[EN] História da Equinix segundo Jay Adelson, co-fundador da empresa
Equinix – it was always a big idea
They were two guys who had never started a company before and they raised US$1bn in three years. But as Jay Adelson, the cofounder of Equinix will tell you, it wasn’t about the money. It was about the neutrality of the exchange offering, protecting the freedom of the digital economy.
23 July 2013 by Writing by Penny Jones, interview contribution Yevgeniy Sverdlik
“It was literally the hardest time of my life, and it wasn’t Equinix’ fault.” But Jay Adelson says it was also one of the most rewarding as he candidly speaks above rockabilly music blaring over the speakers in a café across from San Francisco’s Caltrain station – the fast route out of the city and into Silicon Valley.
His life is quite different now he has sold his lot in Equinix, the company he founded with Al Avery, who sadly passed away in 2009. He got 30 cents a share. And despite his departure in 2005 – a slow removal in which he edged himself out of the company after the pressure of two years of “chaos”, personal and professional (a lot followed the events of 9/11) – Adelson is first to admit you never totally escape a company you helped nurture.
“I am always connected to Equinix in some emotional way.” That is how we came to be hearing one of the most interesting company stories in the data center space today.
From mowing lawns to data centers
Equinix in 2013 is the world’s largest colo provider. It operates in 31 markets across 15 countries in Americas, EMEA and APAC, and in Q1 this year it brought in revenue of US$519.5m But it all started in 1996 when Al Avery and Jay Adelson were working at Digital Equipment Corporation. Avery had gotten his role after mowing then CEO Ken Olsen’s lawn, according to Adelson, who had studied film and broadcasting and computer science in Michigan before making a move to the West Coast.
While working at Digital the duo had a vision for a neutral exchange offering that would overcome the monopolistic behaviour they saw being administered by the telcos managing the network exchange points at the time. Adelson says each telco had its own services to sell.
Before working at Digital – in 1993 – Adelson worked for ISP Netcom, where he designed a new network for network services. “But the monopoly would not let us play at these exchange points, and no government entity had any rules to stop this from happening.” Equinix was designed to open up the floodgates for the protection of the freedom of the Internet, and the competitive market that could flourish around it.
“Equinix started with the need for a neutral exchange,” Adleson says. “But we realized that if you wanted to offer this, then what most people would want to do is place a switch next to the other guy’s routers and switches. We had to build a data center but we weren’t quite sure how that worked. We weren’t data center guys. In the end this meant we would do this differently to how other guys had done it before.”
If it wasn’t for Digital’s enthusiasm for innovation Equinix may never have left the ground. Digital was developing patents “left, right and center – hundreds of them”, according to Adelson. “They just loved taking researchers and putting them in a room and letting them come up with things.” But while Digital was good at funding R&D it wasn’t so good at making research profitable. Adelson and Avery had been given US$3m by Digital to establish what is now known as the Palo Alto Exchange (PAIX) in an old basement – then the largest internet infrastructure in the world.
One of the biggest early challenges the duo faced was getting fiber put in for PAIX. The duo approached AT&T to see if they would spend $15m trenching into the building with a promise of selling internet services around the world. They weren’t surprised by the reaction.
“They said ‘you ask us to bed hundreds of millions of dollars on an internet boom we haven’t even seen yet? No’. So we went to Worldcom and said we really wanted them to install fiber facilities in our building and they said ‘no’. So we told them AT&T is installing next weekend and they said they were in. They dispatched the people to trench and install the fiber. We had lied and we had to plan it so the Worldcom people were on the site as AT&T people were. We knew once we had the fiber the internet services divisions that were not connected to those telecom facility divisions could ride on the fiber that they sold.”
In six months these fiber providers broke even.
“It was ridiculous how much money they made – it was often one of the biggest criticisms early in Equinix’ life that we didn’t charge based on the volume of traffic passing through the cross connect because we knew our customers were making billions of dollars through these, but we were charging hundreds a month. But if we did that those customers would never have stayed around, so neutrality became, in a way, our Archilles’ heal and also turned out to be the lifesaver of real competitive advantage to win the game later. People talk about the NASDAQ crash but what they don’t talk about is the telecom collapse that happened in the late 1990s to early 2000’s. Companies like Worldcom went bankrupt but we still got paid because we were such critical infrastructure that in their liquidations or bankruptcy we would be the first in line. This is how Equinix survived the downturn and all those crashes.”
The only problem was, Digital didn’t know how capitalize on the success of PAIX. “We started selling real estate really fast, and we were profitable. But Digital was not a data center company. What was really crazy though was that a company called Compaq bought Digital (and the Palo Alto Exchange) and in that confusion, while everyone was busy figuring out what was going to happen, we founded Equinix.” The idea was to build numerous internet exchange points in data centers around the world, all interlinked – an International Business Exchange.
Adelson and Avery struck a deal with the CEO of Compaq before they left that would allow them to buy back PAIX for $30m once they had they had established their new company. That deal never took place. The company sold to telecommunications company Metrofiber (now Abovenet) for $70m in 1999. Irony has it that Equinix then took over the exchange when it bought Switch and Data for $680m more than ten years later in 2009.
Adelson and Avery left Digital with a proven business model that allowed them to attract funding.
“We went to the CTO of Cisco at the time and Bill Gates – anyone with a vested interest in the internet growing. They agreed to put money in at a really high evaluation, which led to Venturemark Capital (which Equinix had earlier knocked back with an offer of $4m for 75% of the company) changing its offer and joining the group of C funding investors. This gave Equinix a total of $12m to kick off the first half of a data center in Ashburn, Virginia,” Adelson says.
“We founded the company on June 22, 1998, and were venture funded by September. When we took the money in October we presented a plan of 15 data centers around the world – that would be our Phase 1 but the money would only pay for half of one of those data centers."
This is where Ashburn’s data center legacy began. A large internet exchange point already existed in Tysons Corner, Fairfax County in Virginia – MAE-EAST. Capacity was filling up fast here, creating demand for more exchange points on the East Coast.
“We knew for our idea to work everyone would have to use dark fiber coming into the facility – not three or four networks but 100 different networks – and we knew that inside our facility we would have to have infinite numbers of cross connections.”
Adelson and Avery went just north of Fairfax, to Loudoun County, and visited officials there. “We went in like cowboys and said ‘Hey, we have this idea to build the largest exchange point in the world in your county, and all we ask is for you to make it really easy and attractive financially for our customers to get their networks up’. We told them if this happens then companies like AOL and Broadcom will move in. Loudoun County had never had this before, so they said ‘let’s do it’. And it totally worked, just as we advertised.”
Equinix started building out in 10,000 sq ft increments in Ashburn, with the first instalment opening in June 1999. A year later it went back to its strategic investors and secured $85m in funding in another equity round, which saw more investors come on board – companies including AOL and Worldcom which had realized the validity of the model.
“Literally three weeks later we closed a $230m high yield debt round and within a year we had raised a good $300m to $400m, which allowed us to build our San Jose, New York and Chicago facilities and from there we just kept growing,” Adelson says.
Equinix had little problem receiving government approvals in the US – companies like Exodus and Telehouse had done data centers before.
“There were already divisions of power companies and local government that knew enough about large data centers then,” Adelson says. Regardless, Adelson says Equinix, with such fast rates of growth, became an expert at going through red tape. “In some communities we ended up becoming their blueprint for data center projects. This was good for our ego but it meant we had to hire electrical engineers, architects and have incredible versatility,” Adelson says.
He points to the example of raised floors, which Equinix had ditched following a scientific report that discredited the process. “We had to prove this though to local governments. We had started out outsourcing all our design and engineering and within six months we had brought it all inhouse. We knew that when we wanted to build facilities we needed a general contractor who could span the globe and work in every community. We found two companies on earth that could do that – one was Cogema, the other Bechtel, which we ended up signing a $1.2bn contract with.”
As Equinix evolved it also came into its own business model, which Adelson says heavily revolved around the marketplace that could co-exist within the data center. Google was one of Equinix’ largest customers. “They were a large volume content customer,” Adelson says. “They would come to us and say they needed 50,000 of our 150,000 sq ft data center and demand a low price because they would be buying at volume. But if I sell to Google not only am I taking my shopping mall and getting rid of all the shops, and everyone’s stores but I am giving away a third of my inventory at a discount. We got to that point in 2003 when [large internet companies] were taking up huge amounts of space and we literally made the decision at the executive team level to stop catering to the wholesale customer.” (Google told FOCUS it doesn’t comment on its colo relationships.)
Times were not always easy. Speak to any entrepreneur in this space and you will hear resilience is closely coupled with the ability to overcome adversity. Industry support is not always on your side.
Adelson is now 42 and his first daughter Rowan was born two months before Equinix was founded. “So we knew we were taking great risk, not only with the money, but our lives. But the more we experienced building the business the more we realized how few people are successful at this. And then you realize it is because they are told they are not going to be. You can be blown away by what you can accomplish if you decide not to listen. I mean, we raised US$1bn in three years because we decided to ignore common wisdom.”
Adelson attributes much of his success to Avery. “Al was a guy who taught me to challenge the assumptions I’d grown up with. He taught me that qualification is defined by the passion you feel for a topic, not by the rules of tradition that you follow. That was what allowed Equinix to succeed. Al had been a middle manager for years but he had this innate wisdom.”
Adelson took the lessons learned through Equinix – mostly around how to start a company – and used that to form Digg and a number of other Silicon Valley startups. “My thread now for all of these ventures is to help people, especially with their work-life balance, because after Equinix that is an area I am passionate about.”
When we met Adelson he was about to take his 15-year-old daughter to see a rock concert with some friends. Twelve years ago, it appears finding the time would have been hard. Adelson says the events of 9/11 signalled his exit from Equinix. Family commitments were beckoning at a time when the company was heavily under the security spotlight.
Adelson and Avery had been out signing deals on Wall Street when the Twin Towers fell. Shortly after, Adelson was called to stand before Congress and give a presentation about cybersecurity.
“They were forming this new initiative called the Department of Homeland Security which had never existed before, and talking about regulating the Internet. We felt we really couldn’t screw up, this was a great time of vulnerability where things could happen legislation-wise that would interfere with the privacy of Americans and threaten national security,” Adelson says.
The pressure was great, and following the experience Adelson quietly and slowly took steps back from the executive team, before selling his shares some years later. He is still an advisor with the company.
The challenge ahead
Adelson believes both the industry and Equinix have some big challenges ahead. For Equinix, it is about staying true to its routes and revolves around the responsible deployment of network services in emerging countries.
“Equinix is now a dominating force and this means it can be dangerous. When we started we were trying to disrupt monopolies but how ironic that now its success means it will be the only force? In many countries it will be the company that introduces the Internet, and I think it should be extremely responsible in the deployment of its services and take extra steps of self-governance to ensure it enables competition in an actual marketplace. The concept of an IBX is a perfect economic development zone for a developing country that may only have one mobile service provider.”
The other challenge is for the industry to challenge Equinix. “I am still surprised there is not a number two. How did that happen? There are plenty of big pocket books out there that could easily build an Equinix competitor, and while I don’t think they could take Equinix down I think they could easily sit alongside Equinix.”
This article first appeared in FOCUS magazine, Issue 31.