Data Center Wars – Retail vs. Wholesale

An all-out data center war has ensued in many maturing marketplaces throughout the world between variations of data center providers.  While many data  center firms continue to grow and thrive during these battles the consumer is primed to gain the most as we head toward commoditization of data center infrastructure.

[subtitle3] How did this war get started?  [/subtitle3]

The lines between wholesale and retail were once pretty clear with 1.2 megawatt’s of dedicated power infrastructure in a private hall or building being the starting point for a typical wholesale offering.  It was not long ago that retail colocation providers found prosperous working relationships by leasing wholesale space and carving it up amongst smaller users.  Some of these same retail providers began to move upstream as they found larger opportunities they used as anchor tenants for new campuses and began to compete directly against the wholesale providers.  Essentially at the same time many of the wholesalers beginning to lose opportunities to smaller, more service intensive providers became enticed by the rich margins being garnered in the retail space and began to move well below the 1.2 mW wholesale mark.  Early methods of moving downstream came when 1.2 MW “pods” or “suites” were subdivided into what are commonly known as “PDU breaks”.  Each PDU break was approximately one quarter of a pod or 300 kW of available power delivered in approximately 2,500 sq. ft. of caged data center space.


[subtitle3] Who has the advantage in this war? [/subtitle3]

Data center providers with a retail colocation service background have more experience in managing large amounts of customers on shared infrastructure.  The retail model is geared to be an “all-in” service with the provider handling everything from power installations to running cross connections.  To succeed these companies were required to have strong sales and marketing cultures that developed brand recognition in the geographic markets they operate in.  They have advantages when a customer needs assurance of service support and the confidence of a recognized name they have heard of.

Data center providers with a wholesale service background tend to have cultures based primarily on high finance and real estate.  They are used to dealing with large customers that are difficult to conduct transactions with from a commercial and legal standpoint.  By the nature of wholesale they did not need to have everyone know their name – just the set of partners, typically real estate brokers, and customers that swam in the very large infrastructure space.  In addition they have little experience and understanding of managing and servicing many customers within data center environments.

With the lines between retail and wholesale blurred – those with the retail backgrounds that have been able to structure themselves in a manner that gives them access to large amounts of low cost capital have the advantage.  They are able to now play both games effectively while the wholesaler must play catchup in learning how to provide effective, scalable multi-tenant service.

On the other hand – the retail providers that have not been able to get themselves in a position to deploy large amounts of inexpensive capital are in a tough spot.  The survival of these companies will depend on how quickly they can catchup in the capital game or their ability to adapt from colocation to a broader range of high value services which will give them an advantage for customers looking for more holistic service packages.

Both retail and wholesale providers also face the prospect of being an acquisition target if they are unable to adapt to the changing landscape.


[subtitle3] What are consumers gaining from this war?[/subtitle3]

In short customers are getting a better technical product at lower prices.  Lots of capital both public and private has been pouring into the major and mid-range data center markets all over the world often via highly efficient, modular style builds which allow the providers to build at a much lower cost per kilowatt than ever before.

While this may result in lower prices, customers shouldn’t allow it to lead to reduced or scaled back service.  In order to ensure top tier support you will need to be mindful that your Service Level Agreements reflect your expectations of service.  Additionally, it is very important to have an understanding of data center staffing and operational procedures as these may affect the overall level of service.


[subtitle3] What does the future hold? [/subtitle3]

It is always difficult to accurately predict the future – especially in the technology sector where disruptive inventions lurk around the corners.  How variations of cloud service impact the data center industry at the wholesale and retail levels is in the process of playing out.  The ability to move data and workloads more seamlessly at greatly reduced costs is already upon us.  The only thing to be sure of is that there is plenty of money to be made – and lost – as well as great efficiencies and productivity to be gained.

Can’t buy me love – Are you sure a vendor is motivated to provide you good service?

KG-Newsletter-121It is an easy trap to fall into – believing that your business and the money it brings is enough to get a vendor to provide the world class service you may need for a critical business requirement.  There may even be a highly motivated sales person doing all possible to convince you that your business is in the right hands.  How can you be sure though that your business is indeed a fit for a vendor and that the working relationship will be a positive one for your organization?




[subtitle3]Can Quality of Service be Quantified?[/subtitle3]

Technical capability and cost are items that are typically straightforward, easy to prove and create “apple-to-apple” comparisons between vendors.  Quality of service on the other hand is much harder to pin down.  Internal figures provided by the vendor can Josh Jones Authentic Jersey be easily skewed or flat out rigged and even references can be solidly tainted.  External market figures from trusted sources are available in some cases, but are they comparable to your requirements?  It can truly be a daunting task to get to the bottom of this important question, one that frankly can’t be fully quantified.  Efforts in uncovering enough truth to make a valid decision is however warranted especially when the consequences of a vendor selection mistake are high and not fast or easy to correct.


[subtitle3]Critical Points to Consider[/subtitle3]

Account Size – What is the size of their typical account in terms of spend?  Is your organization or requirement one that fits that mold?  What end of the scale do you fall on?  If on the small side you may be insignificant but Josh Jones Jersey if too big they may not be experienced enough.

Service Type – Is the service you are looking to buy a core part of their business?  What percentage of their total revenue is comprised by this service type?  Do they have a long term commitment to provide this type of service to the market?

Organizational Culture – Is this service part of the foundation the company is built on?  Do they have a vision for the provision of this service?

Service Level Agreements – Is the vendor willing to work with you to put tangible consequences to back their service claims?

Up-Selling Culture – Does the vendor offer a multitude of services in which you may be pressured to buy more of after the initial sale?

Contract Renewals – Are you protected from severe price increases?  Is Josh Jones Kids Jersey there Josh Jones Womens Jersey a chance they could simply non-renew your contract?

References – don’t just take the ones they give you out of a can.  Ask questions about customers that are Josh Jones Youth Jersey very similar to you and your requirement.  Spending time talking with those customers will be valuable.

Their overall plan – is it likely this company will be purchased and absorbed by another company in the foreseeable future?  Does the company have solid financial standing to assure staying power?  How much are they willing to disclose about their overall plans and financial situation?


[subtitle3]Case Study[/subtitle3]

Several years ago a major telecommunications company had a high caliber colocation facility in the Texas market.  They had a stellar uptime record and service reputation with their customers at this site.  A period of time after they launched the site and with many customers installed a major energy company reserved all the remaining space and power at the location.  The telecommunications company then turned away additional orders from current customers giving them no guidance on future availability of capacity or even any tangible alternative solutions.  Customers who had never had a single notable issue now were in panic mode.  They were on fixed contracts yet now needing to put additional IT load in other locations causing operational headaches, additional costs and potential loss of revenue.

What happened here?  Why were these previously happy customers put into this situation?

Colocation was a tiny part of this telecommunication company’s total business.  Spending capital to add additional capacity to some colocation site in Texas was not a high priority regardless of the heartburn it may cause a very limited amount of their total customer base.


[subtitle3]Relationships Matter[/subtitle3]

In the end relationships are absolutely paramount in business and the importance of quality vendor relations is something we have highlighted before (The Perilous Waters of Contentious Vendor Relationships).  Glossing over service quality and over-analyzing technical capability and a sticker price is truly a dangerous game for any service deemed business critical.  You quite often simply can’t buy the service you are looking for unless the vendor is truly motivated at the core of the organization to provide it.  Making sure you develop the right relationships with those organizations that are driven to do so will serve you well.