Verizon’s Software Beachhead in Boston: The Story Behind CloudSwitch and Terremark

OK, I had to ask: Did Ellen Rubin tell Amazon’s Jeff Bezos to piss off?

“No comment,” says Rubin, with a laugh.

We were talking about her startup, Burlington, MA-based CloudSwitch, getting bought by Verizon (NYSE: VZ) yesterday for an undisclosed sum—and being integrated into the New York City telecom giant’s Terremark division. It turns out CloudSwitch had received other acquisition offers earlier this year, Rubin says. Since the startup had developed its software, which bridges corporate computing systems and outside cloud services, to work with both Amazon and Terremark’s clouds, I had to wonder if Amazon (which also has a competing offering) might be a jilted suitor.

Without naming names, Rubin, the co-founder and vice president of products for CloudSwitch, says other potential acquirers would have folded her startup into a technology group, or turned CloudSwitch into a feature, or made it work only for proprietary clouds. Instead, the startup’s software will continue to support Amazon and other clouds in an open arrangement. “The opportunity with Verizon was just different,” Rubin says. “The companies that have bigger global reach are the [telecommunications] service providers.”

CloudSwitch’s entire 30-person team is joining Verizon’s Terremark IT services subsidiary, a 2,500-person organization with offices and data centers stretching from Florida, Texas, and California to Brazil, England, and Turkey. The Burlington office will remain intact and will probably expand, the companies say. Verizon isn’t saying anything specific yet about new hires or headcount, but it clearly values CloudSwitch for its software expertise and leadership, and views the firm as a beachhead for software talent in Boston.

“The goal is to grow this and make this a hub,” says Chris Gesell, Terremark’s chief innovation and strategy officer. “Terremark is a growth engine for Verizon.” Gesell says that from his perspective, CloudSwitch has the “simplest to use, most mature, and most elegant” technology out there among many competitors.

Yet the deal would have been unlikely until recently. In January, Verizon acquired Terremark for $1.4 billion, signaling its big move into cloud-based services. As Rubin and others put it, Verizon is not just a phone company anymore—now it’s trying hard to be about software and services for businesses.

But did CloudSwitch sell too early? After all, this is a three-year-old startup with only about 15 enterprise customers in banking, media, and biotech (including Novartis, Biogen Idec, and Dassault Systèmes). Rubin admits the company was on track to raise a “classic” Series C venture round when it got snapped up. “In parallel we were having conversations with the Verizon team, and they kept surprising us,” Rubin says.

As is usually the case, the startup’s technology and team were key attractors. “It was a difficult piece of software to develop, and they made tremendous progress,” says Axel Bichara, a partner at Atlas Venture and a CloudSwitch board member. He adds that (unlike a lot of startups) CloudSwitch actually did what it set out to do—take existing applications in data centers and move them into the cloud, or between clouds, via a virtualization software layer.

“In the end, if you have a great team, your probability of success drastically increases,” Bichara says.

By most accounts, the acquisition (which may or may not show up in a Verizon regulatory filing sometime) was a good exit for Atlas Venture, Matrix Partners, and Commonwealth Capital Ventures—who collectively put a little more than $15 million into the company.

A lot of work remains to be done in the deal integration, of course. We’ll be watching to see whether this young startup team can indeed galvanize Verizon’s cloud-software efforts—and help drive enterprise adoption of cloud computing more broadly—or whether it will fall by the wayside like so many other failed acquisitions.

Trending on Xconomy