Amazon has introduced a new connectivity option called
Posts Tagged ‘EQIX’
Posted by Lydia Leong on August 7, 2011
Posted by Lydia Leong on October 6, 2010
A lot of Gartner Invest clients are calling to ask about Equinix’s trimming of guidance. I am enormously swamped at the moment, and cannot easily open up timeslots to talk to everyone asking. So I’m posting a short blog entry (short and not very detailed because of Gartner’s rules about how much I can give away on my blog), and the Invest inquiry coordinators are going to try to set up a 30-minute group conference call for everyone with questions about this.
If you haven’t read it, you should read my post on Getting Real on Colocation, from six months ago, when I warned that I did not see this year’s retail colocation market being particularly hot. (Wholesale and leasing are hot. Retail colo is not.)
Equinix has differentiators on the retail colo side, but they are differentiators to only part of the market. If you don’t care about dense interconnect, Equinix is just a high-quality colo facility. I have plenty of regular enterprise clients that like Equinix for their facility quality, and reliably solid operations and customer service, and who are willing to pay a premium for it — but of course increasingly, nobody’s paying a premium for much of anything (in the US) because the economy sucks and everyone is in serious belt-tightening mode. And the generally flat-to-down pricing environment for retail colo also depresses the absolute premium Equinix can command, since the premium has to be relative to the rest of the market in a given city.
Those of you who have talked to me in the past about Switch and Data know that I have always felt that the SDXC sales force was vastly inferior to the Equinix sales force, both in terms of its management and, at least as manifested in actual working with prospects, possibly in terms of the quality of the salespeople themselves. Time is needed for sales force integration and upgrade, and it seems like the earning calls indicated an issue there. Equinix has had a good track record of acquisition integration to date, so I wouldn’t worry too much about this.
The underprediction of churn is more interesting, since Equinix has historically been pretty good about forecasting, and customers who are going to be churning tend to look different from customers who will be staying. Moving out of a data center is a big production, and it drives changes in customer behavior that are observable. My guess is that they expected some mid-sized customers to stay who decided to leave instead — possibly clients who are moving to a wholesale or lease model, and who are just leaving their interconnection in Equinix. (Things like that are good from a revenue-per-square-foot standpoint, but they’re obviously an immediate hit to actual revenues.)
This doesn’t represent a view change for me; I’ve been pessimistic on prospects for retail colocation since last year, even though I still feel that Equinix is the best and most differentiated company in that sector.
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.
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.