Where are edge computing investments going?

As we kicked off 2020, edge computing seems to be at peak hype. Is there any reality to the hype? In this article, STL Partner’s Chris Barraclough (partner) and Matt Bamforth (consultant), seek to analyse investments across the edge value chain to determine how mature the market is.

Why is there so much edge computing hype?

For those in the telecoms and technology industries, by the start of 2020, we seemed to be at peak edge computing hype. However, is it possible that this is just recency bias? The reality of the edge computing wave is different to what might be expected.

There have been many announcements in the edge computing ecosystem that have contributed to the hype. Microsoft announced $5 billion of investment over four years in IoT and edge computing in 2018 and continues to ramp up its edge efforts, while HPE announced it would fund edge computing tech with $4 billion over 4 years, starting in 2018. Google and AWS will be doing the same. Apple acquired Xnor.ai, a Seattle-based start-up focused on delivering AI capabilities at the edge, for $200 million in January 2020. As well as organic investments and M&A, the hyperscalers are also partnering heavily with telecoms operators that can provide both facilities and connectivity. Recent announcements of edge computing deals include:

  • AWS and Verizon with the latter deploying AWS Wavelength in its edge sites in Chicago;
  • Vodafone partnering with AWS to deliver edge solutions to developers in Germany and the UK;
  • Microsoft Azure being deployed in AT&T’s edge locations on its virtualised 5G network;
  • Alibaba establishing a strategic partnership with China Tower to leverage its 1.9 million tower sites in China.

That said, edge computing still lags significantly behind other technology terms in both search volume and advertising attractiveness (measured by ‘cost per click’ – CPC). Artificial Intelligence, blockchain, 5G, IoT, Internet of things, and cloud computing all have higher monthly search volumes and, despite ranking slightly lower for this metric, both NFV and software defined networking have higher CPC along with the other terms previously mentioned.

Edge computing is still early on the hype cycle as seen by monthly search volumes

Source: STL Partners

Where are edge investments coming from and going to?

We are seeing five main pools of capital flowing into edge computing:

  1. Earlier stage and higher risk – VCs and private equity (PE);
  2. Later stage and lower risk infrastructure funds;
  3. Public cloud providers looking to exploit the assets of telecoms operators (and others);
  4. Tech companies carving out a role in edge computing as a new opportunity or to support their existing business;
  5. Telecoms operators themselves looking to build positions beyond basic infrastructure.

Examples of companies across the four pools of capital in edge

Source: STL Partners

In terms of where this capital is going, multiple stages of the value chain may attract investment. The STL Partners’ Edge Computing Ecosystem Tool breaks the edge computing ecosystem into seven sections from Facility to Hardware to Software (Cloud Infrastructure and Application/Software).

Investment levels are relatively low, but this may change…

If we focus our attention on funding and investment announcements that were documented in the STL Partners’ Edge Computing Ecosystem Tool during 2019, it indicates both the scale and nature of money flowing ‘to the edge’.

30 companies in the ecosystem tool have attracted a total of roughly $3billion in funding – a tiny number compared with the roughly $60billion of capital investment each year by Amazon, Microsoft, and Google – much of which flows into hyperscale data centres. The 3 companies which have received the greatest amount of funding – DataBank, xVchnge, and Compass Datacentres – are all focused in the Facility section of the ecosystem, building integrated edge data centres and colocation facilities in the US.


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Other larger investments include those made to established cloud computing software companies looking to extend their solutions to the edge – such as Docker and D2iQ (formerly Mesosphere). Of the remaining 25 companies, 16 of them are classified (in the Ecosystem Tool) as being in the Application/Software sector. So, while capital expenditure has been greater in the Facility section, there is a greater volume of companies that have seen investment in Application/Software. Many of these are early-stage investments in firms with ‘point solutions’ that will look to expand their offering, or consolidate, as they attract more capital. These companies include solutions such as AI for enterprises, cloud native platforms, machine learning for pipelines, and industrial IoT.

Edge investments are still small relative to investments in hyperscale cloud

Source: STL Partners, data largely from public announcements and Crunchbase

Some telecoms operators are looking to build and provide platform services themselves rather than rely on hyperscalers or other third parties. Deutsche Telekom has co-funded MobiledgeX (not in the STL Partners’ Edge Computing Ecosystem Tool), a PaaS start-up that seeks to develop an aggregation layer to link together edge computing locations from different telecoms operators and provide a seamless service to developers. MobiledgeX is signing deals with operators including SK Telecom (South Korea), Telus (Canada), NTT Docomo (Japan), Deutsche Telekom (Germany), and other telcos globally.

For most of 2019 (and before) there have been relatively small amounts of capital flowing into the edge computing ecosystem, and this is expected to be slowly grow until 2021-2022 when larger volumes of later-stage capital kick in as the market matures.

Although 2019 seemed to be full of edge hype, this isn’t a bubble that is about to burst anytime soon. Investments in edge computing will accelerate over the next few years as the market grows and we see a battle for supremacy both between and within different stages of the edge computing value chain.

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