Equinix Guidance...

I thought this was an excellent quick & dirty assessment by Lydia Leong over at Gartner about Equinix Guidance being lowered and the ensuing stock tank, that also dragged the sector down with it. It shows me that investors don't understand the data center market other than 'it's a hot sector'. I wonder how many investors stopped to relaize that there are sub-sectors to the marketplace namely retail and wholesale players. This gives us a peek at the sub-sectors and outlines what investors need to pay attention to.

 

Equinix's reduced guidance

Lydia Leong | October 6, 2010 at 11:15 am | Tags: colocation, EQIX | Categories: Infrastructure | URL: http://wp.me/pj3To-ah

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 time slots 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.

The New Mod Squad

Lee Technologies has released an interesting whitepaper this morning discussing modularization and introducing not only their approach but their solutions - at least high level. Steve Manos discussed his changing belief system in a blog post, which I thought was spot on.Change is in the air, as Steve points out, and I have always maintained change is fun to watch and even more fun to be a part of. That does not mean it is painless however - it seldom is. Change is a response to feedback - physical, mental, spiritual - that causes us to shift what we are doing and have 'always' done. 
Having been in the data center space for 20 years, I have seen and been part of a lot of change. I was an early blogger on containers and that shift in the industry toward more efficient data center operation, and invested a fair amount of time in sitting with the vendors to understand how what they made were similar and how they were different. The change they were introducing made sense. What they were saying and doing was logical. Like a lot of other things that make sense and are logical and increase awareness - for that awareness to reach the point of changing behavior takes a while, not to mention a few skinned knees, and other painful lessons. 
One major thing that was missing is their understanding of the entire ecosystem - not just their part of it - so they didn't understand that as great and efficient as they might be, unless you have a facility (or utility/systems) to hook them up to, you aren't done yet. You just sold a laptop without a battery or an iPhone without service, not the whole package that makes it all work.The data center industry, and the other parts of its ecosystem (power, network, water, facilities) are starting to change. Companies are deploying new solutions based on the logical assessments and operational experience of what they have done before (good and bad), and it is reinforced by carrot (cost savings) and stick (coal backed electricity) adding fuel to the building momentum. 
The change is slow however, and I want offer an answer to the question 'Why?'
The dot com boom fueled a massive boom in data center development starting in 1993-1994. Money was pouring in, and as more and more data centers were built around the house of cards (logic went out the window - you don't stay in business without actual profits) more money kept being thrown at projects that wouldn't be done for years, and then you still had to fill them up with customers. The investors to a large degree didn't understand the data center business as a whole, they knew it took money which they had and knew how to work with. They didn't understand what it took to sell and operate them. 
Those who jumped in without understanding the nature of the data center business aside from the real estate or money part, and followed the herd mentality got pinched. When they got pinched, they flinched hard, and abandoned projects and rather than owning their mistake (not understanding what they were investing in), they abandoned their projects and went on to express their opinions on why everyone else was foolish to be in that business. They had a chair when the music stopped. 
The sentiment of data centers as a business from the financial community soured. They were not such a hot ticket in 1999-2002 when the bubble popped. Now I am watching the data center business become a hot ticket again. Amazon, Ebay, Microsoft, Facebook, Twitter, and other internet companies, including 'cloud' companies started the pendulum swinging back the other way to make data centers the 'new black'. I will point out that these companies who started the changes, made the changes for themselves based on their requirments only, not the requirements of hundreds of customers with gear in the same data center. When you only have to satisfy one end user vs. hundreds, things are simpler.What has also changed is the influence from the data center ecosystem in data centers themselves. 
The tree hugging dirt worshippers in the 'Green' movement have flexed their PR muscle (Google 'Facebook and Greenpeace'), the US Government has mandated energy conservation and lower carbon footprints for their data centers and builders, architects, and owner operators have flocked to LEED designs for projects. In short, logic backed decisions influenced by awareness of what we can do differently as an industry have begun to change behavior. First in single tenant facilities, and now the behavior change is spilling over to multi tenant facilities. 
The behavior change is manifested in customers willingness to look at different solutions, so long as there is not a giant chasm to cross in being different is ok. It is up to us in the industry to continue some degree of missionary work in transferring knowledge about what we have learned to our customers and why it's important to them. We have to know the entire ecosystem, not just a piece of it. 
We also need to explain why things like watts per square foot and rents based on square feet don't matter as much today, even though they have been standard selection criteria for decades. We need to explain that basing a decision on which data center to lease should be based on things like how accessible will it be if a dirty bomb goes off and the city is in lockdown, or what will the impact be to our production environments if a jet drops on top of the Ashburn cluster.  
We are a part of a data center ecosystem - ultimately part of customers' ecosystems - and having a solid logical framework is the basis of what ultimately drives a right decision, not the greatest number of checkboxes checked on an RFP or how easy the facility is to reach from the airport for a tour.Modularization is a culmination of best practices, smarter execution, and practical application of components of that ecosystem. 
Modular solutions are the physical representations that show us that each component which is part of the system can be inegrated better - or in a different way - to satisfy the most requirements for all customers, not just one and deliver more carrots from the experience with sticks.
Container solutions provide flexibility of deployment in the event of a disaster, modular builds let you eat the IT infrastructure elephant in bites, and provide the broadest set of options to satisfy the greatest number of requirements - and the only one that matters - the customer... 
To be part of the Mod Squad - ping me - mmacauley AT bytegrid DOT net...

Are We Ready To Build a Data Center Around a Cabinet?

I decided to blog about this because a friend of mine pinged me about Elliptical Mobile Solutions who has been receiving a lot of press because they are part of a few finalists' designs for EBay's new data center in Phoenix.

I met Richard Topping and SharylLin Bancroft of Green Data Solutions by literally bumping into them at a data center event in Santa Clara in December last year. I was at CoreSite helping to develop the Cloud Community AKA Cloud Center of Excellence with NASA as a charter member. I was talking to a couple of colleagues and they bumped into me trying to slide between me and another group enjoying cocktails and data center banter.

Needless to say I 'got' what they were trying to do and their solution (the RASER) is compelling. The downside is that it changes the economics for the data center owner operator because the RASERS are high density and self contained. You don't need a chiller plant to run them, just power and a sturdy building with telecom. The issue is that data centers are built with chiller plants, raised floor, air handlers, air conditioners with humidity systems and are designed around traditional cabinets. So back to the question - are we ready to build a data center around the cabinet?

I personally believe that the answer is yes, with some major caveats:

- the owner operator must have access to power and a sturdy building WITHOUT tens of millions invested in 'traditional' cooling infrastructure, raised floor, etc.

- The owner operator must be able to spend CAPEX on the cabinets to the tune of 70-100K each and collect it back over time

The challenges facing the adoption of the RASER (and others like it) are based in these two issues. An owner operator knows that there has been demand for traditional raised floor space, and because there is a mature market for it, it makes a safer bet for the financiers backing the data center build outs and retrofits. Owner operators get their buildings & projects financed building based on watts/SF, ability to cool the floor, and the mechanical & electrical systems to insure uptime. So for an owner operator to walk away from this model is risky - they run the risk of stranding a lot of floor space and equipment by implementing the new RASER cabinets. All this in spite of the efficiency owner operators all claim they are chasing reflected in PUE chest beating.

Now for an owner operator who has a building with ample power and was planning on building out raised floor environments/computer rooms in a traditional sense but has not purchased the infrastructure to operate it, their luck could not be better. Here are the rough numbers:

On a 1,000 cabinet facility they will plan for standard density of 4.8 Kw/cabinet - 4800 Kw or 4.8 MW. At ~3k per Kw all in it costs ~$14.5M for the project. The rent they plan for all in is ~$2,000 per cabinet per month. All in, fully rented it throws of $2M/month. Filled with 36 month term tenants that is $72M/36 mo. term. If the PUE is 1.8 that means for every dollar they spend on electricity 80 cents is added for inefficiencies (overhead). Electricity costs are .8 * 4800 * 730 (hours in a month) = ~$2.8M which is a pass through to larger customers.

Using a RASER deployment of 1,000 cabinets equivalent the numbers look like:

4800 Kw/12 KW/cabinet = 400 cabinets @ $70K = $28M. The PUE on a RASER is 1.2 so the facility saves 60 cents per Kwh of electricity. On 4800 Kw, the lower PUE gives you .6 * 4800* 730 (hours in a month)= $2.1M/month. Over 36 months the savings are ~$72M.

So 14.5M + 100.8M in electricity - ~116M 3 year cost on a traditional facility vs 20M + 25.2M = $45.2M.

Another way to look at it is per sq ft. 4.8MW supporting ~50K ft. At $2500/ft to build or $1800/ft to retrofit for traditional space is ~$125M build or $90M retrofit. With RASERS you need a facility of 15K ft, and retrofit only you're at ~$27M.

So are we ready to build the data center around the cabinet yet?

Data Center Modularization - The new New Thing?

Recently I have followed a number of discussions, articles, and presentations about modularization of the data center. First was virtualization and next seems to be modularization. Is this cloud all over again? Repainting existing technology approaches as new?

I saw a video that was at Data Center Knowledge this morning introducing us to Dell's new approach to 'modularization'. I commented on the video and wanted to expand on my thoughts here.

Dell talks about their solution - as do others - as being able to deploy compute and storage resources quickly. Plug and play if you will. Dell says they can deploy within 30 days at a 'ready site'. The issue is that you still need to have a site/building to put them in that is ready to go. By ready to go I mean water infrastructure, electricity, fiber/telco, and security in place. And it all has to be redundant. The other distinction that needs to be publicized is that the Dell solution is NOT a mass production offering. It is a design and deploy offering, not an off the shelf offering.

This to me is not modularization, it is layout-ization. You are controlling the layout of the data center floor and in other cases the data center itself. What this 'new' approach does not address is the more difficult tasks of finding sites that have the infrastructure available - power substations that are accessible with capacity, necessary water for cooling, no less than 5 telecom/carriers accessible, and risk profile lowering physical security - not in flood plains, not in flight paths, 40 miles from population/city centers, 18 miles away and not downwind from nuclear power plants, and the list goes on. Once these requirements have been met, then you need to look at permiting in localities, which is not an easy process. Then construction schedules, budgets, and finally breaking ground around the weather.

Most of the 'new' approaches are for single tenant facilities. This is an important distinction because with a single tenant facility, there is one set of policies, rules, and group of decision makers to satisfy. In essence you only need to satisfy the requirements for one customer - the internal one. You can argue that there are multiple customers, however at the end of the day, it is one company's budgets and one cpany's policies and needs that drive decisions.

In a multi tenant facility, you have potentially hundreds of customer's requirements and decision processes and policies to contend with making the challenges numerous and all over the map. Densities vary, what phase of power, AC or DC, which telcos are important, circuit management, cabinet hardware, cage or no cage, private suite, and cooling these various deployments. What has happened is that the multi tenant facilities design facilities that work in their business model and for the potentially greatest number of tenants and the greatest number of requirements. Customers either find what they want in the facilities or keep shopping until they do.

Layout-ization can help with this because they can buy or build facilities with the requisite infrastructure, finish it off the way customers want it and create the win-win. However, this assumes that the other pieces are in place (permits, sites, etc.). The other issue is that when a data center operator buys a facility, it is a 20 year asset and technology changes many many times in 20 years. Raised floor vs slab, 50 watts/ft vs. 200 watts/ft, blades vs. pizza box, gig E vs. 30 gig, Tier calssifications that are the 'must have' Tier classification. You get the picture.

So what is the solution?

I think that the data center operators who 'get it' will adopt new deployment models for their facilities themselves and the layouts inside them. Watts per square foot don't matter as much after the short list is made by customers, only whether or not an operator can deliver to the customer requirements now and in the future. Tier classifications are being restructured, and existing space gets harder and harder to come by every week. This means that choices for customers will be made by what is available, vs. what is right for the customer.

There is a small window of opportunity here for investors to create the next model with data center operators who saw what has happened over the past 20 years and know it needs to be different for the next 20, and are willing to team up and build it.

Note to Cloud Service Providers - The Network is The Cloud

I was catching up on some reading this weekend nursing a sunburn, and was absolutely blown away by the sheer number of 'Cloud' companies and what they are offering. I have covered Cloud in this blog repeatedly because I don't get it. I don't get what Cloud does that Managed Services Providers do with a reconstructed SLA. When I read in an eWeek piece that we need to 'stop defining what the cloud is and look at what it does' then I knew there are a lot of other people who don't get it, who want to get it, and since the industry can't come up with the single *right* answer, we call in Officer Barbrady to manage things 'Nothing to see here. Move along people...' and hope to move on without a definition in place.

Would you pay for something without knowing what it is AND does? In the words of Max from the movie The Losers 'it's like giving a loaded gun to a six year old Wade, you're not sure how t's going to end but you're pretty sure it's going to make the papers.' Is it a Zen thing? The cloud is, but will not be...? What is a simple truth? What are any of us sure of?

I am sure of one thing - that networks are the most overlooked component of the thing referred to as Cloud. Why? Simple? Imagine if there were no public roads between the airport and the car rental places, only taxi approved roads, or that you had to pay $10 to ride teh shuttle bus. You would incure a small fortune getting you and your stuff from one place to another to pay for the priviledge of renting something for as long as you needed it so you could move around.

I could play with that metaphor for a long time and won't, it's Monday. What I will say is that the Cloud providers need to understand networks so that they stay competitive, provide more value than the next guy, and if nothing else - they could offer the same pricing as Amazon's service and capture 38-48% more margin.

That should make the papers...

Everything is Bigger in Texas...

Including outsourcing deals... IBM and the State of Texas are trying to re-negotiate their contract in the press instead of with each other. This is like divorcing in public folks - you think it's ugly now? Just wait.

There is $863M on the line and so some big rocks are being thrown between the two. The finger pointing is expected, the lack of leadership is not. Why someone on either side isn't saying (like a parent) 'I don't care who did what to who, figure it out and don't come out of your rooms until you figure it out!'.

here are my thoughts on the matter as an outsider who has been involved in pitching and delivering large deals:

1. Both sides need to get two people - preferably 'Juice Guys' (people who have authority to make and keep agreements) at the table and look forward as to where the State wants to go and what they need to do. I suspect a lot has changed given the fact that there have been so many issues and things the State thought it wanted may not be on the list anymore.

2. IBM needs to automate as much as humanly possible with the project. They are a HUGE company with a lot of PEOPLE. Folks, people, humans - that is the problem. The fewer people they use on the project, the higher the degree of success will be. Technology is used to execute business process. If the team focuses on the process that needs to be in place when all is said and done, they will be infinitely more successful. Software is then deployed to support the right process. It's a tool, not the solution.

3. If there are additional questions, call me. Not the people who got you into this mess in the first place Texas. I love this comment:

While citing its disagreement with DIR”s management and characterization of the contract, McLean said that ”should DIR decide to move forward with re-procurement of all or a portion of the services, IBM remains willing to assist DIR in that process.”

Why wouldn't the fox be ready to go back, invited, into the hen house?

IBM, you f'ed up. Own it, fix it (or not) and make the customer happy. You positioned yourself as the expert, and the State has said you fell short.

Texas - sit down with the stakeholders again and plot a new plan for someone new to execute. Remember to eat the elephant in bites, as migration and consolidation is a process, not a scheduled event.

Any questions? Call me or send me an email - mmacauley@bytegrid.net and I will do what I can to help. Even if it's only keeping the fox out of the hen house...

Do Watts per Square Foot Even Matter Anymore?

I think about this question a lot, and it is one I am asking more as well to customers and peers in the industry. There are hundreds of facilities that were built 20-30 years ago and a few dozen that have been built in the past 10 (remember the .com bubble?) and I am being conservative. They were built with a solid approach for 20 years ago - build a building using a watts/ft metric to calculate costs, density, and ultimately capacity. Remember that Wang, Digital/DEC, and IBM mainframes were the systems of choice. Then the PC came on the scene, and drastically changed the dynamic of computing. Client/Server, new network protocols, ARPA, TCP/IP and http - the evolution was on.

So too were manufacturers evolving - building smaller footprint, higher capacity machines. These machines were 2-3x as powerful as their predecessors, taking up half the space. Companies could consolidate their huge footprint monlithic systems inside their data centers and make room for more. Or could they?

Today, to me it seems like deja vu all over again.

The computing world has shifted again by using virtualization, and those smaller more powerful servers, just got smaller (so small you can't touch or see them), went virtual, and companies are embracing the next evolution with gusto. They are also hitting the wall that IT managers who are retired or dead hit decades ago - power.

Why is this happening again? In a word - heat.

These smaller machines draw more power, and generate a lot more heat for their footprint. Ask a multi tenant data center operator who services the retail market on a cabinet by cabinet basis and they will tell you that cabinets full of gear that draw 4.8Kw are going in next to cabinets with 10-14 Kw. The higher density cabinets generate a lot more heat that needs to be removed from the floor so all the densities of the servers with their heat signatures can be maintained properly.

What is intrinsic of a 20 year old facility that makes it better to satify growing densities, evolving computing applications and hardware, and whatever comes down the pike? How does the colocation market evolve at the same time? When do we hit the wall, or do we hit the wall? Can you simply throw more air conditioners/handlers on the floor? Can we just continue to push utilities to increase generation and distribution? What happoens to the cost models?

I am starting to think that we are at a crossroads. Why do I believe this? Because data centers are starting to evolve. Containers, modular buildings, more flexible options. Until the hardware manufacturers get together with data center operators and do some R & D in a meaningful way, share roadmap, do testing together, we will continue to build the way we have, and not the way we must.

Want to play together - ping me. I want to figure this out...