I scribbled off a quick blog post on the CenturyLink acquisition of Savvis but didn’t have time to delve into it in detail at the time. This is a bit of a follow-up.

Savvis has three core businesses:

• Coloation: Savvis has carrier-diverse (though not strictly-speaking carrier neutral), high-quality colocation in data centers around the world. It is one of the most significant players in retail colocation for enterprises. It also has a substantial financial vertical play in its proximity hosting for low-latency trading.
• Managed Hosting: Savvis is among the market share leaders in managed hosting. It is a highly capable provider, ranked for years as a Leader (and at or near the top of the pack) in Gartner’s Magic Quadrant for the market.
• Networking: Although Savvis has a history as an ISP, their significant acquisition of networking assets came with the acquisition of Cable and Wireless North America’s assets (which included a substantial amount of MCI assets that had to be divested in the MCI-WorldCom acquisition), which they did in order to get Exodus. The networking business has been in slow decline for years, although it has some usefulness in competing with BT Radiance, in the proximity hosting context.

As part of their managed hosting business, Savvis has built a significant portfolio of cloud IaaS products. Savvis has historically had a tendency to overcomplicate their product lines, and cloud has been no exception to this rule. The most significant elements in the portfolio are Virtual Intelligent Hosting (utility managed hosting, equivalent to Terremark Infinistructure, AT&T Synaptic Hosting, etc.), and Symphony VPDC (self-service public cloud, equivalent to Terremark Enterprise Cloud, AT&T Synaptic CaaS, Verizon CaaS, NaviSite NaviCloud, etc.), which is divided into tiers of service quality. Savvis also has an array of private cloud services.

We consider Savvis to be highly competitive in enterprise-class cloud IaaS. They do not necessarily have the best service, featurewise, and they are a relatively expensive option, but they have done a credible job of incorporating security into their architecture, emphasized in RFP responses, in a way that customers respond to very strongly. Savvis has also done a good job layering managed services on top of their cloud offerings, and has begun to compete quite aggressively in the cloud-enabled data center outsourcing market segment, targeting mid-market companies.

In short, CenturyLink is buying a very high-quality set of assets. Qwest has a colocation business, but it is marred by poor customer service (it’s pretty hard to deliver poor customer service in a business as simple as colocation, but Qwest has historically managed to do this, although quality varies per-data-center). Qwest also has a managed hosting business, but it’s historically been sub-par to the market and well behind the hosting businesses of AT&T and Verizon. Qwest’s forays into cloud computing are embryonic. Consequently, CenturyLink is vastly accelerating its entry into this business with the Savvis acquisition. Also, given the capabilities gap between CenturyLink and Savvis, customers can probably expect little if any disruption from the acquisition.

It’s clear that carriers, even the less visionary ones, now feel that they need to have solutions to address data center needs, not just networking needs. While some carriers were able to articulate a vision around this relatively early on — AT&T notably — all the other network operators are quickly falling in line, albeit with varying degrees of vision and commitment.

Ever since Verizon bought Terremark, and Time Warner Cable bought NaviSite earlier this year, people have speculated about the fate of Savvis. Well, today we know: CenturyLink is buying Savvis.

CenturyLink is a carrier, which rolled up a lot of rural telco assets before going on to digest Qwest. Acquiring Savvis signals its cloud computing ambitions — few carriers can afford to be without a cloud strategy, and apparently CenturyLink has decided to buy one rather than to build one. CenturyLink didn’t have much in the way of hosting assets pre-Qwest, and Qwest’s hosting assets were weak; with the exception of pure-plays like Amazon, nearly everyone in the cloud IaaS business has a hosting background. Moreover, while Qwest has been trying to get into the cloud, they are not a player to speak of.

With the Savvis buy, if CenturyLink is smart, Savvis gets largely left alone to continue what’s been a pretty successful colocation, hosting, and cloud IaaS business, Savvis incorporates the Qwest data center assets and kicks their hosting business to the curb (migrating the customers onto Savvis managed hosting), and Savvis stops fooling with a networking business save for what’s necessary to deliver proximity hosting. CenturyLink has announced that they’ll be consolidating their hosting assets with Savvis and having their current CEO run the unit, so that’s a good sign, at least.

I do believe that early industry consolidation may be bad for cloud innovation, but there’s a certain inevitability to the big network operators picking up leading cloud IaaS providers.

The really interesting question now is if Rackspace is a target. Their model doesn’t fit anywhere near as well into a carrier, given their focus on customer service — arguably their culture would be annihiiated in just about any merger with a likely buyer. Moreover, they have focused upon commodity cloud, while carriers are typically far more interested in enterprise cloud. But that doesn’t mean they’re not a takeover target anyway.