Verizon To Buy Terremark In $1.4 Billion Cloud Computing Blockbuster

Verizon Communications took its cloud computing momentum one step further on Thursday, agreeing to acquire cloud computing Infrastructure-as-a-Service provider Terremark Worldwide for a whopping $1.4 billion.

Under the terms of the deal, Miami-based Terremark will operate as a wholly owned subsidiary of New York-based Verizon and keep the Terremark name, Verizon said. Terremark's management team will remain in place.

Scooping up Terremark fits squarely in Verizon's much-touted "everything-as-a-service" cloud computing strategy where the service provider seeks to offer a full portfolio of on-demand cloud computing services to businesses and governments through a unified IT platform.

"Cloud computing continues to fundamentally alter the way enterprises procure, deploy and manage IT resources, and this combination helps create a tipping point for 'everything-as-a-service,'" Lowell McAdam, president and chief operating officer of Verizon, said in a statement. "Our collective vision will foster innovation, enhance business processes and dynamically deliver business intelligence and collaboration services to anyone, anywhere and on any device."

Manuel D. Medina, chairman and CEO of Terremark, added: "This agreement represents an exciting opportunity to accelerate our strategy and serve our enterprise and government customers with even greater innovation on a global scale with Verizon's resources and extensive reach. We will continue to work with leading hardware, software, systems integrator and carrier partners to build on our unique business model."

Terremark has been one of the best performing cloud computing provider stocks recently with investors driving its value up by a whopping 129 percent from Nov. 27, 2009 to Jan. 19, 2011. The company boasts 13 data centers in the U.S., Europe and Latin America to offer cloud computing, hybrid cloud, collocation, disaster recovery, data storage and managed hosting services. Terremark's Enterprise Cloud platform offers on-demand access to secure computing resources.

Terremark's data centers will be added to the more than 220 data centers Verizon operates across 23 countries. Over the past year, Verizon has hammered home its "everything-as-a-service" vision, launching a host of cloud computing services including its Computing-as-a-Service (CaaS), a cloud storage service, cloud security services and an SMB version of CaaS.

In a recent interview with CRN, Verizon Business' manager of cloud services, Patrick Verhoeven, said Verizon has "doubled down on the cloud" and will continue to do so in 2011.

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Industry watchers said the acquisition raises some questions; first and foremost whether Verizon will continue to offer its CaaS service alongside Terremark's similar service. Or is the Terremark acquisition Verizon illustrating that its CaaS service wasn't performing as expected.

"Verizon Business was already offering public cloud services [CaaS]," said Paul Burns, president of Neovise, a cloud computing analyst firm. "It certainly makes me wonder if that was not doing so well. Not everyone that is offering cloud is getting great traction with customers and revenue growth. It's hard to imagine they would keep both services going long-term -- though they may claim that to keep customers from panicking on the news."

Burns said Verizon could have gone with a smaller cloud computing player for a lower price, but the $1.4 billion price tag is a sign Verizon wanted Terremark's customers, scale and revenue, which was $84.9 million on 2011's second fiscal quarter, an increase of 22 percent year over year.

Burns said there aren't a lot of publicly traded companies offering cloud computing IaaS currently. Verizon's acquisition of Terremark could prompt some privately funded cloud service providers to try and go public, especially as there are private players that have better financials that Terremark, he added.

Steve Hilton, principal analyst with Analysys Mason, said Verizon's Terremark acquisition is a sign that communications service providers see cloud computing as the next big bang and will be a key differentiator for them going forward.

"Communication service providers need help becoming broader technology providers," Hilton said. "Acquisitions like this deepen the expertise of Verizon by adding cloud services, hosting, collocation and data center services from Terremark."

Hilton added that Analysys Mason forecasts of cloud services found communication service providers offer only 9 percent of the global cloud services revenue to enterprises today, while service providers like Verizon will push that to 23 percent come 2015. Acquisitions are a key tool to fuel that growth, Hilton said.

Hilton and Burns agreed that Verizon also benefits from a stronger foothold in areas outside of the U.S., areas Verizon has had trouble penetrating. Terremark's presence in Europe and Latin America will give Verizon a boost.

"However, Verizon is going to have to allow the Terremark team to continue to shine," Hilton said. "If the Terremark assets and teams are swallowed into the corporate morass of legacy Verizon, surely this will be another example of a squandered acquisition opportunity."