CloudPundit: Massive-Scale Computing

the business of Internet infrastructure, cloud computing, and virtual worlds

Posts Tagged ‘colocation’

« Previous Entries

Getting real on colocation

Posted by Lydia Leong on April 23, 2010

Of late, I’ve had a lot of people ask me why my near-term forecast for the colocation market in the United States is so much lower (in many cases, half the growth rate) when compared with those produced by competing analyst firms, Wall Street, and so forth.

Without giving too much information (as you’ll recall, Gartner likes its bloggers to preserve client value by not delving too far into details for things like this), the answer to that comes down to:

  1. Gartner’s integrated forecasting approach
  2. Direct insight into end-user buying behavior
  3. Tracking the entire market, not just the traditional “hot” colo markets

I’ve got the advantage of the fact that Gartner producing forecasts for essentially the full range of IT-related “stuff”. If I’ve got a data center, I’ve got to fill it with stuff. It needs servers, network equipment, and storage, and those things need semiconductors as their components. It’s got to have network connectivity (and that means carrier network equipment for service providers, as well as equipment on the terminating end). It’s got to have software running on those servers. Stuff is a decent proxy for overall data center growth. If people aren’t buying a lot of stuff, their data center footprint isn’t growing. And when they’re buying stuff, it’s important to know if it’s replacing other stuff (freeing up power and space), or if it’s new stuff that’s going to drive footprint or power growth.

Collectively, analysts at Gartner take over a quarter-million client inquiries a year, an awful of lot of them related to purchasing decisions of one sort or another. We also do direct primary research in the form of surveys. So when we forecast, we’re not just listening to vendors tell us what they think their demand is; we’re also judging demand from the end-user (buyer) side. My colleagues and I, who collectively cover data center construction, renovation, leasing, and colocation (as well as things like hosting and data center outsourcing), have a pretty good picture of what our clientele are thinking about when it comes to procuring data center space, in addition to the degree to which end-user thinking informs our forecast for the stuff that goes into data centers.

Because of our client base, which not only include IT buyers dispersed throughout the world, but a lot of vendors and investors, we watch not just the key colocation markets where folks like Equinix have set up shop, but everywhere anyone does colo, which is getting to be an awful lot of places. If you’re judging the data center market by what’s happening in Equinix Cities or even Savvis Cities, you’re missing a lot.

If I’m going to believe in gigantic growth rates in colocation, I have to believe that one or more of the following things is true:

  1. IT stuff is growing very quickly, driving space and/or power needs
  2. Substantially more companies are choosing colo over building or leasing
  3. Prices are escalating rapidly
  4. Renewals will be at substantially higher prices than the original contracts

I don’t think, in the general case, that these things are true. (There are places where they can be true, such as with dot-com growth, specific markets where space is tight, and so on.) They’re sufficiently true to drive a colo growth rate that is substantially higher than the general “stuff that goes into data centers” growth rate, but not enough to drive the stratospheric growth rates that other analysts have been talking about.

Note, though, that this is market growth rate. Individual companies may have growth rates far in excess or far below that of the market.

I could be wrong, but pessimism plus the comprehensive approach to forecasting has served me well in the past. I came through the dot-com boom-and-bust with forecasts that turned out to be pretty much on the money, despite the fact that every other analyst firm on the planet was predicting rates of growth enormously higher than mine.

(Also, to my retroactive amusement: Back then, I estimated revenue figures for WorldCom that were a fraction of what they reported, due to my simple inability to make sense of their reported numbers. If you push network traffic, you need carrier equipment, as do the traffic recipients. And traffic goes to desktops and servers, which can be counted, and you can arrive at reasonable estimates of how much bandwidth each uses. And so on. Everything has to add up to a coherent picture, and it simply didn’t. It didn’t help that the folks at WorldCom couldn’t explain the logical discrepancies, either. It just took a lot of years to find out why.)

Bookmark and Share

Posted in Infrastructure | Tagged: , , | 11 Comments »

Q1 2010 inquiry in review

Posted by Lydia Leong on April 5, 2010

My professional life has gotten even busier — something that I thought was impossible, until I saw how far out my inquiry calendar was being booked. As usual, my blogging has suffered for it, as has my writing output in general. Nearly all of my writing now seems to be done in airports, while waiting for flights.

The things that clients are asking me about has changed in a big way since my Q4 2009 commentary, although this is partially due to an effort to shift some of my workload to other analysts on my team, so I can focus on the stuff that’s cutting edge rather than routine. I’ve been trying to shed as much of the routine colocation and data center leasing inquiry onto other analysts as possible, for instance; reviewing space-and-power contracts isn’t exactly rocket science, and I can get the trends information I need without needing to look at a zillion individual contracts.

Probably the biggest surprise of the quarter is how intensively my CDN inquiry has ramped up. It’s Akamai and more Akamai, for the most part — renewals, new contracts, and almost always, competitive bids. With aggressive new pricing across the board, a willingness to negotiate (and an often-confusing contract structure), and serious prospecting for new business, Akamai is generating a volume of CDN inquiry for me that I’ve never seen before, and I talk to a lot of customers in general. Limelight is in nearly all of these bids, too, by the way, and the competition in general has been very interesting — particularly AT&T. Given Gartner’s client base, my CDN inquiry is highly diversified; I see a tremendous amount of e-commerce, enterprise application acceleration, electronic software delivery and whatnot, in addition to video deals. (I’ve seen as many as 15 CDN deals in a week, lately.)

The application acceleration market in general is seeing some new innovations, especially on the software end (check out vendors like Aptimize), and there will be more ADN offers will be launched by the major CDN vendors this year. The question of, “Do you really need an ADN, or can you get enough speed with hardware and/or software?” is certainly a key one right now, due to the big delta in price between pure content offload and dynamic acceleration.

By the way, if you have not seen Akamai CEO Paul Sagan’s “Leading through Adversity” talk given at MIT Sloan, you might find it interesting — it’s his personal perspective on the company’s history. (His speech starts around the 5:30 mark, and is followed by open Q&A, although unfortunately the audio cuts out in one of the most interesting bits.)

Most of the rest of my inquiry time is focused around cloud computing inquiries, primarily of a general strategic sort, but also with plenty of near-term adoption of IaaS. Traditional pure-dedicated hosting inquiry, as I mentioned in my last round-up, is pretty much dead — just about every deal has some virtualized utility component, and when it doesn’t, the vendor has to offer some kind of flexible pricing arrangement. Unusually, I’m beginning to take more and more inquiry from traditional data center outsourcing clients who are now looking at shifting their sourcing model. And we’re seeing some sharp regional trends in the evolution of the cloud market that are the subject of an upcoming research note.

Bookmark and Share

Posted in Industry | Tagged: , , , , , | Leave a Comment »

Savvis CEO Phil Koen resigns

Posted by Lydia Leong on January 11, 2010

Savvis announced the resignation of CEO Phil Koen on Friday, citing a “joint decision” between Koen and the board of directors. This was clearly not a planned event, and it’s interesting, coming at the end of a year in which Savvis’s stock has performed pretty well (it’s up 96% over last year, although the last quarter has been rockier, -8%). The presumed conflict between Koen and the board becomes clearer when one looks at a managed hosting comparable like Rackspace (up 276% over last year, 19% in the last quarter), rather than at the colocation vendors.

When the newly-appointed interim CEO Jim Ousley says “more aggressive pursuit of expanding our growth”, I read that as, “Savvis missed the chance to be an early cloud computing leader”. A leader in utility computing, offering on-demand compute on eGenera-based blade architectures, Savvis could have taken its core market message, shifted its technology approach to embrace a primarily virtualization-based implementation, and led the charge into enterprise cloud. Instead, its multi-pronged approach (do you want dedicated servers? blades? VMs?) led to a lengthy period of confusion for prospective customers, both in marketing material and in the sales cycle itself.

Savvis still has solid products and services, and we still see plenty of contract volume in our own dealings with enterprise clients, as well as generally positive customer experiences. But Savvis has become a technology follower, conservative in its approach, rather than a boldly visionary leader. Under previous CEO Rob McCormick, the company was often ahead of its time, which isn’t ideal either, but in this period of rapid market evolution, the consumerization of IT, and self-service, Savvis’s increasingly IBM-like market messages are a bit discordant with the marketplace, and its product portfolio has largely steered away from the fastest-growing segment of the market, self-managed cloud hosting.

Koen made many good decisions — among them, focusing on managed hosting rather than colocation. But his tenure was also a time of significant turnover within the Savvis ranks, especially at the senior levels of sales and marketing. When Ousley says the company is going to take a “fresh look” at sales and marketing, I read that as, “Try to retain sales and marketing leadership for long enough for them to make a long-term impact.”

Having an interim CEO in the short term — and one drawn from the ranks of the board, rather than from the existing executive leadership — means what is effectively a holding pattern until a new CEO can be selected, gets acquainted with the business, and figures out what he wants to do. That’s not going to be quick, which is potentially dangerous at this time of fast-moving market evolution. But the impact of that won’t be felt for many months; in the near term, one would expect projects to continue to execute as planned.

Thus, for existing and prospective Savvis customers, I’d expect that this change in the executive ranks will result in exactly zero impact in the near term; anyone considering signing a contract should just proceed as if nothing’s changed.

Bookmark and Share

Posted in Industry | Tagged: , , | 2 Comments »

The last quarter in review

Posted by Lydia Leong on January 6, 2010

The end of 2009 was extraordinarily busy, and that’s meant that, shamefully, I haven’t posted to my blog in ages. I aim to try to return to near-daily posting in 2010, but this means creating time in my schedule to think and research and write, rather than being entirely consumed by client inquiry.

December was Gartner’s data center conference, where I spent most of a week in back-to-back meetings, punctuated by a cloud computing end-user roundtable, a cloud computing town hall, and my talk on getting data center space. Attendance at the conference is skewed heavily towards large enterprises, but one of the most fascinating bits that emerged out of the week was the number of people walking around with emails from their CEO saying that they had to investigate this cloud computing thing, and whose major goals for the conference included figuring out how the heck they were going to reply to that email.

My cloud computing webinar is now available for replay — it’s a lightweight introduction to the subject. Ironically, when I started working at Gartner, I was terrified of public speaking, and much more comfortable doing talks over the phone. Now, I’m used to having live audiences and public speaking is just another routine day on the job… but speaking into the dead silence of an ATC is a little unnerving. (I once spent ten minutes giving a presentation to dead air, not realizing that the phone bridge had gone dead.) There were tons of great questions asked by the audience, far more than could possibly be answered in the Q&A time, but I’m taking the input and using it to figure out how to decide what I should be writing this year.

Q4 2009, by and large, continued my Q3 inquiry trends. Tons of colocation inquiries — but colocation is often giving way to leasing, now, and local/regional players are prominent in nearly every deal (and winning a lot of the deals). Relatively quiet on the CDN front, but this has to be put in context — Gartner’s analysts took over 1300 inquiries on enterprise video during 2009, and these days I’m pretty likely to look at a client’s needs and tell them they need someone like Kontiki or Ignite, not a traditional Internet CDN. And cloud, cloud, cloud is very much on everyone’s radar screen, with Asia suddenly becoming hot. Traditional dedicated hosting is dying at a remarkable pace; it’s unusual to see new deals that aren’t virtualized.

I’ll be writing on all this and more in the new year.

Bookmark and Share

Posted in Industry | Tagged: , , , | 1 Comment »

Jim Cramer’s “Death of the Data Center”

Posted by Lydia Leong on October 23, 2009

Jim Cramer’s “Mad Money” featured an interesting segment yesterday, titled “Sell Block: The Death of the Data Center?“

Basically, the premise of the segment is that Intel’s Nehalem DP processors will allow businessses to shrink their data center footprint, and thus businesses won’t need as much data center space, commercial data centers will empty out, and businesses might even bring previously colocated gear back into in-house data centers. He claims, somewhat weirdly, that because the Wall Street analysts who cover this space are primarily telco analysts, they’re not thinking about the impact of compute density on the growth of data center space.

I started to write a “Jim Cramer has no idea what he’s talking about” post, but I saw that Rich Miller over at Data Center Knowledge beat me to it.

Processing power has been increasing exponentially forever, but data center needs have grown even more quickly — certainly in the exponential-growth dot-com world, but even in the enterprise. There’s no reason to believe that this next generation of chips changes that at all, and it’s certainly not backed up by survey data from enterprise buyers, much less rapidly-growing dot-coms.

Cramer also seems to fail to understand the fundamental value proposition of Equinix in particular. It’s not about providing the space more cheaply; it’s about the ability to interconnect to lots of networks. That’s why companies like Google, Microsoft, etc. have built their own data centers in places where there’s cheap power — but continued to leave edge footprints and interconnect within Equinix and other high-network-density facilities.

Bookmark and Share

Posted in Industry | Tagged: , | 3 Comments »

Equinix swallows Switch & Data

Posted by Lydia Leong on October 21, 2009

The acquisition train rumbles on.

Equinix, along with Q3 earnings, has announced that it will acquire Switch and Data in a $689 million, 80% stock, 20% cash deal, representing about a 30% premium over SDXC’s closing share price today.

This move should be read as a definitive shift in strategy for Equinix. Equinix’s management team has changed significantly over the past year, and this is probably the strongest signal that the company has given yet about its evolving vision for the future.

Historically, Equinix has determinedly stuck to big Internet hub cities. Given its core focus upon network-neutral colocation — and specifically the customers who need highly dense network interconnect — it’s made sense for them to be where content providers want to be, which is also, not coincidentally, where there’s a dense concentration of service providers. Although Equinix derives a significant portion of its revenues from traditional businesses who simply treat them as a high-quality colocation provider and do very little interconnect, Equinix’s core value proposition has been most compelling to those companies for whom access to many networks, or access to an ecosystem, is critical.

The Switch and Data acquisition takes them out of big Internet hub cities, into secondary cities — often with much smaller, and lower-quality, data centers than Equinix has traditionally built. Equinix specifically cites interest in these secondary markets as a key reason for making the acquisition. They believe that cloud computing will drive applications closer to the edge, and therefore, in order to continue to compete successfully as a network hub for cloud and SaaS providers, they need to be in more markets than just the big Internet hub cities.

Though many anecdotes have been told about the shift towards content peering over the last couple of years, the Arbor Networks study of Internet traffic patterns — see the NANOG presentation for details — backs this up with excellent quantitative data. Consider that many of the larger content providers are migrating to places where there’s cheap power and using a tethering strategy instead (getting fiber back to a network-dense location), and that emerging cloud providers will likely do the same as their infrastructure grows, and you’ll see how a broader footprint becomes relevant — shorter tethers (desirable for latency reasons) mean needing to be in more markets. (Whether this makes regulators more or less nervous about the acquisition remains to be seen.)

While on the surface, this might seem like a pretty simple acquisition — two network-neutral colocation companies getting together, whee — it’s not actually that straightforward. I’ll leave it to the Wall Street analysts to fuss about the financial impact — Equinix and S&D have very different margin profiles, notably — and just touch on a few other things.

While S&D and Equinix overlap in service provider customer base, there are significant differences between the rest of their customers. S&D’s smaller, often less central data centers mean that they historically don’t serve customers who have had large-footprint needs (although this becomes less of a concern with the tethering approach taken by big content providers, who have moved their large footprints out of colo anyway). S&D’s data centers also tend to attract smaller businesses, rather than the mid-sized and enterprise market. Although, like many colo companies, their sales forces are essentially order-takers, Equinix displays a knack for enterprise sales and service, a certain polish, that S&D lacks. Equinix has a strong enterprise brand, and a consistency of quality that supports that brand; S&D is well-known within the industry (within the trade, so to speak), but not to typical IT managers, and the mixed-quality portfolio that the acquisition creates will probably present some branding and positioning challenges for Equinix.

While I think there will be some challenges in bringing the two companies together to deliver a rationalized portfolio of services in a consistent manner, Equinix has a history of successfully integrating acquisitions, and for a fast entrance into secondary markets, this was certainly the most practical way to go about doing so.

As usual, I can’t delve too deeply in this blog without breaking Gartner’s blogging rules, and so I’ll leave it at that. Clients can feel free to make an inquiry if they’re interested in hearing more.

Bookmark and Share

Posted in Industry | Tagged: , , | Leave a Comment »

Gartner BCM summit pitches

Posted by Lydia Leong on March 24, 2009

I’ve just finished writing one of my presentations for Gartner’s Business Continuity Management Summit. My pitch is focused upon looking at colocation as well as the future of cloud infrastructure for disaster recovery purposes. (My other pitch at the conference is on network resiliency.)

When I started out to write this, I’d actually been expecting that some providers who had indicated that they’d have formal cloud DR services coming out shortly would be able to provide me with a briefing on what they were planning to offer. But that, unfortunately, turned out not to be the case in the end. So the pitch has been more focused on do-it-yourself cloud DR.

Lightweight DR services have appeared and disappeared from the market at an interesting rate ever since Inflow (many years and many acquisitions ago) began offering a service focused on smaller mid-market customers that couldn’t typically afford full-service DR solutions. It’s a natural complement to colocation (in fact, a substantial percentage of the people who use colo do it for a secondary site), and now, a natural complement to the cloud.

Bookmark and Share

Posted in Infrastructure | Tagged: , , | 1 Comment »

Recent polling results

Posted by Lydia Leong on January 23, 2009

I’ve just put out a new research report called The Changing Colocation and Data Center Market. Macroeconomic factors have driven major changes in both the supply and demand picture for data center construction, leasing, and colocation, in the last quarter of 2008, continuing into this year. The economic environment has brought about abrupt shift in sourcing strategies, build plans, and the like, driving a ton of inquiry for myself and my colleagues. This report looks at those changes, and presents results from a colocation poll done of attendees at Gartner’s data center conference in December.

Those of you interested in commentary related to that conference might also want to read reports done by colleagues of mine: Too Many Data Center Conference Attendees Are Not Considering Availability and Location Risks in Data Center Siting and Sourcing Decisions, and an issue near and dear to many businesses right now, how to stretch out their money and current data center life, Pragmatic Guidance on Data Center Energy Issues for the Next 18 Months.

Reports are clients-only, sorry.

Bookmark and Share

Posted in Infrastructure | Tagged: , , | Leave a Comment »

The week’s observations

Posted by Lydia Leong on December 5, 2008

My colleague Tom Bittman has written a great summary of the hot topics from the Gartner data center conference this past week.

Some personal observations as I wrap up the week…

The future of infrastructure is the cloud. I use “cloud” in a broad sense; many larger organizations will be building their own “private clouds” (which technically aren’t actually clouds, but the “private cloud” terminology has sunk in and probably won’t be easily budged). I was surprised by how many people at the conference wanted to talk to me about initial use of public clouds, how to structure cloud services within their own organizations, and what they could learn from public cloud and hosting services.

Cloud demos are extremely compelling. I was using demos of several clouds in order to make my points to people asking about cloud computing: Terremark’s Enterprise Cloud, Rackspace’s Mosso, and Amazon’s EC2 plus RightScale. I showed some screen shots off 3Tera’s website as well. I did not warn the providers that I was going to do this, and none of them were at the conference (a pity, since I suspect this would have been lead-generating). It was interesting to see how utterly fascinated people were — particularly with the Terremark offering, which is essentially a private cloud. (People were stopping me in the hallways to say, “I hear you have a really cool cloud demo.”) I was showing the trivially easy point-and-click process of provisioning a server, which, I think, provided a kind of grounding for “here is how the cloud could apply to your business”.

Colocation is really, really hot. My one-on-one schedule was crammed with colocation questions, though, as were my conversations with attendees in hallways and over meals, yet I was shocked by how many people showed up to my Friday, 8 am talk on colocation — the best-attended talk of the slot, I was told (and one cursed by lots of A/V glitches). Over the last month, we’ve seen demand accelerate and supply projections tighten — neither businesses nor data center providers can build right now.

A crazy conference week, like always, but tremendously interesting.

Bookmark and Share

Posted in Industry | Tagged: , , , | Leave a Comment »

Trion World gets a $70m C round

Posted by Lydia Leong on September 24, 2008

MMOG developer and publisher Trion World Network just closed a $70 million Series C round, which brings its total raised since its inception in 2006 to over $100 million.

This might seem like a staggering amount of money for a company with two games in development but none published yet. It’s trading on the name of its founder, Jon Van Caneghem, of Might and Magic fame. But it’s not that much money if you realize that games are now being made on movie-sized budgets, and MMOGs are exceptionally expensive to develop.

Dan Hunter had an interesting piece on the Terra Nova blog last year regarding the financials of MMOG development, based off an Interplay prospectus for an MMOG based on Fallout. That cited a cost of $75m, including a launch budget of $30m, which presumably includes marketing, manufacturing, and server deployment.

MMOGs are not efficient beasts, and by their nature, they are also prone to flash crowds and highly variable capacity needs. Most scale in a highly unwieldy manner, compounding the basic inefficient utilization of computing capacity. Utility computing infrastructure has huge potential to reduce the overbuy of capacity, but colocation on their own hardware is nigh-universally the way that such companies deploy their games.

Nicholas Carr estimated back in 2006 that an avatar in Second Life has a carbon footprint equivalent to a Brazilian. Last year, I heard, from a source I’d consider to be pretty authoritative, that an avatar in Second Life actually has a carbon footprint larger than its typical real-person (usually an affluent American).

This is why Internet data center providers drool at MMOG companies.

Bookmark and Share

Posted in Gaming | Tagged: , , , , | 3 Comments »

« Previous Entries