Verizon To Buy Terremark In $1.4 Billion Cloud Computing Blockbuster

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Industry watchers said the acquisition raises some questions; first and foremost whether Verizon will continue to offer its CaaS service alongside Terremark's similar service. Or is the Terremark acquisition Verizon illustrating that its CaaS service wasn't performing as expected.

"Verizon Business was already offering public cloud services [CaaS]," said Paul Burns, president of Neovise, a cloud computing analyst firm. "It certainly makes me wonder if that was not doing so well. Not everyone that is offering cloud is getting great traction with customers and revenue growth. It's hard to imagine they would keep both services going long-term -- though they may claim that to keep customers from panicking on the news."

Burns said Verizon could have gone with a smaller cloud computing player for a lower price, but the $1.4 billion price tag is a sign Verizon wanted Terremark's customers, scale and revenue, which was $84.9 million on 2011's second fiscal quarter, an increase of 22 percent year over year.

Burns said there aren't a lot of publicly traded companies offering cloud computing IaaS currently. Verizon's acquisition of Terremark could prompt some privately funded cloud service providers to try and go public, especially as there are private players that have better financials that Terremark, he added.

Steve Hilton, principal analyst with Analysys Mason, said Verizon's Terremark acquisition is a sign that communications service providers see cloud computing as the next big bang and will be a key differentiator for them going forward.

"Communication service providers need help becoming broader technology providers," Hilton said. "Acquisitions like this deepen the expertise of Verizon by adding cloud services, hosting, collocation and data center services from Terremark."

Hilton added that Analysys Mason forecasts of cloud services found communication service providers offer only 9 percent of the global cloud services revenue to enterprises today, while service providers like Verizon will push that to 23 percent come 2015. Acquisitions are a key tool to fuel that growth, Hilton said.

Hilton and Burns agreed that Verizon also benefits from a stronger foothold in areas outside of the U.S., areas Verizon has had trouble penetrating. Terremark's presence in Europe and Latin America will give Verizon a boost.

"However, Verizon is going to have to allow the Terremark team to continue to shine," Hilton said. "If the Terremark assets and teams are swallowed into the corporate morass of legacy Verizon, surely this will be another example of a squandered acquisition opportunity."


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