infrastructure Services, John Considine, will get another crack at making Verizon's assets deliver value. Considine was previously the CTO of Verizon's cloud business before leaving that company in late 2014, and reemerging at IBM in late 2015.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading
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