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.
Its biggest customer is information services company Thomson Reuters, but it also has landed marquee brands such as greeting card maker Hallmark and the Web page operations of Coca-Cola and Pepsi. The Star Tribune is indirectly a Savvis customer: Its publishing system is run by a cloud computing firm called Saxotech, whose software resides in Savvis data centers.
Rick Peterson, president of Minneapolis-based Envision Digital, said working with Savvis allows him to focus on running his business instead of managing a data center. His company provides electronic file-moving services to big advertisers, such as advertising agency J. Walter Thompson and retailer J.C. Penney. The files, which may be TV advertisements, are typically huge. But Peterson’s four-employee company has no computers to handle the task; it relies entirely on Savvis data centers.
“I have no interest in owning computer infrastructure,” Peterson said. “You have to update it so frequently that, to me, cloud computing is the only answer. We pay a flat monthly fee for moving a certain amount of data; if we use more than that, we pay some modest overage fees. The global footprint of Savvis data centers is also important, because a lot of our clients do business around the world.”
Savvis takes some pains to say that it doesn’t directly compete with Amazon.
“We are a data service provider, and Amazon Web Services is a computer server provider,” Klingbeil said. “We do a lot more for the customers.”
For example, Savvis manages and distributes cable TV programs around the world for Discovery Communications. In the U.S., where federal rules govern the security of medical records right down to requiring their whereabouts to be known at all times, Savvis guarantees which servers in which data center will hold the information. In France, Savvis complies with rules requiring that French data be stored in-country.
Savvis is considering opening a full-size data center in the Twin Cities, a market that Klingbeil considers underserved. In addition, the Midwest, which is mostly immune to natural disasters such as earthquakes and tidal waves, is considered an appealing location for East and West Coast firms that want to back up their data in a distant safe location. Savvis currently uses part of a CenturyLink data center in Bloomington.
While Savvis is only part of CenturyLink’s diversification in the face of a declining telephone business, it’s an important part.
“We see significant opportunity in cloud services,” Ring said. “We think it will be one of our key growth engines in the future.”