Enterprise connectivity plays a critical role in hyperscaler public cloud strategy. It enables the high speed and reliable connectivity required to support cloud-based workloads. In an increasingly concentrated public cloud market, hyperscalers must double down on enterprise connectivity, especially in the middle mile (transport network), to drive differentiation. But where should hyperscalers focus their time and effort?
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Why Is Enterprise Connectivity Important for Cloud Giants?
Among the big three U.S.-based hyperscalers, cloud compute services (i.e., AWS, Azure, GCP) account for around 10% of their total global revenue, with these players making up around 60% of the total cloud market. However, this market is becoming increasingly competitive—public cloud players from the Asia-Pacific (e.g., Huawei Cloud, Alibaba Cloud) and the western United States (Oracle and IBM Cloud) are looking to erode these positions with highly differentiated services. For example, Oracle is looking to position itself as a truly multicloud player—a hugely valuable proposition for enterprises looking to de-risk public cloud deployment. With the entrance of these competitors, it is crucial that each player looks to enhance its own proposition by improving performance, reliability, scalability, and cost efficiency. This is where enterprise connectivity comes in.
Enterprise connectivity provides high speed and reliable connectivity between enterprise endpoints and cloud-based digital services. Without an effective service, enterprises will struggle to maximize the operational value of cloud resources. In addition, enterprise connectivity is an essential enabler of hybrid cloud architecture that allows workloads to run on-premises and in the cloud. For these reasons, enterprise connectivity services core-value drivers within the public cloud, and improvements in this area will give hyperscalers an edge in this increasingly competitive market.
Hyperscalers have pursued strategies aimed at improving enterprise connectivity. Most recently, AWS has expanded its partnership with Megaport. An interconnection provider with a network-as-a-service platform, Megaport now supports connectivity between AWS Outpost Racks—a fully managed infrastructure service that brings cloud resources closer to the end user in on-premises or colocation data centers—and AWS Direct Connect Services across Megaport’s Outposts Ready Direct Connect solution. By expanding this partnership, AWS can maximize the performance and reliability of their compute services while also simplifying deployment and management for enterprises. ABI Research expects this move to resonate strongly with enterprises as it enhances performance and removes operational barriers to deployment, leading to significant AWS Outpost adoption.
Hyperscalers Must Extend Their Relationship with Interconnection Providers
Hyperscalers are not networking experts and should not try doing it themselves. Expanding their relationship with interconnection provider partners will enable them to double down on their global presence, customer relationships, and networking expertise. Below, ABI Research highlights some of the key areas that hyperscalers can employ to expand their relationship with interconnection partners.
- Beyond the data center and centralized cloud: Hyperscalers are moving toward a more distributed architecture with edge services. Like AWS and Megaport, hyperscalers should leverage interconnection partners to drive enterprise deployment while leveraging their global infrastructure to support deployment of localized edge servers.
- Software-Defined Wide Area Network (SD-WAN) service integration: Crucial to cost and performance optimization, SD-WAN is becoming table stakes for enterprises. Hyperscalers should look to integrate with interconnection providers’ SD-WAN services, such as Megaport Virtual Edge. Integration will lower management challenges for enterprises as it will eliminate the gap between digital resources and enterprise network services.
- Point of Presence (POP) to cloud application security: Integrating networking and cloud resources within one security framework will not only soothe management security concerns but also improve performance. Hyperscalers and interconnection providers should look to integrate resources from PoP to cloud under the same security architecture.
- Control platform integration: Managing networking and cloud application resources is complex and often siloed, bringing not only management challenges but also unnecessary costs. Aligning and even integrating management platforms would improve enterprise visibility and help lower operational overheads. In addition, these may soothe capacity challenges between middle and last mile connections by letting these platforms work together.
- Strategic alignment: Beyond technology, hyperscalers and interconnection providers should align on various other strategic matters—for example, geographic presence, investment strategy, and fiber network underlay. This will help both hyperscalers and interconnection providers to respond more effectively to changing customer demand patterns. For example, if AWS is seeing growing support for certain services in Latin America, it should coordinate with its regional channel partners to ensure that infrastructure can be deployed.
Interconnection providers offer the perfect channel partner from technical, business, and operational perspectives, but hyperscaler relationships remain at the surface level. Driving hyperscaler cloud differentiation through enterprise connectivity requires a deeper relationship that aligns more closely in each of these areas.
But Hyperscalers Will Require More than Deeper Cooperation with Interconnection Providers
Enterprise connectivity is essential to hyperscalers that are looking to develop or retain their position within an increasingly saturated public cloud market. But deeper partnerships with interconnection providers will not be sufficient. Below, ABI Research explores other areas that hyperscalers should support to help enhance and differentiate their enterprise connectivity service.
- Invest in connectivity infrastructure ecosystem: Channel partners are just one part of the story. Improving performance requires hyperscalers to accelerate their rollout of digital infrastructure. This means committing significant investment in expanding their global network footprint through POPs, content delivery network nodes, and the fiber network backbone. This infrastructure is important as the capacity and proximity of last-mile connection between cloud on-ramps and application services is a huge determinant of performance and reliability.
- Service innovation: Driving a hyperscaler’s value proposition relies on aligning with enterprise value drivers. ABI Research believes that the following are some of the key areas of innovation that can enhance enterprise connectivity value proposition: (1) automation to drive networking performance and lower operational challenges, (2) multi-/hybrid-cloud support to enable burgeoning strategic shifts that look to de-risk and optimize cost/performance of cloud computing deployment, and (3) security and redundancy to reduce enterprise risk perception and drive migration from traditional multiprotocol label switching network connectivity.
- Customer focus: Enterprise connectivity is not about deploying a direct connect solution and then moving on. Hyperscalers must form effective relationships and/or partnerships with their enterprises. This will ensure that their networking services can grow in-line with customer demand and will help support customer retention.
- Diversify channel partnerships through Communication Service Providers (CSPs): CSPs are another option for hyperscaler enterprise connectivity. Their ownership of a network’s first mile is a key differential to interconnection providers. For example, Verizon and BT (among others) have deployed enterprise connectivity services with hyperscalers. However, unlike interconnection providers, CSPs are regionally constrained by their expensive network infrastructure. Having said this, hyperscalers should look to leverage a range of CSP partners to establish effective, premium regional connectivity from enterprise endpoint to cloud on-ramp.
Currently, hyperscalers are looking at enterprise connectivity as a necessity but are doing little to innovate or invest in it. Hyperscalers must adopt a new mind-set that looks at enterprise connectivity as an opportunity to differentiate their services from competitors to help support their ecosystem value proposition and drive customer growth/retention.