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Speaker’s Corner: Software giants are eating telco

Mobile News
December 4, 2020

What does today’s new breed of network operators mean for connectivity? By ThousandEyes product marketing senior director Ian Waters

Google recently announced the Grace Hopper cable, one of the first subsea fibre cables connecting the US and the UK since 2003. Named after the great computer pioneer, the cable is one of sixteen owned or part-owned by the software giant.

But Google isn’t the first in big tech to start building its own network and Internet infrastructure. The past decade is littered with examples of software providers taking on the role of the network provider, and these companies are now part and parcel of today’s network infrastructure dynamic.

While Google is one of the few providers to go it alone, consortiums made up of software companies or partnering with telcos are now commonplace in today’s network infrastructure market.

The Jupiter cable for example, owned by AWS and Softbank, will connect the US and Asia this year, while Facebook, Vodafone and China Mobile’s 2Africa subsea cable will interconnect 23 countries in EMEA by 2024.

While the strategic value for software companies remains in the software, especially given the ever-increasing criticality of cloud-based subscription services, it’s an interesting evolution that these organisations are effectively becoming the telco providers that they’ve displaced.

No longer are they disruptors but well on their way to becoming industry incumbents. So, why is software eating telco? What advantages does investing in and developing bring for these providers? And what does the future look like as a result of this role change?

Connectivity is king

According to Google, 98 per cent of international Internet traffic is ferried around the world by subsea cables. The simple reason why software giants are trying to exert more control over infrastructure that impacts cloud and Internet traffic is the sheer importance of connectivity.

Today, especially in light of a global pandemic, the way we work, learn, play and connect are becoming increasingly digital. Over national lockdowns, video conferencing services saw unprecedented demand. Webex, in particular, registered a record 324 million users in March.  As such, reliable connectivity is more important than ever before. Without it, consumer connections all the way to global economies would grind to a halt.

What’s more, as new technologies like IoT, VR and artificial intelligence enter both the business and consumer world, this need for connectivity is growing even more and with it comes demand for increased capacity on the networks that will power them.

Software providers, who are serving millions of consumers and are also offering these next-generation technologies in their own product suites, have come to recognise this importance. As such, investment into building infrastructure has become a major priority to meet current and, even more so, future-bandwidth requirements.

Meeting demand

A further reason is in relation to the enterprise customers that these software providers serve. The majority of businesses who are trying to get ahead of competition understand that good user experience is heavily linked to customer satisfaction and employee productivity.

To nail the digital experience, enterprises today require visibility where previously there was none, into the entire connected experience across networks within and without their own perimeter.

This, coupled with growing awareness of cloud and internet provider performance, is creating new demands on big tech companies who are increasingly becoming providers to deliver uninterrupted online experiences.

With demand from enterprise customers to provide a high-quality service comes a need for control and visibility over the networks that underpin their enterprise products and services.

The likes of Google and Microsoft have already taken action to implement such measures: Google with its subsea cable investments, and Microsoft building out its edge to get closer to its end-user and reduce the number of ISPs traffic is flowing through before hitting its backbone.

By removing potentially weak links in the infrastructure chain, companies can monitor enterprise user experience far more closely. This transition was already underway before 2020, but the impact of the Covid-19 pandemic has further emphasised the need for these providers to understand baseline performance and have an end-to-end view.

The appeal of diversifying services

Finally, many software providers are also entering new markets and diversifying their own services which is another reason for entering the infrastructure market. By doing so, they can broaden their customer reach even further, which is good news for their bottom lines.

For example, Microsoft has solidified its involvement in unified communications with its cloud-based Microsoft Teams solution, which reached 44 million daily users in March this year.

Meanwhile, Amazon has built out its retail services ecosystem, now offering cloud-based contact centres as well as offering AWS Direct Connect, a paid service allowing enterprises to access the AWS backbone quicker with the promise of better performance.

The future is software 

Looking ahead, we certainly can expect software providers to continue to build out their infrastructure. The need for them to ensure a good user experience is hugely significant and will continue to be so.

As user demands inevitably increase, the pressure this puts on software providers could be huge – especially as they position themselves as worthy network providers.

What sets these providers apart is their unique cash flow from applications they own and their ability to monetise their services, enabling them to invest in infrastructure quite aggressively.

Software companies are already making big strides in their commitment to monetising connectivity, as seen by the chargeable AWS Direct Connect, and it’s likely only a matter of time until software providers as the new network operator will be considered the most natural thing in the world.

Ian Waters is senior director of EMEA marketing at ThousandEyes, a network intelligence firm with offices in the UK, USA, and Japan. It produces software that analyses local and wide area networks.

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