Webscale capex growth will decelerate, though dollar volume will continue to climb, as data center builds slow

According to Technology Business Research, Inc.’s (TBR) 1Q19 Webscale ICT Market Landscape, webscale ICT capex for the Super 7 will grow at an 8.1% CAGR to nearly $58 billion in 2023. Most U.S.- and China-based webscales began pulling forward significant investment in data center and network capacity in 2018, which will lead to moderating — or even declining — capex levels for some U.S.-based players beginning in 2020. China-based webscales will continue to ramp ICT capex through the forecast period, however, to catch up to Western rivals in key areas, particularly public cloud.

The entrance of Rakuten, a Japan-based e-commerce company, to the mobile industry could be a game changer and provides a glimpse into what a digital service provider will look like. Rakuten’s mobile network will blanket Japan with LTE coverage by year-end. Not only will Rakuten’s network be agile, flexible and dynamic to provide digital services, it will also enable a dramatic reduction in the cost of connectivity. Rakuten’s ultimate intention is to be more than just another mobile network operator in the highly competitive Japan market; it aims to provide a foundational connectivity platform from which to sell a host of digital services. Rakuten’s acknowledgment that it needs its own network could lead to other webscales trying to take a more active ownership and control stance toward having a connectivity platform from which they can leverage their digital businesses. Alphabet, Facebook and Amazon, among other webscales, have all experimented with how to address last-mile connectivity, not only to bridge the digital divide but also to serve as a conduit to give them more control over their destinies without relying on communication service providers (CSPs) to provide the connectivity layer.

The OEM landscape continues to see disruption due in part to the power webscales hold over their suppliers. The vast number of suppliers taking part in Rakuten’s network build demonstrates that webscales hold the power when soliciting vendors for connectivity initiatives. When engaging with webscales, which have few legacy encumbrances, incumbent OEMs are being relegated to commoditized hardware and services. Should the 5G era bring about this trend in the CSP customer segment, incumbents will see more widespread disruption. Vendors must be wary of the webscale procurement model taking hold with their traditional customers.