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Hyperscalers begin to shift capex from central cloud build-outs to edge cloud build-outs

Hyperscalers’ focus is on creating value from distributed computing

Hyperscalers are at the cusp of scaling out their edge computing deployments as they focus on creating value from distributed computing, which is a key foundational aspect of their digital ecosystem initiatives. They must pivot from centralized data center build-outs to building out the edge to achieve the latency and quality of service that new network use cases will require.

TBR believes the world’s largest hyperscalers are all likely to extend their cloud footprints closer to endpoints through this decade and expects hyperscaler capex will shift significantly from central cloud to edge cloud over the next five years. The Big Nine hyperscalers will drive significant innovation in the edge space, contributing design references, technology standards, and best practices to facilitate ecosystem development.

Hyperscalers have been experimenting with ways to make it more economically feasible to deploy distributed edge network resources at scale. The commercial model will likely see hyperscalers partner with ecosystem stakeholders, such as tower companies and data center real estate investment trusts, to offset the financial burden of deploying, owning and operating edge compute environments. For example, a hyperscaler could partner with tower companies to site micro data centers at the base of cell sites and plug directly into the access and backhaul network.

Models such as this would help defray the cost and complexity of building and managing many sites. TBR also believes telco sites, such as central offices and aggregation hubs, are logical locations for edge compute resources. These facilities are usually strategically located, are owned and controlled by the operator, have access to power and cooling, have fiber readily available, offer secure access, and are ruggedized to withstand the elements.

Total CSP Edge Compute Spend 2020-2025E

Telcos are divesting their tower assets, which limits their opportunities and market leverage in the edge compute space; supply issues delay rollouts

Telcos relinquishing control over network sites opens door for hyperscalers

Hyperscalers are likely to continue their encroachment of network ownership as they build out their distributed computing platforms. Network access sites, particularly cell sites such as towers, are of unique strategic importance as hyperscalers aim to extend their platforms closer to data origination sources. The ultimate shift toward open virtual RAN and the radio intelligent controller will also spur significant innovation at the access layer of the network, which will prove to be an area of keen interest to hyperscalers that are looking at how to capitalize on new opportunities presented by edge computing, 5G and AI.

TBR believes it is highly likely that hyperscalers will become key customers of shared infrastructure owners, particularly towercos, during this decade as their reach extends beyond their central clouds.

Supply chain constraints will delay peak telecom edge compute spend growth rate to at least 2023

Delays in chipset availability — partly due to the COVID-19 pandemic and partly due to geopolitical factors and technological complexity — will slow the pace at which the vendor ecosystem can meet customer demand for edge compute infrastructure through at least 1H22. Supply chains should be able to meet demand by 2H22, setting the stage for projected 66.7% year-to-year growth in the market in 2023.

Shipping constraints are another headwind to meeting demand. Even if products can be manufactured, there are chronic problems with exporting and importing those products and bringing them to customer sites. This too will push out build timelines.

TBR’s Telecom Edge Compute Market Forecast, which is global in scope, details edge compute spending trends among communication service providers, which include telecom operators, cable operators and hyperscalers. This research includes current-year market sizing and a five-year forecast by multiple edge compute market segments and geographies. TBR’s Telecom Edge Compute Market Landscape, also global in scope, deep dives into the edge compute-related initiatives of stakeholders in the telecom market, including telecom operators, cable operators, hyperscalers and vendors that supply the telecom market.

Webscales will capture the majority of economic value of telecom edge compute market

Webscales have various initiatives underway that will disrupt aspects of telcos’ business model, posing a direct threat to their connectivity businesses and ability to capitalize on new value created from 5G and edge computing. Webscales’ rapidly expanding presence in the edge compute space and keen focus on private cellular networks — particularly in the U.S. — are prime examples of this trend.

Though webscales are posturing like they want to partner with telcos on new opportunities, edge compute partnerships involving a webscale and telco to date are more exploitative than cooperative in nature. Arguably, the highest profile agreement to date is between Amazon Web Services (AWS) (Nasdaq: AMZN) and Verizon (NYSE: VZ), and while Verizon has touted the monetization opportunities, it is providing little more than site access and network connectivity, while AWS’ intelligent edge capabilities provide the bulk of the customer value. In this relationship, AWS doles out a cut of the revenue to Verizon while holding on to the customer relationship and most of the value that emanates from the use of its platform.

The end state of this competitive dynamic will see telcos capturing even less value as they increasingly offload towers and other sites to towercos and data center real estate investment trusts (REITs), and as webscales own greater portions of the network.

Webscales and data center players invest in India to capitalize on the nascent digitalization opportunity

India has become the epicenter of webscales’ focus and investment among emerging markets due to the country’s large population and growth prospects. Alphabet (Nasdaq: GOOGL), Amazon, Microsoft (Nasdaq: MSFT) and Facebook (Nasdaq: FB) are all investing billions of dollars in equity stakes, infrastructure build-out, applications and platforms customized to meet the needs of the Indian market, and setting up business model structures. Reliance Jio, Bharti Airtel and Vodafone Idea are partnering with these webscales on various projects to realize this digitalization opportunity in India.

TBR’s Telecom Edge Compute Market Landscape, which is global in scope, deep dives into the edge compute-related initiatives of stakeholders in the telecom market, including telecom operators, cable operators, webscales and vendors that supply the telecom market. The research includes key findings, market size, regional summary, technology trends, use cases, operator and vendor positioning and strategies, and acquisition and alliance strategies and opportunities.

Nascent trends in edge compute market should worry telcos as webscales disrupt incumbents’ business models

Key insights

Webscales will leverage their own infrastructure, platforms and ecosystems to disrupt vendors and relegate incumbent operators to providing site access and backhaul services.

Though webscales are posturing like they want to partner with telcos on new opportunities, edge compute partnerships between webscales and telcos to date are more exploitative than cooperative in nature.

The end state of this competitive dynamic will see telcos capturing even less value as they increasingly offload towers and other sites to towercos and data center REITs, and as webscales gain ownership of greater portions of the network.

TBR’s Telecom Edge Compute Market Landscape, which is global in scope, deep dives into the edge compute-related initiatives of stakeholders in the telecom market, including telecom operators, cable operators, webscales and vendors that supply the telecom market. The research includes key findings, market size, regional summary, technology trends, use cases, operator and vendor positioning and strategies, and acquisition and alliance strategies and opportunities.

Aligning assets with partners’ complementary solutions: 2019 strategy may be critical for Wipro in 2020

As we look at significant changes coming to the IT services landscape and focus on agile shifts toward a post-COVID-19 world, strategies launched in the last 12 months may prove to be critical for some vendors’ long-term success. Understanding Wipro’s February 2019 moves can point to how the company might perform throughout 2020. 

Wipro has significantly expanded its addressable market via alliances and has the opportunity to generate cross-selling momentum for strategic portfolio areas. Given Wipro’s lack of digital scale compared to peers, aligning its assets with partners’ complementary solutions will allow the company to build use cases that aid in direct-sales efforts, provided near-term initiatives focus on appealing to demand for Wipro’s emerging portfolio of value-add digital solutions and services, thereby expanding its wallet share in partner-led engagements.

Just over one year ago, Wipro expanded its alliance with Oracle by launching the QuMic platform, which accelerates integration of Oracle Cloud for clients, supporting migration of clients’ assets while also improving their ability to leverage digital tools and assets. To further strengthen its arsenal/portfolio/set of these digital-oriented solutions and platforms for clients, Wipro and Oracle deepened the partnership in November with the subsequent launch of the RAPIDS Digital Experience Platform (DXP), which caters to the evolving needs of telcos and communication service providers (CSPs). RAPIDS DXP combines Wipro’s existing DXP with Oracle’s Digital Experience for Communications solution to offer a multifaceted platform that provides CSPs with reference solutions to deploy use cases covering next-generation services like 5G, SD-WAN and IoT. Further, RAPIDS DXP offers an integrated digital experience omnichannel solution, allowing telcos to better engage with customers throughout their life cycles, from customer onboarding to customer billing. While the solution still leverages partner technologies, limiting Wipro’s share of the customer’s wallet, TBR believed this approach was a step in the right direction, with the potential for Wipro to increase the applicability of its to new entities — in this case, telcos — undergoing digital transformation initiatives. Further, an updated alliance with Oracle will also provide case studies for Wipro’s sales teams to aid in direct-sales efforts of Wipro emerging solutions, like DXP, which will be critical to the company’s ability to reduce its reliance on partner-led engagements and increase awareness of the company’s offerings among prospective customers seeking digital solutions and services.

One year on, TBR maintains its assessment that Wipro has taken the right strategic approach, even as we continue to look for definitive signs this strategy has begun paying off. In the post-COVID-19 environment, partnering will be even more critical and Wipro may have established an important foundation in February 2019 that will prove beneficial in the latter half of 2020. 

CSP spend on edge compute infrastructure will grow at a TBR-projected 54.5% CAGR from 2019 to 2024 to $90B by 2025

Drivers and investments

The primary driver of edge build-outs during the forecast period is telcos’ and cablecos’ network transformations, which entail migrating to a cloudified and virtualized network, and wescales’ edge initiatives to support their cloud businesses and digital lifestyle endeavors.

CSPs will ultimately migrate to a vRAN architecture, which is a key aspect of the new networks they are evolving toward. The vRAN market will ramp up in the early 2020s as leading operators push the industry forward.

Telcos will spend the most, collectively, on edge infrastructure each year through 2022, at which time there will be an inflection point in 2023 whereby webscales become the largest investors in edge infrastructure starting in 2024.

CSP spend on edge compute infrastructure 2019 to 2024

For additional information, read our recent special report on edge compute and contact an account executive about TBR’s Telecom Edge Compute Market Forecast.

Edge computing is a cross-industry revolution that will reshape every industry

The edge computing market spans a spectrum of use cases that meet various customer needs, including sensitivity for latency and analytics. According to TBR’s 1Q20 Enterprise Edge Compute Market Landscape, while the edge is not new, its use for low-latency-dependent applications and close-to-the-data computing has increased and will continue to do so to support connected devices, emerging workloads such as IoT, and faster time-to-insight. For example, in-store robots can interact with customers to create a customized shopping experience on the floor and use data around purchases to help restock inventory.

TBR predicts a rapid increase in enterprise edge spend through 2024. The dynamics within the webscale space   include a desire by managed service providers to run their offerings on bare metal hardware and ODMs with the ability to provide this bare metal hardware at lower price points than OEM peers. These dynamics will be a key driver behind the upswing in enterprise edge revenue through 2024 as webscales capture opportunities typically fulfilled by OEMs.

Nearly all webscales and some telcos utilize ODM hardware, and most enterprises are expected to use OEM gear for their edge environments

ODMs have perhaps the largest opportunity at the enterprise edge. White-box hardware is of rising interest to major service providers, and the low-margin, high-volume play that ODMs embrace is an excellent fit for the enterprise edge market.

ICT hardware continuum graphic

TBR’s Enterprise Edge Compute Market Landscape, which is global in scope, details edge compute trends among vendors and their customers. Vendor coverage includes Amazon Web Services, Atos, Cisco, Dell Technologies, Digital Realty, Equinix, Hewlett Packard Enterprise, Huawei, IBM, Lenovo and Microsoft. This research includes current-year market sizing and a five-year forecast. Interested in hearing more of TBR’s analysis on the emerging and rapidly evolving opportunity in the enterprise edge market? Check out the replay of our recent webinar, The emerging and evolving landscape of enterprise edge computing.