The thaw seems to be on...

In the past two days I have been fielding a ton of phone calls asking about my new venture and do I need money. I can only suspect that there is a thaw happening in the capital markets and investors sitting on cash earning single digit returns are starting to get impatient and looking for low risk investment sectors.

The sweet spot for investment in the data center markets seems to be the $200M-500M range and I can't figure out if that range is based on the numerous IPO filings by Telx, CoreSite, Interexion, etc., the M&A market with deals between Cyrus One and Cincinnati Bell, ViaWest and Oak Hill, etc. or if there are enough people to know what it takes to buy into the space and given where the bar is, not everyone can or wants to jump in (yet).

Expansions and new builds are being announced weekly which means there is more inventory coming to market. However, it won't be instantaneous inventory as the projects I have seen announced and others I know about from my Colo Mafia are all 9-24 months away from having space ready to move into.

So What?

This means that if you need megwatts now, the market is tight. It also means that there will be more sites to put into a site selection process and having people you can turn to with expertise about the operations, the systems, a company's innerworkings, will also be even more important. The real estate brokers are aware of this fact, and I see many establishing data center practices - with real estate folks, not data center folks. Real Estate guys for the most part don't understand the systems of a data center, why density is variable, why N+1 can mean different things to an ops person vs. a sales person.

Do they understand power distribution to the site and inside the site?
Do they understand telecom density? Peering and why that's an advantage?
Can they tell you why a facility is better than another or do they Google all the data centers in Ashburn VA and tour you through 6 of them when you really need to focus on one or two?
Do they understand what the data center needs to support?
Will they bring you to an NSA rated facility when you really need a fireproof locked filing cabinet?

With more inventory comes more choice. We love choice (usually). I use a simple formula to understand site selection:

number of decision makers/influencers * number of facilities = number of things you will need to sort through and spend time and money on

Lower numbers are better. I have encouraged companies to look at 1-2 facilities instead of 6 and spend the savings on bigger bonuses or an offsite meeting in St. Lucia in February vs. flying in 5-6 people multiple times for multiple site visits. It is a waste of time and money better spent on laying out the right facility than choosing it.

Pretty sweet little piece of technology...

This morning in between calls to launch a new company I had the pleasure of checking out a new technology that is actually useful (at least to me) in the data center.

Viridity

Never heard of it? Me either, but a former colleague who knows I have been in the data center business a while says I should check it out. So I do.

After 10 minutes I wished I had a 50,000 cabinet data center to plug it into. Seriously. So what is so great about it?

First off it'll auto discover physical and virtual machines and where they are. Then it tells you utilization of the physical server. Then (drum roll please) it tells you the POWER DRAW of the machine and the VM's on it. So what?

For the data center operator:

- It lets you see where the power hogs are
- It lets you see where hot spots are or will come from
- It lets you insure that a customer (in an MTF - Multi-Tenant Facility) isn't in violation of a license agreement
- It will let you know when someone is close to their upper limit and put a call in before breakers trip
- If you want to consolidate a computer room it will let you know EXACTLY what you have running, what's tapped out, what isn't, and what the power needs to be in the new facility
- It lets you locate unused resources quickly and flag power hogs you may not know about

For STF (Single Tenant Facilities) or for customers in MTF's:

- It lets you see what is actually being used for power and whether or not charges are accurate
- It lets you plan deployments and consolidations so you know what is provisioned by facility, rack, or machine.

All in all very similar to Power Assure's product and probably worth a bake off...

Change of Heart Gartner? Confusion?

I picked a bone with Lydia Leong at Gartner over a post she had in her blog essentially saying there wasn't a space issue in the data center markets. Today I see that Ramesh Kumar at Gartner says the EXACT OPPOSITE that power, space, and cooling are scarce.

I should also point out that yours truly made the very point that Ramesh did on Lydia's blog over a week ago. What changed?

So it got me wondering - is there just a ton of confusion over at Gartner about the data center market? How they cover it? It translates to me as a customer - you lost some credibility on this guys, please get it straight, you're supposed to the best...

Did Gartner do their homework after the first blog post on the state of inventory in data center markets and came to realize they really were tight?

Do they really understand what is out there, the differences, the nuances, the real deal in data centers from the systems perspective?

From density perspective? From the virtualization perspective?

I do. I will keep on sharing what I know to those who to understand what is and isn't out there for choices and arm you with knowledge to help make the best decisions.

If I hear any more Spin about The Cloud...

I don't know if anyone remebers the Simpsons episode Marge vs. the Monorail, but it could likely be overdubbed with the cloud, and we would have a humorous look at the noise that cloud has created.

I go back to my post from January 29th 2010 about my acronym for the Cloud:

Completely
Ludicrous
Offerings of
Unsustainable
Diversion

Folks, I hate to pee in people's Wheaties, but we've been here before many times. Mainframes did the same thing. They were big honking machines that got divided up and rented out by the hour/job/unit to users. Supercomputers - same deal more power.

'Outsourcing' took anything not a core competency and allowed companies to lease back stuff, whether it was people, process, or other 'stuff'.

Managed services/leasing - pay for a computer and software (or several in a system) over time. Some were shared some were private.

Cloud - chop the system(s) up into components that can be paid for in a per unit fashion and users can lease the collective system or any component of it without a contract.

Tie it all together and it means companies no longer have to plan for capex, they can have an 'oh shit' go online, get a petabyte, couple hundred processors, and take the thought around problem solving out of the equation.

The downside is that IT is once again in a reactive vs. proactive mode of operation. They are willingly giving up any strategic value in the organization. The organizations are chasing the Cloud buzzwords like a junkie chasing a fix. Stop. Just stop.

With control comes responsibility, something that we seem so willing and driven to shirk to someone else vs. sitting down and calmly figuring out that:

A private cloud is nothing more than another way to pay for your systems.
A public cloud is nothing more than a pay as you go contract with a service provider
There are costs and benefits to each that should be explored thoroughly before deciding what to do.

And if you have an 'Oh Shit', what an opportunity for IT to step up and do something right. No buzzwords, no bullshit.

So as we see the vendor press releases about 'Cloud Strategy' lets remember that they are telling us what we already know - there are many ways to pay for your stuff, we need to figure out which solution is best for us as we have for the last 25 years thank you. Then we'll let you know how we want to pay for it. Kind of like our mobile phones...

Did EMC Management smoke breakfast this week?

That is a reasonable conclusion after reading what Joe Tucci said at the EMC World event in Boston - 'Journey into the Private Cloud' as in cloud of smoke?

I understand that every Fortune 2000 IT company feels compelled to have a 'cloud strategy'. It's the new Black. However when a strategy is presented in a way that it communicates alienation of some big technology partners (HP/Cisco) whose gear EMC's relies on in some form or fashion to move the data on and off EMC arrays, then I sit back and wonder WTF were they thinking?

Here is the quote I am using from ZDNet:

Tucci also criticized the data center verticalization strategy that companies such as Hewlett-Packard and Cisco are taking, saying it will lead to a new kind of lock-in that will ultimately lend itself to inefficiency. He said EMC’s private cloud strategy swaps out verticalization with virtualization and allows all of your data center solution providers — even EMC competitors — to plug in.

So here are the things that make me glad I am not a shareholder and glad I am a customer:

1. Leading to a new kind of lock in is what you want Joe. That means people like your stuff, they buy your stuff and become dependent on your stuff to function. It's a nice virtually guaranteed revenue stream.
2. As a customer, its great that I can now try other storage offerings from my competitors in a cloud, so when you decide to change the strategy to something more realistic and come back to get me to 'lock in', I now have options. Options that you gave to me, and your competitors. Thanks.

Look, EMC has said time and time again it wants to be an arms dealer. They could care less who wins on the battlefield so long as bullets keep flying and they don't get bloody. The issue with this approach is it's non-committal. What are you for? What are you doing vs. what are you not doing? What do you believe vs. how many buzzwords need to be thrown around before people see that you have no clue about what you're doing.

So Joe, if you are listening or should have one of your colleagues stumble across my blog - you don't need a cloud strategy. Cloud is an exercise in accounting. It's mainframe all over again. Take a box, itemize its components and lease it back to the user on a per unit basis. If you want a solid private cloud strategy, call me, and I will pull together leasing partners who will chop up a VPlex faster than a Benihana hibachi cook and lease them out, protecting your market cap, serving your customers, and still being an arms dealer.

In other words EMC needs a cloud strategy that isn't about cloud. It's about EMC's products being the best damn storage products they can make and enabling different ways for customers to figure that out.

Part Three of The Issue of Scale - So What?

The question 'So What' is probably my favorite question to ask when a great idea comes to mind, or I hear a pitch about something. If I haven't answered the 'so what' question in advance, then I have failed in specifying and conveying what matters. I have also failed my colleagues if I merely whine about an issue without coming up with at least one solution.

On the Issue of Scale, so what? Follow up question - what can be done?

The so what question comes down to supply and demand. The supply for large footprints is dwindling and will only get tighter. That drives price up in mature markets. Sure you can get a deal in Oklahoma City, but I would put money on paying more to be in Northern Virginia, even outside the Ashburn/Reston data center nucleus.

I had posted a response to a post by Lydia Leong at Gartner

She makes the argument:

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:

- IT stuff is growing very quickly, driving space and/or power needs
- Substantially more companies are choosing colo over building or leasing
- Prices are escalating rapidly
- 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.

My counterpoints were that Virtualization is driving power densities up, not down. Colocation pricing is based on power density, whether expressed in square feet or per Kw rent. Density goes up, so does cost whether the cost is new CRAH/CRAC units, a new building, or a 50MW transformer.

Second - more companies look to outsource anything that is not a core competency including data centers than look to build up in house capabilities and staff. The construction of data centers gets more buzz than leasing does, but leasing still outpaces building every quarter. The companies who build are single tenant facilities with cash to do it. However building one and running one are two different businesses.

Prices are increasing. 'Ready to go' supply (a.k.a finished space) is taken in most major metro markets. That said, there will always be a company that will buy some business, get a loss leader anchor tenant and those decisions have many variables like loan structures, financing vehicles, etc. that drive what a company will charge on a specific deal.

Renewals are being done at higher price points. The cost of capital to grow is very high, data centers are incredibly capital intensive up front and companies that are doing renewals are seeing bumps in rates going forward. The counter seems to be to shorten term as if to send a message to the company that 'if you're going to jack my rate then I am only doing a 12 month renewal'. You know what, the vendor likes that more because in 12 months there will be less space and higher rates.

So how does one deal with this?

Put ROFO's in your license agreements. It gives you the ability to preserve space if a facility is filling fast. It may cost you more if the new customer is willing to pay more, but it beats having to run two sets of infrastructure in two separate facilities.

Investors - open up your checkbooks. If you got burned in the last build up - here's your shot at redemption. The window will start to close in 18 months in that you want a project funded and rolling and cash flow positive in 18-24 months. If you're looking for a fast return - stay out of this arena.

Operators - there are many deals out there to roll up assets that are underperforming and make a reasonable play and expand with rent in place.

End users - take space now if its available - especially in hot markets. If you think that virtualization will save you, it wont - your power draws will go up, we have never created less data than the previous day/week/month/year. If you think I am wrong look at it this way - every increased megapixel of camera that comes out increases file size, things go viral, and what was one picture can become a dozen copies of a a 2 megabyte photo, in other words 2megs * 10 copies is 20 Mb, not 2.

Lastly, there is a reason that there are hot markets and data center clustering - it's network density. More carriers in a building means better performance, fewer hops and lower latency. Go to buildings with high carrier density.