Edge Computing is the foundation for a new hyper-growth market segment in cloud services and software providers, presenting new opportunities for key industry players.
An Industry in Flux
The cloud computing industry has evolved in recent decades as hyper-scale cloud service companies made the Internet-based storehouses mainstream. Costs have fallen, and demand for scalable IT infrastructure has skyrocketed. However, the world isn’t sitting still.
As 5G rollout gains momentum, the need for large data throughput and low latency grows by the day. In parallel, security and regulatory requirements push computation and analytics closer to the data source. The only way to fulfill this demand is to extend cloud computing capabilities, bringing them closer to where demand for real-time action occurs—with the user. Disruptions or network constraints won’t be tolerated as faster and bigger applications emerge.
Storage and processing infrastructure—concentrated in large warehouses or data centers, often away from high-population or heavy-traffic areas—need to be localized in order to keep up. This trend presents communications infrastructure companies—armed with real estate, hardware expertise, and physical assets—with an opportunity to capture market white space as the cloud moves to Edge devices.
AlixPartners believes these three industry players may disproportionately benefit by aggressively building essential infrastructure for the Edge network:
- Mobile network providers planning large-scale 5G deployment
- Service application providers interested in further monetizing services
- Private equity firms with large investments in fiber or cable
White Space with No Clear Leader, Yet
The projected rise of Edge data processing is supported by several trends. Whether it be increasingly data-dependent factory floors or automated powerplants, intelligence and analytics must be applied where the data is being generated in real-time. Telcos and satellite providers, tower companies, and fiberoptic providers can monetize their existing communication assets by allocating investment and resources to an Edge network where no clear market leader exists.
To get a grasp on how rapidly data demands are increasing, consider that five minutes of augmented reality interactions generate nine times more data than a five-minute clip of 1080p streaming video. Intel forecasts that an autonomous car will generate between four to five terabytes of data per day, compared to less than one gigabyte of data an average internet user uses today.
The race to profit from this boom is on:
- Businesswire forecasts that spending on Edge computing solutions will increase to roughly $176 billion in 2022, a 14% increase from 2021
- Data center companies with assets in desirable locations are fetching high multiples
- Private equity recorded a 30% increase in fiber-related deal flow since the beginning of the pandemic
Bridging the Gap Between Data Storehouses and Edge Devices
Although the hyperscale cloud service providers can supply the processing side of Edge computing technology, there are additional hardware requirements. Supplying this networking infrastructure provides a distinct first-mover advantage. Telcos and satellite providers, tower companies, and PE firms can build partnerships with hyperscale cloud providers and other software companies looking for help bridging the gap between data storehouses and Edge devices.
Tower companies, for instance, are poised to use the existing real estate and infrastructure to deploy new compact data centers with heavy reliance on 5G. Telcos can also play an influential role: for example, Azure Edge Zones – which has already partnered with AT&T, Telefonica, and SK Telecom – provides application developers with tools and services for building apps and services at the network Edge. Partnering with software companies can provide capabilities to control how different types of data are transferred through the system and apply real-time analytics and algorithms anywhere from the Edge to the Cloud-enabling real-time decision making.
Of course, the race among hyperscale providers isn’t slowing down, presenting a first-mover advantage similar to the one that emerged when Cloud services went mainstream.
Operationalizing Your Edge: Where to Begin
Alixpartners and Palantir suggest a roadmap for implementation that includes these steps:
- Build out Edge networking capabilities. This can be done in various ways, from cultivating an entirely in-house approach to leveraging targeted M&A. The goal is to lay the groundwork for partnerships with software providers.
- Devote sufficient capital. The sector requires sizeable capex to develop the technology, which may present a barrier to entry for smaller players. This increases the magnitude of the first-mover advantage available for companies able to capitalize on the network infrastructure.
- Focus on strategic decisions. The true power of Edge computing is its ability to enable powerful, efficient decision-making. Live augmented decisions could be enabled through synthesizing and processing data transferred through the system and applying real-time analytics and algorithms on the Edge device.