NEW YORK ( TheStreet) -- One of the strangest business trends of the last decade has been companies such as Google ( GOOG) making their own servers.
It was good economics. Google took cheap PCs, broke them down into racks and found it saved money. Commodity chips were more cost-effective in cloud architectures than traditional server chips. Google bought in bulk, it had "just in time" capacity, and pretty soon the rest of the cloud world was copying them. Google became one of the country's largest PC makers. In some ways it made no sense. Hardware and services are different businesses. Start-ups like Sea Micro arose to meet the need, but until it became part of AMD ( AMD) it couldn't deliver what the new market demanded. Now, apparently, it has, and the first big orders have been placed by Verizon ( VZ) for its vCloud. The deal is important for two reasons. First, it shows that a server company can meet the economic demands of cloud by using a lot of low-power chips and designing around them. Second, it makes cloud a much easier business to get into. I wrote last month about how AT&T ( T) thinks it has cracked the sale side of cloud, through a network of re-sellers. Verizon now thinks it has cracked the delivery side of cloud with Sea Micro. Both telcos are trying to build what the former Qwest bought when it was acquired in 2011 by CenturyLink ( CTL). Since the merger CenturyLink is down about 20%, but that company lacks the mobile assets AT&T has and Verizon is acquiring. Their vision, of course, is the old "one throat to choke" idea, where you get all your computing and communications systems from a single source. Verizon, which got into cloud by buying Terramark a few months before the Qwest-CenturyLink deal was finalized, calls what it is creating a "hybrid cloud," delivering the economics of public cloud with the security of owning your own hardware. There is a danger in letting the telcos into this game, however. Verizon has been aggressively fighting FCC "net neutrality" rules, which some see as a direct attack against consumer Internet services such as Netflix ( NFLX).