Hyperscalers could run networks at half the cost, says Optiva CEO

John Giere has a troubling message for people concerned about the relentless march of the hyperscalers into telecom territory. "Let's be honest, they could run the whole network for probably half the cost," said the boss of Optiva, a supplier of business support systems (BSS). "Sixty-five percent of servers are bought by five companies in the world. Even Vodafone can't get those economics, right?"

Optiva has an unusually high profile for a company that made just $15.2 million in revenues for its most recent fiscal quarter, along with a net profit of only $900,000. One of dozens of small players in the fragmented BSS market, it captured headlines when former CEO Danielle Royston stormed out in May 2020 after Optiva's board had refused to meet her pay demands. Giere was named Royston's successor in December that year, quitting his job as CEO of Enea Openwave to join Optiva.

With so many clouds available, which ones will telcos choose? (Source: Unsplash)
With so many clouds available, which ones will telcos choose?
(Source: Unsplash)

His remarks about public cloud economics would be sweet music to the ears of Royston, a self-professed cheerleader for the public cloud. But he is far less gung-ho. "My predecessor was completely a devotee of the public cloud, and nothing else was possible," he told Light Reading. Among other things, Royston now runs Totogi, another BSS provider, and has become a disciple of AWS, the world's largest public cloud. Under Giere, Optiva clearly wants to avoid picking a side.

Given some telco resistance to the public cloud, and the current circumstances, that could prove sensible. Giere's assessment, based on Optiva's own funnel of business, is that only 10% to 15% of the cloud opportunities are "pure" public cloud. Another 50% lie in the private clouds built by telcos and their partners, while the remainder are either undecided or planning some form of hybrid cloud. Meanwhile, as little as 7% to 10% of BSS workloads are in any kind of cloud today, Giere reckons. "That means you've got about 90% of the addressable market still yet to cloudify," he said. "The level of cloudification is pathetic in the BSS environment."

Giere-ing up for the cloud

Resistance to the public cloud is partly about fear of losing control, he thinks. The radio access network and the billing network are the two biggest assets that many operators have left, according to Giere. "Everything else has been kind of skimmed away or beaten up." Numerous operators now say they are just as worried about cloud "lock-in" as they are about dependency on any other big supplier.

Giere has little sympathy, too, for the argument that public cloud providers hold almost no economic appeal for larger companies, and that any cost-saving benefits are realized mainly by startups. "They're the masters of the universe at running data servers and ordering servers. The cost of goods is miniscule compared to an operator." Those claiming otherwise are often just telco IT people trying to protect their jobs, said Giere.

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Yet the hyperscalers seem to be omnipresent, and Giere evidently thinks the percentage of BSS workloads hosted in the public cloud will inevitably grow. "Today, compared even with my arrival two years ago, the presence and commitment of hyperscalers is ratcheted up fourfold," he said.

Of the three big US providers – AWS, Google Cloud and Microsoft Azure – he considers AWS, the biggest, to be the least ambitious on the telecom side. "The other two have business reasons to go up the stack because they play there," said Giere. "Google sells AI and data analytics. Ditto for Microsoft." In 2020, the Seattle-based software giant even went so far as to acquire Affirmed Networks and Metaswitch, two developers of core network software, making it a potential rival to the likes of Ericsson and Nokia.

Their growing presence has been the motivation for Optiva's deals with both Google and Microsoft. "They've already got these contracts," said Giere. "They need the workloads to go in or it's just like a lease without somebody in the property." In reporting third-quarter results, Optiva made a big thing about a recent tie-up that allows customers to buy its charging products from Google's storefront and consume them on a software-as-a-service (SaaS) basis.

Painful shapeshifting

Yet Optiva's shapeshifting around the cloud and other business challenges has been painful for investors. In Toronto, where it lists, its share price has fallen by 36% since May. Its last set of results indicated a 16% year-on-year drop in quarterly revenues and a 76% slump in net profit. A margin squeeze was blamed on "higher customizations," with Optiva warning shareholders that margins are likely to fluctuate in future as new and existing customers "onboard" the cloud.

Optiva's share price (Canadian dollars)
(Source: Google Finance)
(Source: Google Finance)

That reference to higher customizations certainly sounds at odds with Giere's cloud philosophy of "build once, deploy many times across many clouds." On the avoidance of lock-in, he can point to the successful migration of one (unnamed) customer from Red Hat to VMware Tanzu, a platform that can itself be run in the public cloud (and moved between them, according to supporters). But Giere acknowledges there would be an "engineering overhead" in porting software from Google to Microsoft. The economics might not make sense unless enough companies wanted to do it.

Whatever the initial costs and turbulence, adapting to the cloud looks like a no-brainer for any software company that believes on-premises is old hat. "I'm increasingly seeing customers opting for a cloud solution," said Giere. "If you're in the cloud, doing the SaaS model, eventually one day you have to – by definition – be a cloud platform software company." The journey there is perhaps the biggest point of contention.

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— Iain Morris, International Editor, Light Reading

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