In the battle for the next generation of enterprise IT, John Stratton carries a lot of weapons. Stratton is president of Verizon Enterprise Solutions, the nearly $30 billion unit formed just over a year ago to deliver networking, cloud, mobility, managed security, telematics and a host of other services in a more coordinated fashion for Verizon's top enterprise buyers. Building on a traditionally strong base of wired and wireless network services, Verizon Enterprise also blends in acquired assets like cloud hosting company Terremark, security company Cybertrust and Hughes Telematics. In this installment of the IDG Enterprise CEO Interview Series, Stratton spoke with Chief Content Officer John Gallant about Verizon Enterprise's progress since its inception, including a dramatic streamlining of internal systems and processes designed to make life much easier for the company's customers. Stratton also discussed the company's suite of services aimed at simplifying life for IT teams struggling with mobility and the influx of consumer devices, and he talked candidly about the prospects for a third mobile platform to rival Apple's iOS and Google's Android. He also talked about how cloud is reshaping the IT landscape and hinted at a series of major upcoming cloud announcements from Verizon Enterprise. Also, he explained how the "Internet of things" is creating powerful new business opportunities for Verizon and its enterprise customers.
This group was formed, as I understand, late in 2011?
We officially took the field on Jan. 1, 2012. We had a need to coalesce assets and take a more effective, integrated approach to the solutions that we were providing in the market, the interaction model with our clients, etc. We had done, over the course of six or seven years, a number of acquisitions that were principally designed to serve enterprise customers around the world and we needed to bring them together. Look at the genealogy here, starting with our first move, the acquisition of MCI back in 2006. That provided us this very expansive global IP backbone network. [Then we moved] on to Cybertrust Managed Security capabilities in 2007, and then further on with Terremark in 2011, then a company called CloudSwitch, then Hughes Telematics, as well as the organic investment in our 4G LTE wireless network. We took a very aggressive approach to driving forward that technology with the expectation that it would have significant implications for our U.S.-based customers. But we were a bit fragmented in the way we went to market. So bringing all of these things together for us was an important first step to enabling an integrated set of solutions.
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From a Verizon corporate structure, this is not a reporting unit with separate financials. How does it all come together, just so people understand?
It is not. Exactly right. We have not shifted the segment reporting. We've got some ownership structures that are sort of in play in there as well. So, for example, we manage the enterprise and government effort on behalf of Verizon Wireless, which is a joint venture between Verizon and Vodafone. In that regard, I feed a piece of the Verizon Wireless P&L. In terms of our wireline business, we had several years ago put all of the wireline assets together into a single segment and we have not chosen to peel that apart, at least at this point in time. So when we report publicly, we talk to the wireless and wireline segments. We will usually provide some commentary below the line.
So what can you tell me that gives the reader a sense of the size of your organization?
We've talked about this in a variety of different contexts. In terms of total revenue, it's just under a $30 billion concern inside what is a $110 billion Verizon overall. Our network is in 150-plus countries around the world, 2,700 cities. We have people on the ground in 82 of those countries, with obviously a significant concentration and focus here in North America, where all of our assets come together, including wireless. We're growing our businesses in EMEA, in Asia-Pacific and Latin America as well. Obviously, as we watch our clients' evolutions and we see where their business is bringing them, it's important for us to make sure that we are able to support their expansions. Initially our work in those places had been what we called "B end" support of our primary customers. But increasingly we've begun to do more what we call "A end" sourcing for companies that are based in Asia, based in Europe, less so in Latin America. ["A end" refers to the headquarters location of a multinational company. "B end" refers to areas with regional offices, large employee populations, retail outlets, etc.] We are just now beginning to pick up our investment levels down in Latin America. But we see again, of course, Brazil, Argentina, Peru, Colombia. There's a lot of interesting activity happening there as well.
Makes sense. I want to drill down into specific things like mobility and cloud and the Internet of things. But before we do that, at a high level what were the goals when this business coalesced, as you said, and what have you achieved over the past -- it's been a little over a year now?
Yes, sir. It's about five quarters. The first most important thing for us to do was to recognize that the value we must bring is by positioning our business in such a way that we leverage all of the assets. We have a very interesting collection of stuff. If we think about all of the trends that have emerged in enterprise and medium business, government, what we've been trying to do is amass a layer of assets that anticipate those points and positions for what is inevitably going to be a fairly significant disruption here. So to your question, the first job that we needed to do was to simplify, streamline and address the fundamental service delivery issues that we had as a business.
I'll describe it in a few ways. Each of these companies that we acquired themselves had been somewhat acquisitive, particularly MCI. And if you look at the spread of networks and systems and processes that underpinned them, and even the product portfolio that sort of grew almost sort of out of control, what was becoming a problem for us was a level of effectiveness in terms of our service delivery. The level of friction required to make a promise to a customer and then to deliver against it was very, very high. So we embarked on a massive program, looking at the entire lifecycle of the customer. Beginning with initial engagement through quoting and design and contracting and invoicing and service assurance and triage and lifecycle management, I'm talking about very fundamental things. But they were incredibly difficult to do. We had a business that was built in silos. If I was in order management, I did order management. I didn't look left, I didn't look right. We have really turned that on its head. We had 855 unique IT systems supporting our business. Prior to coming here, I was chief operating officer of Verizon Wireless and we had about 70 systems that ran a business that was roughly three times the size. So 855 is a lot. It's probably more than we need, you know? My very first hire in this job was my chief information officer [Ajay Waghray]. Fortunately, the guy that I put my arm around had been my CIO at Wireless and a very, very solid guy and so he came across. He has been working very aggressively to reduce the systems landscape. We took 160 systems out in 12 months' time. We took another 65 out in the first three months of this year.
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Your readers, particularly the CIOs, would be the first to say: "Whoa, OK, there's more to this than systems," and I would agree with that wholeheartedly. It's really the fundamental business-process reconstruction that has been the focus of our energy and attention, which allows us then to retire systems. We've built an entirely new operating environment to run the business. In roughly 11 months' time we were able to conceive and deliver a very strong operating platform that is providing stunning breakthroughs in efficiency and effectiveness, substantial increases in production, productivity, dramatic reductions in the service intervals, full-scale automation through process. At the end of the first quarter, we had about 30 clients we had put on this and we're seeing really, really good results. Now it's a matter of phase two, which is migration. I have many, many thousands of customers around the world. As I build out the operating environment to cover their suite of services, we move them on, we gain those operational benefits both inside our business and obviously and importantly for the customer, in terms of the service experience.
So that's been an important part. We're simultaneously working to streamline our product portfolio, and I say "streamline" very purposefully. There was a notion inside of our business that infinite variability was a positive trait. That the ability to listen to our customers' requirements and to sort them down to an infinite degree of variability was a positive attribute of our company. But the fact is we've recognized that while we can make an infinite number of promises, the ability for us to reliably deliver against those promises, the ability for us to build scalable, consistent, high-quality solutions that meet their requirements, is very, very important. It's a reorientation, if you will, of the organization around saying: "In this particular domain, for this particular business problem, which we have solved dozens of times for companies around the world, we bring a degree of credibility and expertise to this. Bring those solutions." We can do configurability, of course. We can flex according to a specific customer's condition, but the idea of starting with a blank sheet of paper every time gets you to a point where you end up having literally thousands and thousands of permutations which is just not supportable and defeats the value of scale.
Which accentuates the deliverability issues that you were talking about?
On that point, though, does that mean, say, actively trying to migrate people off of things like older frame relay-type services?
Yes. What are we porting forward into the future and what are we going to leave behind? You have to survey the landscape of our customers today, what do they buy from us? Should we just try to rewrite everything and import it into this [new] world? Well, no, we're bringing junk, and we're going to pollute the environment, and the value of our scale and repeatability and excellence in service delivery would be compromised by that approach. A very hard thing for our teams to do is to take this range of options, this range of variants, down from here to here. What would that look like? Example, how many standard versions of private IP do you need? How many speeds, keep it really simple, do you need here? And I said -- let's go for six, not knowing how many we had. We had 2,700.
And I'm pretty confident that there was somebody who might say: "None of those fit my requirements." You get the point. Now there is a balancing act here, because what I don't want to do is to fold it up to such a point where it's not effectively serving the customer's real needs. But this is where every product manager needed to look through their portfolio and say: "How do I centralize this in such a way that it delivers great value to the marketplace, but it allows me to build muscle? It allows me to streamline process, allows things to flow through so I can deliver them fast and service them reliably?"
And also drive cost-saving to the customer?
A hundred percent, sure. I'm glad you raised that point, because again, we have an ethic, and it's a cultural shift for my team. That notion of following the customer right down to the most infinite level of detail on this crazy level of variability, but at the end the customer is now required to add cost to their business. I've had these conversations with a number of our key clients where they say: "Your work in this area -- because I've taken them through it -- will save me on my SG&A line." Obviously, this is hugely important. Their needing to hire folks to support the services I'm providing them shouldn't be necessary. I will tell you that we know this is a journey. We know this is a multiyear endeavor, and our job is to stay with it. And so the assurance I give my team is that we will not stop, we will go until we're done. So we're making good progress.
The other [key goal] is the transition from a business that has been more transactional by definition. If we sell network services -- I don't believe these are commoditized services, but some on the buying end might say -- well, you know, that's a procurement issue. Maybe my CIO will look at it once in a while but OK.
Certainly one way it's easy to compare you versus another provider.
Precisely. You fall into a mode and you develop a certain set of capabilities, you have a certain engagement model. But when you step back and survey the assets, the cloud computing platform, all of the data center services, the managed security suite, the mobility solutions that we are continuing to augment, and then of course the IP connectivity around the world, there is more that we can bring to bear here. It was important for us to understand that the people that we put in front of the customer needed to be able to go deeper into the business. Increasingly, as we see democratization of IT, if we think about the involvement of business owners, line-of-business leaders driving, to a degree, technical direction, directly or indirectly, our ability to get in front of that, our ability to have a dialogue with the people who are making those decisions or dealing with those issues in the business and engage them, partner with them and bring them solutions, that's very, very important. Candidly, as I looked across our organization, we had some pretty significant deficits. So we have gone through a process of talent transformation which was very, very substantial in 2012. Literally 38% of the folks I have selling for me today weren't on the payroll a year ago. That's a very big change. And our sourcing model changed. Where do you find talent to engage with the client in the manner that we've just described? It's a different talent pool. It's a little less telecom-centric, still strong technology background, but an ability to interact from a business perspective becomes very important as well. So we looked at transformation, streamlining of the portfolio and the on-the-ground operational transformation as sort of our three most important endeavors here in 2012. Obviously the work continues.
Today the comparison that comes to mind for everyone is AT&T and Verizon. But whom do you want to be compared to? With the kinds of assets you're pulling together, with the direction that you're trying to lead the company in, what's a better comparison?
I think the fact is people will think of us first and foremost as a telecom provider and there's certainly nothing wrong with that. This is an important point. The IP networks are the critical enabler of all of the technologies that ride on them and that's not to be taken lightly. But that said, what's very encouraging for me is to look across our deal funnel and see the mix of solutions that are making their way into that and then compare who is the incumbent and who are the principal competitors. It's been fascinating for me to watch. It's one of my indicators of progress here to see that change. Early on it was in many cases what we call these global integration deals where I take over and manage someone's network. Maybe it's a flip from TDM to IP-based networks. You would see, of course, strong competitors such as AT&T and BT and maybe OBS [Orange Business Services] and others. Now, increasingly, I'm seeing IBM, I'm seeing HP, I'm seeing Dell SecureWorks, I'm seeing Accenture. I'm seeing a different grade of competitors, depending on the solution we're speaking of. How does a customer think about Verizon?
If you asked 100 CIOs at random: "What does Verizon represent?" We have much work to do there, because I think they would still answer the question with a very strong orientation toward network. I don't want to lose that. I tell our teams that we're not Accenture, we're not IBM. If you ask my chairman, in one sentence or in a string of words, what is the aspiration? We aspire to be a globally connected solutions provider. Those four words he's said over and over again. That's a different positioning than the company has had, because there's a bunch of words in there that sound different. What we do very well is we build infrastructure at scale. We really know how to do that. Sometimes I think even inside our business our teams, our individual employees, have incredible capabilities in that area which we almost take for granted. They're of high value. It's not just networks. I give you for an example competency in micro-billing. We generate unique and specific bills for about 130 million people every month. That's a really powerful capability, and can be leveraged in a number of ways beyond serving a bill to someone. Is that an API that I open to enable service delivery in a third-party data center? That's kind of interesting. Because that's a competency that we have that others may find of value. My job is to open up our infrastructure, build it up, moving our way up the stack. There are what we think of as adjacencies and near adjacencies and then as you go further away ...
As long as you don't go too far away.
Well, that's key. I don't think we'll go horizontally. I think that where we have to think very carefully is how we go vertically. I would suggest that we narrow as we reach the top of the pyramid because we are not, and don't aspire to be, a significant SaaS player. But that's not to say we won't deliver software solutions to the marketplace. But the key is: What is it about that solution that our assets allow us to do in a meaningful, differentiated and sustainable way? If it's something that's pure software, somebody who is faster, more agile and focused single-mindedly on that space can do better than we can. We should let them do it. We should bring them to market with us. We should find a way to partner with that company. If it's an area that we think can be significant and no one has focused on it yet and we see a near-term economic opportunity -- but more than anything else we're trying to start a market -- we can invest for that as well.
But go down the pyramid and think about the physical dimension of a cloud and data center, the [co-location] business. That's an important part of our Terremark business. I believe that if you look at our company in a couple years' time you'll see the strategic cloud computing services being much more important to us than simply the data center colo business, but they're both important, because these assets at scale matter. We almost use cloud as the first line to determine market viability, potentially before we build our own center. And then that drives the expansion plan, and then cybersecurity, of course, a very important practice for us. We think about mobility. But again, an infrastructure play there, a platform orientation where we invite significant third-party development. We become a route to market in many cases, or in other ways enabling independent market creation.
Let's drill into mobility. This is one where our readers are candidly struggling. They went from an environment where they dictated what everybody had and used to an environment where everyone's telling them what they're going to have and use. How are you trying to help them get ahead of that challenge?
It's a really interesting area, and I'm smiling a little bit because my orientation on this has changed about 180 degrees in the past 15 months.
You loved BYOD over there at Verizon Wireless.
When you look at our position inside enterprise accounts, we do really, really well. Our market share inside enterprise accounts for Verizon Wireless is significantly higher than our general market share. Corporate customers really value the proposition around quality and reliability and all that goes with that. You might consider that the move to bring-your-own-device would portend the risk that my share [in enterprise] would end up reflecting my general market share. My general market share is pretty good, but it's not as good as it was in corporate. So the first instinct is almost defensive, where you say: "That's a bad thing." You almost want to scare the heck out of your customers -- all the bad things could happen if this crazy set of barbarians is let loose on your business. We see it very, very differently now.
Look, the fact of the matter is the IT estate that's been established and built with all of its controls and all of its security and all of its capital constraints has been massively eclipsed by what consumers are using in their daily lives. Of course, this is what's powering and driving this whole phenomenon. Our job and one of our opportunities now is to help the enterprise manage that phenomenon. So we have a series of capabilities that we deliver, something called enterprise mobility as a service. Think of it as a secure container in which a business can place its mission-critical applications and in a secure way deliver them and then control them. You almost partition the device. We chased this a couple of different ways, and I will tell you, for a little while we were coming up with solutions to problems that had not yet been fully validated, like split billing. Ten years ago someone asked us for split billing, so we started digging in and, of course, billing is one of our competencies. That's not really the issue here. It's really about securing the applications, being able to manage what's there. The ability for someone to partition a device, the ability for someone to then manage in a secure way the delivery of those services, to secure and authenticate the user, which is just as important here. These are things that we are doing. Now I would tell you that our offerings are what I think of as first phase. We have to evolve that portfolio as the market continues to move on us here. But it will intersect with our identity and access management practices from a security perspective.
We think of this evolution to the cloud and the movement of data, which has really big ramifications across the whole of our discussion here. One of them is the BYOD notion. It's not just the data that's moved. The employee who is accessing the data has moved too. They've left the fortress. How do you feel about that? What do you do about it? It's one of the points of friction for enterprise workloads to move off of those. It's not the only one, of course, but it's one of them. Can I see my way to moving something, an appropriate candidate for movement? But I'm worried about the rings and I'm worried about, as I really go out there, am I going to be able to know and secure and validate? We think there's some convergence in terms of these product sets that will be pretty natural. But I've got to make sure it's fluid, the development follows those requirements pretty carefully.
Do you think it gets away from device management and more toward apps management?
I think it's both, and identity management, and they have to roll together. This is where we think about what is the secret sauce for Verizon. If I don't leverage the whole of my physical assets and competencies in the provisioning and delivery and development of these solutions, what am I doing? I'm going to be chasing the market instead of leading a market, shaping a market. So your observation is astute. It used to be device and it might be that I want to wipe it remotely. I want to reimage the device. That's a PC-centric mindset. That's someone who has managed laptops for a long time. Maybe they're not in the fortress but they're sort of. There's a little Stockholm syndrome there. They're just not leaving, you know? But now you talk about users who are moving from device to device to device. Penetration rates in the U.S. wireless market are exceeding 100% right now. We said three or four years ago we thought it was going to be 400%. My chairman yesterday said he thought it was going to be 800%. It's not necessarily that someone's going to walk around with eight different devices strung on their chest, but there will be many different ways that these connected machines will need to generate data and send it or access it. How do you know who it is that's at the other end of that? What are the applications that are critical? What are the degrees of criticality? We're building that actually into our cloud construct, and configurable capabilities in our next-generation cloud that will allow the application developer or the enterprise to turn some dials, from a security perspective, from a QoS perspective, in terms of latency sensitivity, session persistence. How do I provide those dials as opposed to just raw compute, raw storage? We think that's actually a really interesting area. Again, it goes back to that connecting the dots of our different assets here.
John, does that also include helping enterprises with either a Verizon-type app store or helping them build their own app stores or managed app stores?
Yeah. That's part of our enterprise mobility as a service, it's effectively an app store. I call it a partition, and I think of it as just, if I were the CIO, and this is my accountability. I've got to serve these applications, but I can't just let go. That's really risky. So what do I do? By the way, no one's waiting for you to figure it out. You've got to do it yesterday. We have the core construct of these private app stores for business which we elegantly call PASB. We have to hire some marketers. But this idea is what led to this micro-notion which is this partitioning concept. It's just the ability to scale it. So what do you need and how do you need it? And again, back to identity management. How do you think about different classes, a different community of users? How do you do control access down to an individual level? These are things that are very important. We know what it is or we believe we have a good idea of where the market requirements are going to take us. The services that we have now are a first-phase implementation against that. But I think you'll see directionally what we're about there. The thing that we're working on right now is with the cybersecurity guys, the folks who are doing the identity and access management work, let's draw a stronger connection here. By the way, to our folks who are working on next-generation cloud, don't forget about this specific business challenge that's associated with BYOD, and build things into your core construct that I think of as dials and levers that can be used by the applications developer to recognize it's not just the app, it's not just the device, it's not just the user. It's the app, the device and the user that creates the magic sort of solution.
I just want to make sure that I understand. Just real quickly, if you got in that classic elevator scenario with a CIO, in one sentence you'd say -- we can help you better with this mobility challenge because ...?
Because our deep knowledge of how mobile networks work and our deep experience in what are the most significant security risks for you as you liberate the data, and our ability to assist you as you evolve your compute platform, that combination of things is what best qualifies us to help you through this series of steps that you need to take.
Today it's largely an iOS and Android world. Do you expect a third or fourth strong platform to emerge?
We're trying. We'd certainly like to see at least a third player. And it is yet to be determined if it will occur. We are aggressively supporting Microsoft and [BlackBerry], because those are the next two obvious guys. There are some other clouds on the horizon that may or may not come about, some different things that some of the OEMs are trying to do, but timing is tough. The next guy to break through after iOS -- i.e., Android -- there was a clear and obvious path into the market. We helped them with that because we didn't carry the Apple product at the time. So for me, as a matter of being able to compete effectively in the smart phone space, I needed it. [BlackBerry] had that opportunity. They were under the tent already. We were their largest seller in the world. I think [BlackBerry's] new OS is very good. I have a very large, really loyal base in the enterprise business, government, financial service, anywhere where data encryption and data security is important.
There's no love for Android in the enterprise.
You're right. If you think about it, Microsoft or [BlackBerry], either should have a natural path in. But the question is whether the inertia problem going to be too much for them to overcome. This body is definitely in motion. Android is tough. The guys at Google would say it's not really fragmented, but if you look at it from an enterprise perspective, it is challenging. And it's a proposition that is sort of tough for IT professionals to get comfortable with. iOS is much more monolithic, but they bring their own problems. Neither Google nor Apple is incredibly focused on the enterprise market. That leaves the door open. I think [BlackBerry] is certainly able to exploit that if they can, and will. We're very much behind the first device they're going to ship this summer. I think the qwerty keyboard, the physical keyboard device, is pretty important for them.
People still love that.
They really do. I think you'll see a strong thrust, but the market is going to determine successors here.
Let's turn to cloud. I want people to understand what you view as your competitive strengths in cloud. What makes Verizon a great cloud company?
The market that we focus on first and foremost is large enterprise and the public sector. These are two very, very important parts. Our understanding of most of those markets is pretty significant. We know what is required in terms of resiliency, scalability, consistent quality of delivery. There are many great companies that are innovating in the cloud space, but what we've seen is the market has really developed around small and medium enterprise. At last look we saw about 70-plus percent of the market that had been established is in that space and principally in North America, really, really deep in North America. Additionally, [there are] buyers that look like medium enterprise but are actually a very large enterprise. This is where you see what's been called shadow IT. But it's just a line of business. It's, "I need to do something and do it fast. I can't take the 12 months it's going to take me if I go through standard process of spinning up the server. I'm just going to go and do this." We look at Amazon as the guys that shot out ahead in this space. They've done some very good things in terms of building out their ecosystem, their tools. Their on-boarding model is a very frictionless approach and it has provided them great success. They've illustrated to the marketplace a new paradigm, which I think is very important. We've taken all of this into deep consideration, and I would tell you that as we look back, we've made some pretty interesting acquisitions over the last couple of years. But one that really kind of flew below the radar was our acquisition of a small company called CloudSwitch. The core kernel of their IP for us was very, very important and is an essential element in the foundation of our next-generation cloud platform. We look at some of the virtues of the Amazon model and ask: "How do you create a very simple, frictionless environment to enable very fast spin-up of servers, very fast instances of an application, up and down really quickly?" That has a lot of implications to it. And as we take you more deeply through precisely what we're doing here, here's what I would tell you. How do you gain the value of low friction, fast, very cost-effective cloud computing, with resiliency, scalability, enterprise-grade, enterprise orientation to the service and support model? Imagine if you could cover all of that ground. What would that look like? How important would that be to the marketplace? We believe we are very meaningfully down that path. We have done it by flipping the model 180 degrees. And that's my tease for you. That's how I'll keep you coming back. [Stratton is referring to upcoming cloud announcements that he declined to detail.] But this is for us very important. We look at serving the enterprise client, look at where the workloads are that they haven't moved yet. When we talk about 70% of cloud being generated in the small to mids, it is still so early in the game and there is still so much in front of us in terms of these sort of wholesale movement of work here. It starts with the obvious sort of test-dev stuff, the stuff that kind of peaks and then goes off peak, the utility computing stuff ...
Today there's a lot of stuff on Amazon that's sort of the fringe or the side cases of IT. Is it your belief that what you're planning here will start to drive more of the standard work of IT into the cloud?
Yes, absolutely. As you know, not every enterprise application is a perfect candidate for cloud. And that's OK. But a lot are. As you think about the extended value proposition for the business owner in terms of what else it enables for their workforce, for their workflow, all of those downstream process opportunities, these have to be the incentives to move. But what we must do is remove the barriers. And the barriers are fairly high right now. We look at it first and foremost with my own business. My CIO is working very closely in partnership with my cloud team to move thousands of VMs into our environment. So we're going dogfooding, if you will, a little bit, as we go here, to learn about the specific pain points and to make sure we've addressed them very carefully. But yes, we believe that as you remove those barriers you will begin to see much more [movement into cloud].
So your goal is to change the comfort level?
Yes, sure. You've got to replicate to a degree the functionality and the environment that was offered and supported internally. I also have to care for a range of scenarios here. Private data center, private cloud, fully public, and everything on that continuum. How can I create a model that is flexible enough that I can really move in? I can go in as opposed to it's always coming out.
You're talking a virtual private cloud type thing?
One of the things that we see people struggling with is dealing with so many cloud providers and losing that integration that was such a hard-fought thing over the decades. Is there a role for someone like Verizon as sort of the front end to the cloud for multiple things?
We think there is. I don't think we have yet fully vetted that strategy.
Billing, management, security, access, all of the things people need no matter which cloud provider they're dealing with. Is there an opportunity to create an ecosystem that says: "I don't really care which of these SaaS providers you work with, but you can work with them through me. Small, large, I can integrate billing, I can do all kinds of things." Is that an opportunity?
Yes, it is. I'll come at it in a little bit of a different way but it leads to the same outcome. Each of my business units needs to carry its own weight, needs to be viable on its own, needs to operate and compete in an open environment. I remember about six months after I came into this role, an analyst said in some form: "How's it going for Terremark? It must be tough for those guys now that you've got them and you require the Verizon network in order to use their colo and cloud capabilities." I said: "Whoa, quite the opposite." We have a network-agnostic position inside of our Terremark business and we actually went out to our Verizon previously-owned-and-operated data centers and introduced that agnostic approach because the centers have to stand on their own. Specifically, the cloud must stand on its own. The Hughes business that we acquired last year from a machine-to-machine perspective, another pretty good area, it's network-agnostic. Why? It's a global business. I don't have wireless networks outside the United States. Not to mention that several of our clients there use competing networks today. And that's perfectly fine.
So as you think about what I've just described now, if each of these need to grow and build and expand their reach in their respective domains, it allows me then to federate at some level. So if I create billing engines and payment engines that can be used by any, now you can use them in combination. The way I like to think about this is I have a picture of our platform, and it's getting more and more interesting to look at. It's like a series of bricks and it starts at the network layer and it works its way up into the IaaS layer, the PaaS layer, the SaaS layer. You see what's owned and operated, strategic, less strategic, partner here, acquire here, develop here, all this infrastructure. From a commercial development perspective, I should feel very comfortable with the idea that there's a range of users of this platform. It starts with a guy who might simply be using a piece of my network to deliver a solution. I don't have any idea he's even doing it. And it works its way up to a person who might be using two or three elements of my infrastructure, to someone who I might be doing billing on behalf of, all the way up to the partner who's developed a SaaS solution that is my principal solution for a particular industry in a particular space that is fully embedded in my infrastructure and I'm actually repping it, all the way to owned and operated, where it's literally me. Take Network Fleet, my commercial telematics business, where it's my application, my data analytics, my platform, my network -- obviously, maximum value capture here. I want to make sure that as we go from largest to smallest that we have created a very easy, open, simple, frictionless environment in which companies can interact with us, companies can enable their solutions, they can bring them to market. I will find a model economically that allows me to capture my investments, but that to me is sort of the secret sauce, if we can pull that off. That's what we're building toward.
So one last cloud question. We do an unaided question on a survey about cloud -- who are the top cloud providers? And it's Amazon, Google, Salesforce.com at the top of the list. Does it frustrate you -- with the size of your cloud business -- that Verizon's name doesn't come up?
To no end.
Do you think that will change?
I do. I am quite certain of it. I say that with great confidence because first and foremost my experience, my background is as a marketer. But the first thing you do, in my opinion, is make it great and then let the world come and see. I don't want to market ahead of capabilities. Now, we have good capabilities right now. We are building great capabilities. You're going to see us about the second half of this year begin to really spool up. But every time I read any analyst's piece, any article, that talks about cloud leaders that doesn't mention Verizon, every member of my executive leadership team gets a copy of it from me, because I want it to annoy them.
So I could just create trouble for you by doing that.
Yeah. You absolutely can.
The Internet of things. GE CEO Jeffrey Immelt says it will add trillions of dollars in value to our GDP. How big a business is it today for Verizon Enterprise and where do you see it going?
It's measured today in the millions of connections. I think there is a range of views in terms of how big it is by the end of this decade. I've heard anywhere from as low as 10 billion to as high as 30 billion machines connected to the Internet. So this is another of the areas that we are trying to get out ahead of -- hence, the acquisition of Hughes. And some other things, like nPhase, which was a very small venture we did with Qualcomm, which we bought out last year. But if you think about the Internet of things, it is very natural for us -- IP networks, the wireless networks, the administrative platforms, controlling the endpoints and all the sort of monitor, managing control stuff. Also, the cloud storage. We've been doing dozens and dozens of these fairly sophisticated machine-to-machine implementations for companies in all kinds of fields -- heavy machinery, manufacturing, financial services, insurance is a big one, vending, supply chain, energy management, a lot of smart grid stuff. We did a very significant smart grid implementation for a regional utility company who is now drowning in petabytes of information and so it's actually added cost for them. It looks like a problem, but in talking to the CEO of that business, it's: How do you turn that into an opportunity? What do you want to do with that data -- not only to manage and run your business, but what other value does that data have?
So does that create a big data/analytics opportunity for you guys?
Of course. We look at data analytics and database as a service as complementary elements in our overall superstructure, these are strategic for us. These are very important for us. We have had dozens of different implementations, we've gained some competency here. One of our guys developed an illustration for me of a particular solution that we provided to a heavy equipment manufacturer, and you ask: What was involved in delivering that condition-based maintenance solution? It's perfect because it's every one of these assets was put into play. But there's also a front-end opportunity in terms of the business advice. It's process re-engineering. Our clients are coming to us and asking us the questions: "I see it, I hear about it, I understand people are doing things, but I don't know what I can do. I don't know what to do here exactly. Why would I invest? What's the TCO for me? How do I capture value from this?" That's where we are beginning to gain some real competency. So for me [it's about] commercializing that. We have a reasonable professional services business. We don't disclose specifics, but it's not a bad business. It's principally security network integration. We see machine-to-machine as another great opportunity here, because the market is hungry for information. Our claim to fame there is not academic. When we deliver that front-end business process consultation, we're also the guys who do the integration and implementation. You need maybe 10, 12, 15 players embedded in those solutions because of the breadth of them. We fuse those together and then in some cases we do the ongoing management as well. That's a real opportunity. I'm not sure if it's 12 billion or if it's 30 billion, but it's a big number and we're trying to invest ahead of it.
This is a question for our readership. Should IT be leading that Internet of things discussion? Is IT leading that in those cases that you were talking about?
Not as often as you might think. We have found that we end up in many cases becoming the technology consultant on these projects -- in concert with the CTO more than CIO, interestingly, depending on the industry. But it's usually business-led because it's solving a problem. We've been at this quasi-recession now for quite a while and people have taken down all of the obvious costs. Now you need to do reformation of your business processes to unlock the next level of value. And it's not just that, it's actually opening new markets. I'll give you an example in UBI, usage-based insurance. You go from traditional actuarial tables that are basically demographically driven to actually usage-based. If you think of the high value pool of insured customers for our insurance partners, it's a finite number. There's a real battle for share in that group. But this ability to do real-time analytics against that, and to be able to have a scalable and dynamically adjustable rate schedule that is a perfect correlation of risk to cost, it's pretty interesting for these guys. The value that can create for them on the bottom line is pretty meaningful. I mentioned condition-based maintenance. Again, predictive analytics applied to just-in-time delivery of parts and maintenance. The value from in-service uptime, the value from extending the serviceable life of the subcomponents in heavy machinery, these are a big deal. I think we're just getting going here. But it is the business that's driving it.
My last question is: What's ahead? What should people expect in the next year?
I think acceleration is what I would say. I keep calling it friction, but as we remove barriers and friction and enable these technologies, I think the speed is going to increase. That is very, very exciting. It's not always technology barriers, sometimes it's commercial model inertia, and not always at the customer end. I know that you get around a little bit, and as you think about the players and the ecosystem, those are hard, hard questions. How will they evolve their commercial model? Well, you know what? Not answering the question is answering the question. At a certain point you've got to say: "I've got to take a leap here because I don't know where it's going but I know it's not going to be here.' I think we're getting to a point now where we're getting ready to tip that over, and I actually see in '13, '14, some acceleration, which is exciting.
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