Fresh off from closing its purchase of Qwest, CenturyLink Inc. last month announced plans to buy Savvis Inc., a leader in the cloud infrastructure as a service and web hosting space, for $2.5 billion. The deal – which involves cash, stock valued at $40 per share, and the assumption of approximately $0.7 billion in debt – is just the latest move by a telco to purchase a web hosting company.

 “It’s been a pretty steady trend for just under a year,” Bill Fathers, president of

Savvis, told NGN Magazine in an April 1 interview, referring to the spate of telco-web hosting/data center company pairings.

Verizon recently completed its tender offer for all outstanding shares of Terremark Worldwide (News - Alert) Inc. common stock. That $1.4 billion deal came in the wake of a bevy of somewhat similar pairings, including Cincinatti Bell’s CyrusOne acquisition, Time Warner Cable’s NaviSite buy, and many others.

“Telecom and cable companies are at a point where they need to join the cloud game, or be left behind,” Robert Collazo, senior systems engineer at Savvis competitor Rackspace, recently told NGN Magazine. “Some are trying to catch up through acquisitions.”

For Verizon, the Terremark deal means an expanded co-location footprint, Christopher Gesell, chief strategist for cloud services at Verizon Business (News - Alert), told NGN Magazine. The company provides a range of cloud, co-location, managed hosting, infrastructure-as-a-service and web hosting offerings.

“When you look at the co-location offering, the footprints are very complementary to each other,” he said.

Gesell said that Verizon previous to the Terremark deal had a global co-location footprint that was larger than the acquired, and that Verizon has data centers in Asia Pac, Europe and North America. Terremark adds to that its data centers elsewhere in Europe and the U.S., as well as in Latin America, an area in which Verizon previously did not own data centers. Terremark also brought to the table a click-to-swipe solution that enables small and medium businesses to purchase IaaS using a credit card.

Verizon believes its significant footprint is its “special sauce” in the cloud/hosting/managed services arena. Gesell also noted Verizon’s multilayer security; the fact that it operates the first SAP (News - Alert)-certified cloud; its understanding of capacity management; and its patent-pending orchestration engine, which allows customers to see what’s available and do self provisioning of resources, including virtual machines. The company is also working to develop its software partner ecosystem and expects to make moves on this front this year and next, Gesell added.

In the interview earlier this month, Fathers told NGN Magazine that in the short term, the Verizon-Terremark pairing was an opportunity for Savvis, which he said can continue to move ahead while the new partners have to focus on bringing together their organizations.

“That integration is painful,” he said.

Fathers went on to say that Savvis was in the thick of dozens of conversations with telcos that wanted to white label its cloud-based services. (Perhaps it’s these discussions that led to its pairing with CenturyLink.) He added that the Savvis white-label service already has proven to be a success, as it represents 15 percent of the company’s revenues and is used today by such big names as Bharti Airtel of India, Thomson Reuters (News - Alert) and Virgin Business Media.

By purchasing Savvis, CenturyLink gets its hands on 34 data centers worldwide that serve customers in the financial, government, media and software verticals, as well as big consumer brands. Bank of America, Coca Cola, Deutsche Bank, Hallmark, Procter & Gamble and Unilever, and many of the world’s stock exchanges, are customers of Savvis. At least 350 Savvis clients are on its cloud platform, which Gartner (News - Alert) has named the leading cloud platform in the world, said Fathers, adding that the company has been doing IaaS for five to six years.

“If you outsource something like that that’s mission critical, obviously they trust you,” Fathers said. “We’re not a book retailer online, and we’re not a wacky start up.”

Fathers was obviously referring to Amazon in his comment about the online book retailer. By some analyst estimates of the cloud services space, Amazon web services had more than 40 percent market share in 2010.

Of course, Amazon made a splash a few years ago with its Elastic Cloud Compute platform and related services. Gartner has lauded Amazon for being a thought leader in this space and for its pureness of vision in delivering a highly automated, affordable and accessible solution on this front. The company is also known for its strong ecosystem of software partners. However, Forrester said that Amazon lacks the co-location, dedicated connectivity and servers, managed services and SLAs that many of the leaders in the cloud services/web hosting space have in their portfolios.

But then cloud computing clearly is the key growth area in this sector. Gartner forecasts that by the end of 2011 cloud services will account for almost a quarter of the overall hosting market (excluding co-location and mass-market hosting).

"Cloud computing and hosted managed services will without doubt become the primary method of IT delivery to organi[z]ations large and small,” said Keith Bates, chairman of the Cloud Computing Centre.

Another leader in this space is Rackspace. It offers dedicated managed hosting, two IaaS products called Cloud Servers and Cloud Files, and various SaaS-based offers including Rackspace Email & Apps, Microsoft Exchange and Microsoft SharePoint hosting, through its nine data centers in Hong Kong, the U.K. and the U.S.

Rackspace has made a few acquisitions of its own. That includes CloudKick, a hosted SaaS platform, which provides fast setup, high availability, and monitoring from multiple Internet locations; and software developer Anso Labs, which is helping build up the OpenStack cloud computing project.

Collazo indicates there could be more to come.

“Rackspace is at scale,” he says. “We are in the position to be the acquirer as evidenced by our recent acquisitions.”

As the 2010 Gartner Magic Quadrant study on this sector notes: “This is a time of both great opportunities and great risks for the service providers in this market. New entrants are altering the landscape, and established hosters that previously lagged the market have been able to make bold investments in an attempt to catch, or even overtake, more established competitors. Most providers are investing aggressively in technology innovation and exploitation, and we believe that mergers and acquisitions will become more commonplace as vendors seek to decrease their time to market, obtain engineering expertise with new technologies, and build market share.”