Can worldwide data services save telephone firms like CenturyLink?
CenturyLink executives Tom Van Sickle, left, and Duane Ring stood amid the computer networking equipment at the CenturyLink facility in Minneapolis. The company is betting that more and more big companies will want cloud-computing services instead of expensive on-site computer rooms.
These are not good times to be a traditional telephone company. But at CenturyLink, the largest phone company in Minnesota, a metamorphosis is underway.
Corporate data services are on the rise at CenturyLink as consumers drop their land lines in favor of cellphones.
Much of the focus is on Savvis, a St. Louis company that CenturyLink bought in 2011. Savvis aims to be a major player in the $110.3 billion market for “public cloud computing,” in which corporate customers share rented computers and software in remote data centers.
“It’s a natural evolution,” said Duane Ring Jr., president of Louisiana-based CenturyLink’s Midwest region.
“Ten years ago we were the phone company. Now we’re a network and broadband company, and the phone is just a product we sell.”
The business proposition of 18-year-old Savvis is this: Customers can avoid the expense of running their own computer operations, and instead rent the same computing capacity in one of 54 Savvis data centers worldwide. Savvis mostly serves financial companies, consumer brand firms and media companies.
“If you’re a corporation and you run out of disk storage space, your choice is to buy a $3 million storage array and hire people to run it, or to use a Savvis data center and buy storage in increments as you need it,” said Brian Klingbeil, chief operating officer of Savvis.
There are other benefits as well — namely, speed.
Savvis’ New Jersey data center facilitates stock trading by bringing in live transaction connections from the major stock exchanges. Traders using the data center can make stock transactions thousandths of a second faster than they could via ordinary computer connections.
“Those milliseconds determine if people make some money, make a lot of money, or lose money or lose a lot of money,” said Tom Van Sickle, Savvis vice president of industry marketing in Bloomington. “Our whole idea is to accelerate business by leveraging IT infrastructure.”
The broader strategy is to combine the Savvis data centers (41 in the U.S. and the rest in Asia, Europe and Canada) with CenturyLink’s extensive telephone network. As a result, the Savvis cloud services, which are aimed at midsize firms to Fortune 500 companies, can be whisked back and forth over CenturyLink’s 300,000-mile fiber optic network.
“We’re one provider that can do it all for you, because we control the whole thing” Klingbeil said.
But to succeed in the cloud, Savvis must prevail against much larger competitors such as Amazon, which uses its deep pockets to offer customers low prices for basic cloud services. The smaller Savvis hopes to compete by offering a wider array of data services.
In addition, Savvis must cope with a slowing market. One of Savvis’ closest competitors, publicly owned Rackspace Hosting of San Antonio, Texas, recently reported its fifth consecutive quarter of slowing revenue growth. The growth rate of “public cloud computing” is expected to drop from 20.8 percent in 2011 to 15.8 percent by 2016, according to Gartner, a Connecticut research firm. This year’s market growth rate is projected to be 18.5 percent, about the same as in 2012.
Donna Jaegers, an analyst at D.A. Davidson & Co. in Great Falls, Mont., attributes the slowed growth to a weak economy, the data security concerns of some customers and competition from Amazon. As the largest provider of corporate cloud services, Amazon tends to drive down the price of cloud data services for everyone else. Despite that, Jaegers isn’t pessimistic.
“Cloud computing is still one of the fastest-growing areas of the U.S. economy,” she said.
That’s important to Savvis, because it needs to succeed quickly to help CenturyLink blunt revenue losses of $25 million per quarter as consumers give up their land lines.
To do that, Savvis is aiming for the high end of the cloud service market, and says its clients include 80 of the Fortune 500, and 31 of the Fortune 100 companies.