Expanding footprint through partnerships

By Sune Christesen, Mar 27 2010

Not that long ago I did a blog post on the status of the carrier neutral colocation industry, and with some of the stuff that has been going on lately I thought it might be a good idea with a follow up. In the 2009 roundup from February, I noted that Telehouse seemed to use a different strategy than the other global carrier neutral providers, as they were expanding their footprint by cooperating with a local provider in South Africa and by doing a joint venture with two other companies in Vietnam. Furthermore I noted that Telx had entered a partnership with TATA Communications to resell space in their international data centers.

This week the leading provider, Equinix, surprisingly announced a similar initiative by entering the Chinese market through a partnership with the local provider Shanghai Data Solution. So what is up with all these strategic partnerships?

Interesting Tendency

I think it is interesting with this growing tendency of the big data center providers expanding their global footprint via partnerships, rather than establishing their own local data centers. In an industry where most of the big clients have strict requirements for certifications and standards to ensure that the facility design and management is good enough, and that the employees are trained properly, one could argue that clients care more about who they contract with than who designed and operates the facility that their servers are housed in as long as the certifications are in order.

That being the case, strategic partnerships seem like a great alternative to building in such a capital intensive industry as this one, and offers the providers a great way of expanding their footprint faster, testing new markets and slowly building up a name in the new markets. If the entrance to the market is successful, the providers can always build later on and if unsuccessful they have not risked investing millions in building huge facilities.

Obviously a lot of clients with global requirements would like to contract with as few large providers as possible, rather than having to work with a lot of local providers, which is a good argument for getting as wide a footprint as possible. On the other hand a lot of clients value the fact that their provider owns and operates the data center themselves though, and at the same time it is a large risk factor for a provider to rely on a local partners way to run their business, as actions by them can impact peoples impression of the provider. So there are a lot of pros and cons to this approach.

Asia – Growing Market

Another interesting factor in this is that even though there is no doubt that there are some very attractive and growing markets in Asia, then some of the countries are not as stable to do business in as the countries in the western world. A provider such as Equinix knows without any doubt that there is a huge business potential in China, but on the other hand we have all heard of companies like Google and GoDaddy exiting the Chinese market due to the strict involvement of the Chinese government in everything Internet related. Who would feel comfortable investing millions of dollars in building carrier neutral data centers, in a country that has proven to interfere in exchange of internet traffic with censorship as well as suddenly introduce very strict requirements for domain registrations in the manor that China has done? I would not.
In addition to the announcement of entering China, Equinix recently announced that they arranged to loan $170 million to expand its activities in the Asia Pacific region.

Staying on the topic of Asia, the Malaysian company CSF Grop PLC recently completed an IPO to raise $42 million for further expansions in the southeast Asia. CSF Group builds data centers for clients as well as operating several colocation facilities in Malaysia. The future expansion plans include Thailand, Vietnam and Indonesia. Read more about CSF Group and their IPO at Data Center Knowledge. While there is a lot of focus on the situation with the big US and EU players and what counteractions we are going to see to the Equinix dominance on these markets, the growing markets in Asia may not be forgotten. This is definitely a region to keep an eye on.

Telx IPO

While we are talking abount IPO and expanding footprint, it is also worth taking a short dive in to the recent IPO filing from Telx. The GI Partners owned company hopes to raise $100 million, to grow their business through expansions and possibly acquisitions of other providers. Whether focus still is on the North American market or if Telx is considering acquisitions to enter the European and Asian markets is unknown, but it is an interesting thought. One can not help to connect the previouis speculations of Interxion approaching Switch & Data, to a combination of perhaps Telx and Interxion.

As Rob mentioned over at Telecom Ramblings, a publicly traded Telx might take over a gap left by the Equinix acquisition of Switch & Data. More information about the IPO can be found at Data Center Knowledge, including details about the number of interconnections of Telx, Equinix and Switch & Data.