Everything is Blurry…

I penned a comment in an article on Data Center Knowledge about colocation outlook for 2014 (http://www.datacenterknowledge.com/archives/2013/12/30/retail-vs-wholesale/) and how the market was getting blurry as far as what constitutred a colo deal vs a retail deal vs some other deal. The fact is the blurring has been happening for at least the past three years as all deals got fewer and far between and when the validation from Digital Realty came that their wholesale tenants were slower to take up space, combined with their deliberate entry into the colocation end of the business the blurring was undeniable. It’s every man for himself – the free market at work. What happened?

Anyone with inventory (conditioned power and 3+ carriers) wanted to do a deal. This created tension with wholesale players offering colo, since many of their existing customers were colo providers and no matter what, the landlord always has the upper hand on price. Digital shopped their stranded inventory (marketed as colocation) to several players and they didn’t want it, so Digital decided they would do it themselves, so for those that have said to us, ‘Yeah but Digital is a Wholesale provider, they should stay out of colocation’ the truth is they tried, no one bit, and the fact remained they still had inventory to move and no one saw it as a good business decision until Digital decided it was a good business decision. By then it was too late and whiners are left with sour grapes.

In general, this colo vs. wholesale vs. cloud vs. *aaS points to where we see the market going with our clients. It’s where it has been headed for at least the past 8 years – a utility. For all of the terms, definitions, market research, conference keynotes, and other spinning of the industry we endure year after year it is really a pretty simple business. It’s made complex and kept expensive to keep others out because it’s a great business to be in. It’s not rocket science if you know a lot about rockets.

If we peel back of the segmentation, acronyms, and other ‘definitions’ we try to use to explain the data center business at the end of the day the data center business is about providing more reliable electrical and telecom infrastructure than electric utilities and telecom companies are designed to provide on their own, apart from each other. Why? Because computers didn’t exist 100 years ago so the utilities and telecom providers served the market that did exist, and did the best with what they had to keep up with it. Then computers entered the picture and they change way faster than communication protocols or generating power does.

We see a day in the not too distant future where the CIO pays for both electricity and network costs as a function of their role in a company vs the facilities people who often get the power bill and purchasing who gets the telecom bill. Instead of keeping the lights on the CIO keeps the lights blinking. With our growing reliance on computing the reliance upon power and network connectivity has more value. As a utility it has the responsibility and burden of getting more reliable and less expensive like the computing equipment driving its use and consumption. Computing is the next utility and we believe there are exciting times ahead for the data center business because of this.

So the more we look at drivers for making predictions in the next ________ (insert whatever unit of time or measurement you like) remember this:

1. We have an intrinsic unit of measurement built into every piece of the data center business – cash (cost)

2. The future of the data center is driven by how important the stuff that goes inside it is to its users

To that end, those who understand how to drive out cost, increase reliability, and exploit the differences between the buildings and the stuff that goes in them will dominate the new utility business. Those who think it’s still a real estate play will be profoundly disappointed when they realize a data center can go anywhere.  The places that make the most sense are in the lowest risk, and lowest cost places on earth where reliable communications and power can be made more reliable and less expensive through better design.

We’re ready, are you?

 

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