Tuesday, October 17, 2017

You want that data centre funded? Show me the differentation

The data centre is changing so is the market’s responsiveness to new ideas. BroadGroup Consulting’s managing director Steve Wallage exposes the truth around the need for business differentiation in the data centre market.

At BroadGroup Consulting, we see a lot of new business plans. And, the sad truth is that many of them are remarkably similar. Maybe the location is a bit ‘different’ – but why would users move from established locations with proven eco-systems?

If it is for an emerging market, is there proven demand and do they truly understand the execution challenges? However, we are finally seeing some real innovation in the market and this is coming from four main areas.

First, in supporting hybrid cloud and various cloud offerings. There are clear opportunities here and recent user research from BroadGroup Consulting found that many enterprise IT departments had been decimated in recent years – for example, one global education firm seeing a 90% reduction in internal IT staff over three years – and thus needed much more third party support.

Against this, many businesses we analyse have limited expertise and experience in these areas, and there is a real question mark over their ability to successfully differentiate from the hyperscale cloud players, particularly as they get ever better at enterprise IT.

Second, in developing data centres that are meaningfully better, cheaper and more flexible and adaptable Proving a data centre is ‘better’ has often been a challenging objective given the wild claims and misuse of certification and metrics such as PUE.

The good news here is that better metrics are now emerging such as iMasons Data Center Performance Index, which also takes into account environmental efficiency.

The basic building blocks of the data centre are also becoming more commoditised, with the ever growing importance of OCP.Proving a data centre is ‘better’ has often been a challenging objective given the wild claims and misuse of certification and metrics such as PUE.

Bringing the cost down is becoming a key differentiator – for example, Cyrus One has reduced it from ~$7m/ MW to ~$6m/MW. Beyond this, it is also a case of understanding your end customer. Cyrus One claims it can bring this down to ~$5m/MW for large, single-tenant usage, and ~$4.8m/MW for ‘N’ redundancy.

Flexibility and adaptability are critical factors. Investors we work with often fret around usage at the end of the lease period, impact of new technology and the threat of rising churn in the market. Microsoft has introduced FPGA technology into its 5th generation data centres which allow hardware functionality to be changed.

We are seeing start-up providers incorporating the flexibility in their designs to ‘relatively easily’ change from Tier II to III or even IV deployments.

Third, is knowing the customers and adapting for different verticals. Many business cases still just assume generic requirements. This can be all about adapting a data centre for a particular market – such as Vapor IO and their edge data centre for the 5G market.

It can be about understanding and targeting particular vertical markets – such as the success of UK players such as Ark Continuity, Virtus and Next Generation Data in the government market.

It can also be around the eco-system and specific vertical market skills, an area in which Equinix has proved itself the master. Fourth, it is about the hyperscale cloud customer as a target. We see many business cases where they say it would be ‘nice’ to have a hyperscale cloud as the anchor.

Although it is tempting to respond it would be ‘nice’ to win the lottery, the first question is whether they really want such a customer, given their requirements, impact on the rest of the data centre and the prices they were willing to pay.

But if they do want to target such a customer, they need to optimise their offering for the hyperscale cloud players. The most obvious way is the ‘super wholesale’ lease, as pioneered by DuPont Fabros, and eagerly adapted by AirTrunk for the Asian market.

A focus on cost and flexibility has worked well for Virtus in the UK market. Other models have included working closely with one of the major hyperscale players, such as EdgeConnex in Europe, or using the hyperscale cloud as an anchor before selling additional space to other users, such as Colt.


This article originally appeared in the Data Economy magazine. To read more on data centres, cloud and data, visit here