Are we headed for yet more price wars in the world of cloud computing? Amazon and Google have made huge inroads into the market on the back of deep discounts and generous storage allowances, and as a measure of their competitive threat, today one of the bigger and older incumbents out of Europe announced a partnership that it hopes will help it fight back.
Germany’s Deutsche Telekom, parent of T-Mobile, today announced that it would tie up closer with China’s Huawei to sell enterprise cloud services, specifically, as it notes, “to pit itself more strongly against the Internet corporations Google and Amazon in future.”
The news today also signals a shift in how DT approaches its place in the cloud services market. To date, a lot of the work that T-Systems has done has been around so-called private cloud services using dedicated VPNs and closed off-net networks. The company notes that last year, “revenue from cloud solutions, in particular in the highly secure private cloud, increased by double-figure percentage points at T-Systems alone.”
What the company is doing now is trying to play at more of Google and Amazon’s (and Dropbox and Box’s) game: offering services via the public cloud — infrastructure, platforms and applications that can are accessible via the public Internet — which it says “promises further growth.”
The news is part of the carrier’s bigger goal of doubling revenues from cloud services to €2 billion ($2.2 billion) by 2018. Similar to Amazon and Google, DT plans to do this across multiple verticals, providing storage to consumers as well as small and large businesses.
Today’s news covers one aspect of that: large enterprises served by T-Systems, where Huawei will provide hardware and solutions, and T-Systems will provide network management and network.
A relationship between Huawei and DT in itself is not completely new — the two have been working together for years and they say that this specifically is an extension of an agreement announced in March 2015. But what is interesting is to wonder about what kind of an impact this may have on the wider market for cloud services for enterprises, and consumers as well.
Huawei has made a lot of inroads in the telecoms world over the years by offering very competitive (read: low) prices on networking services, and also helping to finance carriers’ purchases of Huawei kit and services — a strategy that has helped Huawei in particular to gain market share in still-emerging markets. It’s also been making very decisive moves to expand in Europe.
DT seems to be resisting the pull of eating into margins by cutting prices — it cites research from PwC that claims “quality in the sense of failsafe services is the decisive purchase criterion for corporate customers, coming even before price.”
Yet it doesn’t rule out cut prices entirely. DT teaming up with Huawei could see a similar approach taken in the cloud services space that Huawei has taken in vendor equipment.
“We are securing the best balance of price, service and quality for our customers when migrating their IT to the cloud,” said Dr. Ferri Abolhassan, Head of the IT Division at T-Systems, in a statement.
It’s also worth wondering who else might come along for the ride. There will likely be more partners announced down the line, as the company notes it is “constantly expanding its cloud ecosystem with technology partners who are in turn market leaders.” And there seems to be some openings for more partnerships to target certain types of customers: consider here some of the challenges that companies like Dropbox have been facing, for example.
We have reached out to DT to ask if the agreement covers a financial investment by either company in the other, and also to ask about how the two plan to counter Google and Amazon’s approach of winning business by cutting prices.
DT — which has been in the cloud services market for 10 years, it says — works with large enterprises like Shell, Daimler and Thyssen-Krupp, and it says it serves some 2.6 million users by way of a partnership with SAP.