coloValue != sq ft
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Bill Norton
Sep 23, 2010, 2:46:48 PM9/23/10
to DrPeering
DrPeering -
Q: What are the key differentiators between colocation providers and
real estate companies with conditioned space?
Grey Harry
---------------
A: Here is the typical chalk board model talk I give to my investor
clients.
You can express the value creation in the Internet Data Center space
as a set of concentric value enhancing rings built around real
estate.
At the core you have the real estate, which is as the expression goes,
is all about location. For real estate destined to be a colocation
center, proximity to fiber is critical, as this is what the tenants
will ride in on. If the colocation center is far from fiber, then the
cost of building in is higher. The most valuable colocation centers
are located at fiber nexus points. Real estate and proximity to fiber
is so important that we are starting to believe that the value
equation in Modeling the Value of an Internet Exchange needs to take
into account the cost of building into the IX. So an IX that is
expensive to get to will be inherently less valuable to the peering
population than a similar IX that is relatively inexpensive to get
into.
The developer at some point will install a fire suppression system in
the real estate to make protect it and whatever goes inside. This
becomes a more valuable piece of real estate as a result.
When the developer builds out the real estate to include reliable
power, the real estate becomes more valuable. Now it isn’t just square
feet with location benefits; it is a facility with conditioned power.
Build around that the heating, Venting and Air Conditioning (HVAC)
Systems and you have a facility that not only has the location
characteristics and conditioned power, but is also fully conditioned
space suitable for reliably hosting telecom equipment. This is more
valuable still. For some customers in fact, the availability and price
of power is the key selection criteria between colocation companies.
A security ring of services around this conditioned space makes it a
secure conditioned space with reliable power in a location with
certain characteristics. If this is a single tenant building then
perhaps the security ring is a simple single secured exterior and a
sufficiently secured employee access point. For multi-tenant data
centers, as all colocation spaces are by definition, the security ring
needs things like customer employee authentication and escorts, multi-
tenant logging systems with biometrics, camera systems archived for
months, etc.
Without Network, a Data Center is an island.
Armed with conditioned space, the colocation space needs carriers -
those that can provide transport in to the colocation space for the
tenants. These are the folks that bring in layer 1 and layer 2
connectivity - circuits for the inhabitants to use to get in and out
of this point of presence. Some data centers are owned by the
carriers themselves and rarely have alternative providers selling
transport to their customers. Carrier neutral data centers however
support multiple carriers selling transport to the customer base,
making the well-connected colocation center inherently more valuable
than one with zero or only one carrier selling services.
Around the carrier ring is the ISP ring. The ISPs come into the
building to establish a a point of present, to peer with one another,
or to participate (buy/sell) in the marketplace for transit services.
Here again, an ISP-owned data center is unlikely to have competitors
in their building selling transit to their customers, but a colocation
center will tend to have a variety of ISPs forming the open market
place. The more ISPs the better as far as the colocation provider is
concerned as the open and robust marketplace for transit and peering
are the key value propositions that will bring additional customers
in.
FInally, hosting companies, portals, CDNs, etc. tend to prefer a
richly networked ISP colocation center with an open marketplace of ISP
services. This provides the required flexibility, robustness and ever
decreasing transit prices that are reasons that large scale content
providers build into colocation centers in the first place.
What differentiates colocation centers?
The key differentiator between providers of real estate and providers
of colocation space is the managed ecosystem. Colocation is more than
a real estate play - successful colocation providers understand their
customers ecosystem, and build the right mix of players based on how
customers interact with and derive value from each other.

Dr Peering
DrPe...@DrPeering.net
Q: What are the key differentiators between colocation providers and
real estate companies with conditioned space?
Grey Harry
---------------
A: Here is the typical chalk board model talk I give to my investor
clients.
You can express the value creation in the Internet Data Center space
as a set of concentric value enhancing rings built around real
estate.
At the core you have the real estate, which is as the expression goes,
is all about location. For real estate destined to be a colocation
center, proximity to fiber is critical, as this is what the tenants
will ride in on. If the colocation center is far from fiber, then the
cost of building in is higher. The most valuable colocation centers
are located at fiber nexus points. Real estate and proximity to fiber
is so important that we are starting to believe that the value
equation in Modeling the Value of an Internet Exchange needs to take
into account the cost of building into the IX. So an IX that is
expensive to get to will be inherently less valuable to the peering
population than a similar IX that is relatively inexpensive to get
into.
The developer at some point will install a fire suppression system in
the real estate to make protect it and whatever goes inside. This
becomes a more valuable piece of real estate as a result.
When the developer builds out the real estate to include reliable
power, the real estate becomes more valuable. Now it isn’t just square
feet with location benefits; it is a facility with conditioned power.
Build around that the heating, Venting and Air Conditioning (HVAC)
Systems and you have a facility that not only has the location
characteristics and conditioned power, but is also fully conditioned
space suitable for reliably hosting telecom equipment. This is more
valuable still. For some customers in fact, the availability and price
of power is the key selection criteria between colocation companies.
A security ring of services around this conditioned space makes it a
secure conditioned space with reliable power in a location with
certain characteristics. If this is a single tenant building then
perhaps the security ring is a simple single secured exterior and a
sufficiently secured employee access point. For multi-tenant data
centers, as all colocation spaces are by definition, the security ring
needs things like customer employee authentication and escorts, multi-
tenant logging systems with biometrics, camera systems archived for
months, etc.
Without Network, a Data Center is an island.
Armed with conditioned space, the colocation space needs carriers -
those that can provide transport in to the colocation space for the
tenants. These are the folks that bring in layer 1 and layer 2
connectivity - circuits for the inhabitants to use to get in and out
of this point of presence. Some data centers are owned by the
carriers themselves and rarely have alternative providers selling
transport to their customers. Carrier neutral data centers however
support multiple carriers selling transport to the customer base,
making the well-connected colocation center inherently more valuable
than one with zero or only one carrier selling services.
Around the carrier ring is the ISP ring. The ISPs come into the
building to establish a a point of present, to peer with one another,
or to participate (buy/sell) in the marketplace for transit services.
Here again, an ISP-owned data center is unlikely to have competitors
in their building selling transit to their customers, but a colocation
center will tend to have a variety of ISPs forming the open market
place. The more ISPs the better as far as the colocation provider is
concerned as the open and robust marketplace for transit and peering
are the key value propositions that will bring additional customers
in.
FInally, hosting companies, portals, CDNs, etc. tend to prefer a
richly networked ISP colocation center with an open marketplace of ISP
services. This provides the required flexibility, robustness and ever
decreasing transit prices that are reasons that large scale content
providers build into colocation centers in the first place.
What differentiates colocation centers?
The key differentiator between providers of real estate and providers
of colocation space is the managed ecosystem. Colocation is more than
a real estate play - successful colocation providers understand their
customers ecosystem, and build the right mix of players based on how
customers interact with and derive value from each other.

Dr Peering
DrPe...@DrPeering.net
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