NTT Makes 32B Grab for the Cloud Services Market with Dimension Data Acquisition

By Tara Seals

Japanese incumbent carrier NTT Communications is supercharging its foray into the world of cloud computing and services, with a big M&A move to acquire South Africa-based Dimension Data, the IT development and systems integration company. The $3.2 billion acquisition is an all-cash deal for 100 percent of DDs shares, expected to close in October.

DD brings to the table some 6,000 enterprise customers globally and a nice $4 billion in annual revenue. But the deal is more about NTT throwing its weight behind the idea that the cloud is the future of enterprise communications, and making a grab for its part of it. The operators global Tier 1 network and data center competencies are ripe for delivering managed services and virtual compute power; DD offers the enterprise-level operational and IT systems expertise that, when brought in-house, will allow NTT to offer a one-stop shop for cloud offerings that include networking, redundancy, IT management and integration, and customized applications. Its a complex package to pull together in a partnership model. Having the IT side of the house wrapped into the offers could also be a selling point to gun-shy enterprises that might not be entirely convinced that on-demand data and network resources are a good way to deploy critical business functions.

The deal also expands NTTs reach: It focuses on Asia, Europe and North America today, but DD brings a significant foothold in the emerging markets of Africa, the Middle East and South America, as well as Australia.

NTT is hoping to get in on the developing enterprise cloud opportunity while the elevator is going up, as it were, despite the aforementioned gun-shy. Theres an increasing need for companies especially multinationals to accommodate wireless users, remote offices, customers, partners and so within its communications infrastructure, particularly when it comes to video and unified communications. In those aforementioned emerging markets, a cloud-based strategy allows enterprises to do more with less with a fixed operational cost. And, as an integrated carrier, NTT scents the opportunity to bring all of its network services to bear for revenue-generating next-generation business apps.

Dimension Data and NTT aim to accelerate this change through the collaboration of our abilities in R&D, the abilities of NTT DOCOMO in providing mobile services and NTT DATA in developing applications, as the release put it.

Analyst firm Gartner Inc. expects worldwide cloud services revenue to reach $68.3 billion this year, a 16.6 percent increase from 2009 revenue of $58.6 billion. The industry is poised for strong growth through 2014, when worldwide cloud services revenue is projected to reach $148.8 billion.

“We are seeing an acceleration of adoption of cloud computing and cloud services among enterprises and an explosion of supply-side activity as technology providers maneuver to exploit the growing commercial opportunity,” said Ben Pring, research vice president at Gartner. “The scale of application deployments is growing; multithousand-seat deals are increasingly common. IT managers are thinking strategically about cloud service deployments; more-progressive enterprises are thinking through what their IT operations will look like in a world of increasing cloud service leverage. This was highly unusual a year ago.”

So is $3.2 billion a small price to pay to establish dominance in such a lucrative space? NTT thinks so. The PR that NTT sent out on Thursday was almost gushy about the cloud opportunity, with references to this time of revolutionary change with the advent of cloud computing and the need for providing total ICT services which are compatible with this age of cloud computing. Executives from both companies echoed the theme, with NTT president and CEO Satoshi Miura saying that Dimension Data and NTT share the common vision to create new services and values to succeed in the coming age of cloud computing.  Jeremy Ord, executive chairman for DD, said The combined companies will hold a strong competitive position serving global corporations moving to managed infrastructure services and cloud computing. He added, NTT and Dimension Data have a shared vision of how the market will evolve.