Serverfarm’s modern, award-winning global portfolio of data centers provides enterprises with critical IT infrastructure and capacity, along with a robust DMaaS solution. Our facilities were designed to meet our customers’ rapidly evolving requirements and are highly secure, reliable environments.
InCommand enables enterprise executives and data center teams to manage assets, capacities, and alerts virtually anywhere in the world.
Are Big Mergers Good for Customers or Could Higher Costs and Inflexibility Be the Price? Originally published on The Fast Mode.
Over several weeks in late 2021, an incredible $35 billion was spent acquiring three commercial data center companies. In November alone, more than $25 billion of spending was announced over a single 48-hour period.
These mega deals smashed the figures for annual spending on data center firms, more than doubling the investments made in 2019. It is part of a consolidation trend stretching back several years.
The deals mean that well over half the commercial data center market is now owned by large companies.
However, with so much of the market in just a few hands, raises questions such as whether consolidation is a good thing for customers. Does it serve their needs? Does it put the customer first? Is bigger always better for the customer?
Scale and sales – some context
Two of the acquired companies mentioned above have a data center presence in the European Colo market. One operates around 15 facilities in the region. The footprint of these companies stretches to millions of square feet, supplying hundreds of MWs of power. Their customer numbers are likely in the tens of thousands, and they provide hundreds of thousands of interconnects.
Reports say as much as 50% of revenues at some big data center REITs come from cloud hyperscale customers. Hyperscalers tend to be intelligent and demanding customers. In addition to colo, they build, own, and manage their own fleets and, therefore, understand the cost of goods of data center provision. They understand how to squeeze supplier margins.
Of the other 50% of revenues, the split is across wholesale and retail colocation and the blurred lines in between. Of the retail portion of the other 50%, there will be customers for whom purchasing off a rate card-based service is sufficient. But for many others, being offered a menu and being directed to the prices down the side may not be appropriate.
Economies of scale and scaled-up sales – who benefits?
There are considerations for retail and wholesale buyers as to whether big is better.
In any market with few suppliers, big companies like to talk of economies of scale – especially around merger time. This is really a cost argument. For the addressable market, the pitch will be of price advantages through commoditization. However, while commodities can work for certain customer types, the question is whether a utility approach serves the long-term needs of customers who need a little more in terms of service and flexibility.
Colo – fixed or flexible?
In some respects, the basics of the colo industry have not changed much over time. Customers still want to secure space, power, cooling and connectivity.
In other ways, the sector has radically changed because the context in which enterprises need digital infrastructure is shifting. Traditional industries experiencing tech-based accelerated change need agility. Rapid and constant digital transformation is the new normal. For digital natives, the need for flexibility is innate. Traditional and digital native firms need insight into what is happening at an infrastructure level – and both require transparency on costs over time.
A requirements list including flexibility in terms of installation, deployment, access to smart hands services, sustainability, security, and prime location could be limited by a big supplier.
With a rate card approach, once a customer is in the data center, changing cages and cabinets, adding power, or growing interconnection requirements means changing agreements. From a pricing perspective, it can be tortuous and inflexible. One example is where any new power requests are billed upfront or where additional space is needed; the billing starts from the service order dates – whether or not installations are defined and deployed. It can be the same for additional cross-connects and where reinstalls are treated as new cross-connects. Terms for Meet Me Room charges for wider Metro connectivity and connects between buildings can be opaque. Big supplier smart hands support, and other personnel-based services billing can be seen as a high margin add-on and expensive for users.
When things change on the customer side, they may find they are tied to inflexible terms and conditions where every move, add, or change is expensive, almost to the point of being punitive. Complexities can arise – and can become a serious cost issue. Users who experience or plan for growth, involving expansion or new markets, which introduce new products that require more bandwidth, more power, or specific geographical presence, could find themselves saddled with a utility service.
That is exactly the time when you need your data center provider to be flexible and to be a partner with tactical flexibility to achieve strategic aims. This can be difficult to get from a rate card.
The commercial data center sector is not immune to change. Some have evolved more quickly than others. It is no longer all the same electricity, nor is it all the same space and connections. Insight, analytics and transparency to inform decision-making is the price and service differentiator.
Those who supply and manage physical infrastructure for others cannot sit above (or in this case below) the upheaval of digital transformation. Instead, they must show flexibility in response to changing market needs.
Jochem Steman
As Serverfarm’s VP of Colocation Europe, Steman brings over 23 years of IT industry experience to the Serverfarm team. His strong understanding of the technologies causing digital disruption and how to apply them has driven business growth across several mission-critical infrastructure organizations. Prior to joining Serverfarm, Steman was the CEO of Datacenter.com, a startup with facilities in Amsterdam, Singapore and Dallas, where he successfully built the company from the ground up. At Brocade, he was responsible for IP networking solutions for international cloud service providers and high-tech accounts.
Serverfarm is a unique data center company whose mission is to maximize data center and IT infrastructure efficiencies for service providers including communication, application, cloud and internal enterprise IT organizations
©
ServerFarm All Rights Reserved
