KKR sets aside $1bn to muscle in on European data centre market

US investment firm KKR has outlined vague plans to fuel growth in the European data centre market with $1 billion for a build-to-suit and roll-up acquisition data centre platform.

While it is difficult to translate the overly enthusiastic PR and marketing language which dominates the press release, it does appear to be an effort to build more data centres in the European region.

“The data centre market in Europe presents a unique opportunity to invest behind the secular trend of increased cloud services adoption and demand for data,” said Waldemar Szlezak, MD of KKR.

The new company, which will be known as Global Technical Realty (GTR), will operate in two ways. First, a build-to-suit programme for the major cloud players. This segment will presumably have an anchor tenant dictating the location, before selling services on to additional cloud players.

Secondly, the team plan to execute a ‘roll-up’ acquisition strategy, a particularly effective business model when economies are facing tough trading conditions. This is a simple, albeit slightly predatory strategy, effectively identifying distressed assets for acquisition, before merging together in a single operation to benefit from scale.

“We are thrilled to have found an investor like KKR that shares our vision for the future of the data centre market,” said GTR CEO and founder Franek Sodzawiczny.

“KKR’s breadth of resources and tremendous expertise will allow GTR to fully participate in this growing market and provide a solid foundation for GTR’s future growth and success.”

Ultimately, KKR and GTR are attempting to capitalise on momentum towards the cloud. The major cloud players have their own data centre footprint of course, which is rapidly expanding, but there is only so much which can be done alone. The built-to-suit programme releases some of the risk associated with data centre investment, while the roll-up acquisition strategy is a quick win for a cash-rich company looking to muscle in on cloud momentum and create an immediate presence.

Today, trends are only heading in one direction. With more companies digitising business processes and workloads, the cloud computing segment is certainly benefiting from societal lockdowns and enforced digital transformation programmes. The big question is how many of these programmes will be returned as the world returns to some semblance of normality.

When we asked Telecoms.com readers how many thought their employers would retain remote working practices 50% said they would have to check into the office once or twice a week and 34% believed they would given the option to work as they please.

It does appear the enforced remote working dynamic has some sustainability in the long run, perhaps kick-starting a wider transformation programme. Nicholas McQuire, SVP and Head of Enterprise Research at CCS Insight told us there has been resistance to the cloud from traditional companies in the past, though once started it should provide a catalyst for greater things.

Aside from these very immediate and unusual drivers for cloud, trends have of course been gradually heading towards a more digitised and distributed world. Netflix, as an example, is very interested in caching as much content in edge data centres, to improve experience for customers, while cloud gaming could also provide greater demand for data centres.

Not only is the world become more digitised, super data centres will have to be supplemented by additional infrastructure to create a distributed cloud. This is an important element to reduce latency and remove choke points when attempting to improve customer experience.

The world is only heading in one direction though the pace of change is unknown for the moment. COVID-19 might have acted as an accelerator for digital transformation, and while this might only be temporary, this is an excellent time for KKR to be throwing money at data centre infrastructure.

Microsoft gets a bump-up in numbers thanks to COVID-19

The coronavirus outbreak is causing chaos in the financial markets, but with every crisis there are those who will benefit financially; Microsoft appears to be one.

The Redmond-based internet giant has reported its latest quarterly results, and it appears the lockdown is becoming a catalyst for profits. Total revenues increased 15% over the three-month period ending March 31, operating income was up 25% to $13 billion and net income jumped 22% to $10.8 billion.

With share price growing 4.5% in the final hours of trading, and a further 2.6% during the pre-market hours, Microsoft’s market capitalisation is more than $1.35 trillion, making it the most valuable corporation worldwide.

“We’ve seen two years’ worth of digital transformation in two months,” said Microsoft CEO Satya Nadella.

“From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security – we are working alongside customers every day to help them adapt and stay open for business in a world of remote everything.”

The coronavirus pandemic has forced families behind closed doors and employees to work from home. With lockdowns still in place in many of the worlds developed markets, new norms are bedding in and Microsoft is certainly one of those companies who will benefit.

Breakdown of Microsoft financial performance by business unit
Business unit Revenues Year-on-year
Productivity and Business Processes $11.7 billion 15%
Intelligent Cloud $12.3 billion 27%
More Personal Computing $11 billion 3%

Source: Microsoft Investor Relations

With more people working remotely, more businesses are being forced through a digital transformation process, and much more aggressively than most would have liked. To enable efficient work process, more cloud resources will have to be consumed by enterprise customers, though it is likely additional products will also be taken on in areas such as security.

For a company which has pivoted over the course of the last decade to position cloud front and centre of the business, current trends are incredibly beneficial.

For Microsoft, the revenues for the Azure cloud computing products surged 59% over the three months, while Teams now has more than 75 million daily active users, tripling over the last two months. 20 organizations with more than 100,000 employees are now using Teams, with new features being introduced each week. Live events for up to 100,000 attendees can now be streamed across the platform. Office 365 now has 258 million paid seats, while usage of Windows virtual desktop tripled this quarter.

But it is not just the enterprise-focused business units who are profiting.

Microsoft 365 Personal and Family now has more than 39 million subscribers, while Teams has been opened to consumer users for the first time. Windows 10 now has more than 1 billion monthly active devices, up 30% year-over-year, and Xbox has seen a boost also.

With children not being allowed to play outside in the garden and adults not allowed to play inside pubs, an obvious beneficiary was going to be the online entertainment segment. Netflix has already demonstrated financial gain with 27% uplift in revenues and a 22% boost in subscribers during its own earnings call, and Xbox has seen a similar lift.

Xbox Live currently has 19 million active users, while the Xbox Game Pass has more than 10 million subscribers. Although the team did not offer specifics when it came to the cloud gaming venture, Nadella said Project xCloud has “hundreds of thousands of users” in the beta stages in seven markets, with eight more launching over the next few weeks.

One question which does remain is whether this boost in revenues will be sustained?

“In our consumer business, we expect continued demand across Windows OEM, Surface and Gaming from the shift to remote work, play and learn from home,” said Microsoft CFO Amy Hood. “Our outlook assumes this benefit remains through much of Q4, though growth rates may be impacted as stay-at-home guidelines ease.

“In our commercial business, our strong position in durable growth markets means we expect consistent execution on a large annuity base, with continued usage and consumption growth across our cloud offerings.”

The risk of this benefit is that everything returns to the pre-COVID-19 way of life. Offices gradually become re-populated and the lessons from remote working are forgotten by traditional organisations. This would mean the bump in revenues would not be sustained by the cloud companies.

Although we suspect some traditional organisations might return to pre-COVID-19 working practises, many will adopt at least a portion of the newly transformed way of life. The extremity of the current bounty for the cloud companies will not be sustained, but there should be a shift in mentality over the long-term.

We tend to agree with the cloud companies that this enforced digital transformation programme will bed-in, though perhaps not as enthusiastically as the cloud companies believe. These are salespeople let’s not forget, selling the potential of Microsoft to investors. There will be sustained benefits, but some in society will be intolerant of evolution, so will returns to the ways of old.

Google starts offering free access to Stadia

Rolling out over 14 countries, Google is offering free access to its cloud gaming platform to help with boredom as the world ponders how long the lockdown with persist.

The two-month freebie will be offered as Google attempts to scale its cloud gaming platform in the face of fierce competition from the likes of Microsoft and Nvidia. Users will have instant access to nine titles, and for those who have already signed-up, payments will be suspended for the period.

“We’re facing some of the most challenging times in recent memory,” Phil Harrison, General Manager of Stadia, wrote in a blog post. “Keeping social distance is vital but staying home for long periods can be difficult and feel isolating. Video games can be a valuable way to socialize with friends and family when you’re stuck at home, so we’re giving gamers in 14 countries free access to Stadia Pro for two months.”

This is likely to drive an increase of sign-ups for the business, though Google has already said it will apply controls to bandwidth to ensure unnecessary strain is not placed on local networks. Default screen resolution will be dropped from 4k to 1080p, and while most will not notice a significant drop in gameplay quality, there is an option to choose your data usage options in the Stadia app.

Although this is a pleasant announcement for Google, one which we sure many gamers will appreciate, but there is also an upside for the internet giant. This could be viewed as a promotional offer or free trial luring some users onto the platform who might not have been tempted before. Perhaps, some might be tempted to dip into their pocket for $9.99 after two months of gameplay.

Microsoft to expand xCloud beta to Western Europe

After launching in the UK, US and South Korea, Microsoft has decided to rollout its services in an additional eleven markets.

Gaming has always been a staple in the Microsoft diet, thanks to Xbox and Game Studios in bygone years, but cloud gaming offers an opportunity to dramatically scale the business unit. This is a market development which could potentially lower the barrier of entry for consumers, as cloud services are less reliant on extortionately expensive consoles and upgrades. The rewards could be an expanded userbase and new revenues.

But Microsoft is not alone in pursuit of gaming fortunes. Google and Nvidia have their own platforms to challenge for the throne, while Sony and Nintendo lead numerous other firms chasing down the leaders. If Microsoft is to create a leadership position, it will have to be aggressive in its development and rollout of services.

The new markets for the beta are Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Spain and Sweden.

“Bringing the Project xCloud preview to gamers across Western Europe is a top priority for us,” said Catherine Gluckstein, GM for Project xCloud. “We know gaming is an important way for people to remain connected, particularly during these times of social distancing, but we also recognize how internet bandwidth has been impacted with strain on regional networks as large volumes of people responsibly stay home and go online.”

While it will not present as much of a problem for the network as popular streaming services, Gluckstein is right in that the team will have to be careful to ensure it is not placing undue strain on the networks. In Italy, Telecom Italia CEO Luigi Gubitosi partly attributed a 70% surge in traffic at the beginning of the Italian lockdown on gaming titles Fortnight and Call of Duty, where the online features are incredibly popular.

Although it is far too early to decide on who is winning the cloud gaming segment, consumer entertainment is an important area for Microsoft. Revenues across the last quarter declined for Xbox, though this was expected as a new console is ready to launch, but the team boasted of a new record for Xbox Live monthly active users and Xbox Game Pass subscribers more than doubled.

Recurring revenue is the Golden Goose for the digital economy and cloud gaming could be one of the more fruitful coops.

Google Stadia attempts to lure independents with Makers initiative

While Google has made quick progress in launching its cloud gaming platform, the main criticism is a lack of independent content creators. The launch of its Makers initiative hopes to correct this.

Announced during the virtual Google for Games Developer Summit, Stadia Makers will attempt to lure independent game publishers into the Google universe, adding depth and variety to the currently thin content library. If Google Stadia is to be a sustained success, this initiative will have to get off to a flying start.

“For this expansion of self-publishing, Stadia Makers is partnering with Unity, a team with a long history of building new platforms and gaming services hand-in-hand with the developer community,” the team said in a blog entry.

“Unity has worked with thousands of game developers over the years, and today, powers 50% of all new games with optimized support for Stadia and more than 25 other platforms.”

Since launching the platform in November 2019, 30 games have made their debut, while there are another 120 slated for release over 2020. As it stands, this is a thin library, and while it will certainly appeal to millions of gamers, if the platform is to meet the expectations of Google it will have to increase.

Cloud gaming has the potential to upset the status quo in the gaming industry, as the promise of decreased installation times and removing the need for on-console storage is attractive. By storing content on the cloud, instead of on consoles in the home, greater flexibility and agility is introduced to developers when it comes to updates and development, while new experiences can be introduced as some of the technical limitations of the consoles are released.

This has been the challenge for the gaming industry in the past. It is way too expensive to constantly upgrade the consoles and PCs to ensure the desired game performance. Streaming from powerful servers without the need to download or update is a significant advantage.

However, as Google is leading the world into the unknown, there are no prior experiences or precedents to benefit from; it will have to learn from parallel industries. The increasingly popular streaming segment, and Netflix in particular, could be used as an excellent example to learn from.

Similar to cloud gaming, subscription video-on-demand (SVOD) revolutionised the content world by creating a new dynamic in terms of the distribution of content. It digitised the accessibility of content, turning consumer habits upside-down in the process. And in the SVOD world, Netflix is the reigning champion. There are pretenders to the throne, but Netflix is realistically the only one who could claim the number one spot. But Why?

Firstly, it was first to market. Secondly, the pricing point was excellent. Third, the user experience can be matched by few others. And finally, the depth, breadth and quality of the content is arguably unmatched. In the platform world, content is king.

But what is critically important here is the democratisation of content creation. Netflix lowered the barriers of entry to offer more independent content creators a gateway to the consumer.

Whether it is blockbuster movies, edgy series, nostalgia driven shows, niche documentaries, ‘live’ comedy, hyper-localised entertainment or cult-content, the breadth and depth of the library appeals to everyone and anyone. The discovery function still needs work, which can frustrate consumers, but there is content for any fad, craving or guilty pleasure. Netflix has invested in content, encouraged variety and then doubled down year-on-year.

This approach works. It is expensive and somewhat of a slow burner in terms of profitability, but the Netflix financials are showing that patience pays off. Looking at the latest financial statement, Netflix revenues exceeded $20.1 billion, with net income of $1.8 billion, with 167 million subscribers. These are huge numbers, but there is still significant potential for growth outside the US where Netflix has 106 million customers.

First and foremost, Google can learn three things from Netflix; a sound pricing strategy, an excellent user experience and an extensive content library. These are the three areas Google should be heavily investing in immediately, but then it should also be taking note of the partnership programmes which the streaming companies are benefitting from.

Looking at the Disney+ go-to-market strategy in Europe, the team is heavily reliant on partnerships with connectivity companies to gain access to customers but also lean on the credibility these companies have developed in terms of billing. Google has already partnered with Verizon to gain access to new customers, and it should be looking for more partnerships with telcos around the world. Fortunately for Google, the telcos are very open to discussing relationships with the rowdy Silicon Valley residents.

With convergence, or bundling, strategies becoming much more prominent, the telcos are searching for new partners to add additional layers of value. Data is effectively a commodity nowadays, therefore, to improve loyalty and maintain ARPU, new services have to be built on top of the connectivity foundation in contracts. Content is the most popular today, though gaming could certainly factor into the equation.

It might not sound like the simplest of routes to success, but the prize at the end of the rainbow could certainly be worth it.

According to Global Web Index, currently 16% of gamers use cloud gaming services, though these are most likely to be among the top 25% of earners in their demographic. Markets and Markets, another analyst firm, suggests the worldwide cloud gaming segment could be valued at $306 million in 2019, but this will rapidly increase to $3.1 billion by 2024 thanks to the commercialization of 5G, the rise in a number of gamers, and the upsurge of immersive and competitive gaming on mobile.

The major financial rewards might be a few years down the line, but the COVID-19 pandemic which is forcing so many consumers indoors presents an opportunity. Without pubs, schools or parks to fill the hours, many potential customers will be searching for entertainment. The streaming companies are clearly benefiting today, though an effective engagement campaign could reap benefits for Google and its Stadia platform.

The cloud gaming segment could offer significant rewards for Google, though it will have to learn from Netflix if it would like to realise the full potential. Breadth and depth of content is critical, and to do that the independent content creators, not just the multinational game publishers, will have to be brought on board; scale is everything.

Microsoft unveils details for Project xCloud public trial

It’s been a year in the making, but Microsoft is going through the final preparations to launch its game-streaming service, Project xCloud.

The project itself will allow Xbox gamers to play their favourite games by streaming the content onto their mobile devices. Although the technology giant has had to fit out its data centres with specialist servers to run the games, the extensive geographical footprint of its data centre network could make Microsoft a force to be reckoned with in the emerging cloud gaming segment.

“Our vision for Project xCloud is to empower the gamers of the world to play the games they want, with the people they want, anywhere they want,” said Kareem Choudhry, Corporate VP for Project xCloud at Microsoft.

“We’re building this technology so gamers can decide when and how they play. Customers around the world love the immersive content from Xbox in their homes and we want to bring that experience to all of your mobile devices.”

Next month, the public trial will be launched. The US, UK and Korea have been selected as the initial testing grounds, with consumers able to sign-up here. All you’ll need is a wireless controller with Bluetooth and a stable mobile internet connection of 10 Mbps.

More to follow…

Nvidia brings its cloud gaming to Android

2019 was already looking like a promising year for cloud gaming and now Nvidia is bringing its own service, GeForce NOW, to Android, the streaming scrap is heating up.

Specifics on timing have not been released just yet, neither have pricing details, though Nvidia has said its streaming service will be available on Android devices over the coming months. With the service already available on PC and Mac devices, entering the Android world adds the potential of another two billion devices.

“Already in beta to the delight of 1 billion underpowered PCs that aren’t game ready, GeForce NOW will soon extend to one of the most popular screens in the world, Android phones – including flagship devices from LG and Samsung,” the team said on its blog.

“Just like on PC, Mac and Shield TV, when the Android mobile app releases it’ll be in beta. We’ll continue improving and optimizing the experience.”

The move into Android will take Nvidia into direct competition with both Google’s Stadia and Microsoft’s xCloud. There are of course pros and cons for all the available services, though a couple of bonus’ for Nvidia will gauge the interest of some gamers. Firstly, second purchases on titles will not be needed for the cloud gaming service, while the GeForce RTX graphics performance will be introduced soon enough.

Google was the first to plug the potential of cloud gaming back in March, promising users they will be able to access their games at all times, and on virtually any screen. The initial launch will be for £8.99 a month, though the team does plan on launching a ‘freemium’ alternative soon after. As you can imagine, Google is always looking for ways the complex data machine can offer content to users for profit.

It didn’t take long for Microsoft to launch its own alternative following the press Google collected. Hyped as the ‘Netflix of video games’, Microsoft will charge $9.99 to access a range of Xbox One and Xbox 360 titles on any screen. Like Stadia and GeForce NOW, a controller would have to plugged into Android devices.

There are some ridiculous figures which are being banded around concerning the percentage of traffic cloud gaming will account for during the 5G era, it is a segment worth keeping an eye on.

Cloud gaming could account for half of 5G traffic

Video traffic management outfit Openwave Mobility chatted to some operators and they reckon cloud gaming will account for 25-50% of 5G traffic.

The anecdotal finding was arrived at during a livecast hosted by Openwave, which was apparently attended by a bunch of operators. Most of them, we’re told, believe cloud gaming could represent 25% to 50% of 5G data traffic by 2022. This assumption was heavily influenced by observing the trajectory of the cloud gaming industry in general.

“The recent emergence of cloud gaming platforms including Google Stadia, Apple Arcade, Microsoft xCloud and Snap Games has not escaped the attention of the operator community,” said John Giere, CEO of Openwave Mobility. “OTT players have ambitious plans to become the ‘Netflix for gaming’, hosting libraries of thousands of instantly accessible games that, ultimately, will consume three to four times the amount of bandwidth on 5G networks, compared to standard definition video traffic. Needless to say this will impact mobile operator data strategies.

“While 5G network rollouts are still in their infancy, OTTs are already planning Augmented, Virtual and Mixed Reality services, in addition to cloud gaming. Combined with the expected continued growth of streaming video, these services will rapidly eat into the additional bandwidth provisions of 5G.”

While still in its early stages, the potential for cloud gaming does seem huge. At the very least, being able to offload the processing of gaming to the cloud will open up a new generation of thin client devices. On top of that there are things like mobile MMOs, augmented reality and virtual reality, all of which will rely not just on the increase bandwidth of 5G but crucially the low latency characteristics. So while this straw poll is hardly definitive, it’s easy to imagine cloud gaming exploding in the 5G era.