It might seem counter-intuitive that a private data center company building in secondary markets could impact future earnings for the big publicly held data center REITs, but it appears there are some game-changing developments underway.
EdgeConneX is a portfolio company of Comcast Ventures; its other investors include: Charter Communications, Akamai, Cox Communications, and Ciena, as well as private equity firms Brown Brothers Harriman and Providence Equity Partners.
It continues to construct and expand a network of new “skating rinks” (edge data centers) where cable, content, and cloud providers are collocating servers to improve the quality of service in local markets.
In addition to providing lower latency for high-performance applications, EdgeConneX offers US customers a distributed wholesale pricing model, which can make it cheaper to locate servers closer to the “eyeballs,” or network edge.
In a nutshell, the EdgeConneX one-two punch of improved network performance at a lower price point could win a lot of market share from incumbent data center providers.
Wholesale Pricing: The provider offers a basic colocation contract charging $150 to $235 per kW per month (depending on redundancy and market). There is no administrative fee on contracted power usage. There is no charge for floor space occupied by IT cabinets.
Cross-Connects: There is a $200 non-recurring set-up fee for running the fiber. The monthly recurring fee is $100 per “lit” pair, with no charge for unused connections. This pricing is posted on the EdgeConneX website along with its OPEN-IX certifications.
It is not unusual for US data center providers to charge $300-$500 for installation and up to $300 for monthly recurring fees per cross-connect, lit or not.
Lease Term: The typical EdgeConneX lease contract with anchors is for an initial term of 7 to 15 years, “with a bias toward the longer side,” according to Phill Lawson-Shanks, EdgeConneX chief architect and VP of innovation.
Notably, the longer EdgeConneX lease term is a game changer for small kW deployments, which typically average just two to three years. These newly constructed peering points are designed to be permanent network nodes.
Technology: The EdgeConneX network of data centers is fully automated utilizing a proprietary EdgeOS data center operations management system, which reduces risk of operator error. The EdgeOS technology also contributes to the wholesale pricing of data center space, power and cross-connects by lowering operating costs.
Additionally, EdgeConneX tenants can monitor all data center locations in real-time on a single dashboard with visibility down to the equipment level, including power usage, temperatures and humidity.
EdgeConneX – US Strategy
EdgeConneX’s network of 25 data centers build across 24 US markets simply did not exist two years ago, which makes this company one of the fastest-growing data center providers.
It is far more than just a landlord. It essentially has become a design-build partner creating new internet peering points in data centers located where anchor tenants can provide the lowest-latency video and other content to customers in edge markets.
Each location opens already seeded with content providers, CDNs, ISPs, networks, as well as cloud and managed services providers. This helps to accelerate the evolution of the content and cloud supply chain, or ecosystem.
Most notably, EdgeConneX does not build data center facilities speculatively. In fact, each one that opens is immediately EBITDA-positive, according to management.
The company’s speed to market is enhanced by its proprietary RIO (real estate inventory online) software. RIO is a site acquisition tool, which maps over 40,000 building locations nationwide in relation to fiber aggregation points, and fiber network routes by provider, in each US market.
Selection of an ideally located existing building to purchase, gut, and remodel in a new market generally takes a week or less. The delivery of a purpose-built data center designed to support 600 watts per square foot, with minimum N+1 redundancy, takes four to six months depending upon length of time required for permitting.
Recent Cloud Strategy
In 2016, EdgeConneX has now upped the ante by rolling out high-speed on-ramps for Amazon Web Services, Microsoft Azure and Google Cloud.
This nascent cloud initiative is already active in Portland and Boston in conjunction with connectivity partner Megaport. Notably, EdgeConneX has also provided the first AWS Direct Connect physical location to serve the Portland market.
Access to the Big Three cloud providers is also available in Detroit, where EdgeConneX has partnered with Console to provide scalable, private, direct connections for customers. EdgeConneX also offers colocation space for managed services companies and system integrators which can facilitate enterprise hybrid cloud deployments at these cloud-enabled locations.
While many data center operators are active across US secondary markets, this list shrinks rapidly when you only include those firms which also have significant international data center operations.
In January 2016, EdgeConneX announced that its first European expansion would be in Amsterdam, and subsequently revealed two additional projects located near Dublin and London.
The massive scale of EdgeConneX’s European data center hub deployments dwarfs the US edge data centers. EdgeConneX utilizes a modular approach to build US edge data centers in 2 MW initial phases, designed with provisions for expansion in 2 MW increments.
EdgeConneX plans to roll-out a similar network of smaller edge data centers in secondary cities across the UK and Europe to provide low-latency alternatives for an ecosystem of tenants, anchored by media giant Liberty Global.
Long-Term Commitments EdgeConneX prefers to own its data center infrastructure rather than to lease facilities from other landlords. This requires a lot of capital investment, but clearly Comcast and other venture partners have deep pockets.
In 2013, the first EdgeConneX data center location was built in a leased facility in Katy, TX outside of Houston. Fast-forward to 2016, and EdgeConneX recently purchased StratITsphere, the small wholesale data center provider which owned that facility, in order to control that property.
This purchase underscores the importance which EdgeConneX places on owning its fleet of data centers — an approach which makes sense given the long-term contracts which key customers are signing.
Investor Bottom Line
This early in the game it remains unclear just how much of a threat the evolving EdgeConneX business model may pose to incumbent data center landlords.
One risk is that large numbers of servers deployed in multiple edge markets will slow the rate of growth in core US data center markets over time — especially for media firms and content providers. Additionally, the EdgeConneX pricing plan could become a revenue headwind for incumbents who are located upstream, in larger data center markets.
EdgeConneX is certainly more than just another niche player in secondary US markets and is already a much larger enterprise than probably most investors realize. Some back-of-the-envelope math indicates that the company could soon generate revenues rivaling some of the smaller publicly traded data center REITs.
Peak 10 and GI Find Winning Formula in Secondary Data Center Markets
by Bill Stoller
August 22, 2016
While secondary data center markets don’t often garner headlines, they certainly must be profitable.
Since 2000, Charlotte-based Peak 10 has evolved with its customers to provide infrastructure, cloud, and managed services. The company has national partner alliances and continues to expand service and support offices. However, Peak 10 remains focused on serving small and medium-sized enterprise with 27 data centers located in 10 secondary markets.
In 2014, the company was sold to GI Partners, a private equity firm that specializes in companies that lead in “fragmented or overlooked markets” and can grow via acquisition. In other words, strong consolidators in secondary markets.
While Peak 10 doesn’t disclose its revenue numbers publicly, it has grown to more than 400 employees and has a customer base of more than 2,600 customers, its senior VP and chief operating officer, Jeff Spalding, told Data Center Knowledge in an interview. The company recently opened a sales and engineering office in Chicago to support a key channel partner, Avant Communications. It operates similar support offices in Philadelphia, Orlando, Phoenix, Salt Lake City, Memphis, and Austin. Small and medium businesses looking for high-touch colocation, cloud, and managed solutions are the company’s bread and butter, which is why local staff presence in its data center markets is important.
Peak 10 offers “tailored solutions” rather than custom solutions for customers, Spalding explained. It is a subtle difference, but it allows for faster implementation and standardization to make support easier across markets.
Over the years, the company has added more “building blocks” to construct these tailored solutions, including: Infrastructure-as-a-Service, Disaster Recovery-as-a-Service, cloud and managed hosting, and network services. Two of the latest building blocks are Encryption-as-a-Service, and Object Storage.
Peak 10 began in 2000 with a single Jacksonville data center. Charlotte, Tampa, and Raleigh followed between 2001 and 2003, one market per year.
Over the following five years Peak 10 grew primarily by acquisitions, including: Xodiax in Louisville in 2004, Intercerve in Charlotte in 2006, bayMountain in Richmond in 2007, and 1Vault Networks in Ft. Lauderdale in 2009.
There were no acquisitions from 2010 to 2014 while private equity firm Welsh, Carson, Anderson, & Stowe was in control. In June of 2014, GI Partners acquired Peak 10 from the private equity ownership group, reportedly for $800-$900 million.
At that time, Peak 10 operated 24 data centers, totaling 270,000 square feet, in 10 markets throughout the southeast region of the US.
Breaking New Ground
The summer of 2014 was a pivotal time for Peak 10. That June, when GI bought the company, Peak 10 was also breaking ground on its first ground-up data center development in the Tampa market.
David Jones, founder and current CEO of Peak 10 said at the time, “Supporting our mission to continue expanding our robust national presence, we are excited to see the construction of our newest generation of data centers underway.”
Today, once it completes construction of its latest data centers in Richmond and Tampa, Peak 10 will have close to 30 facilities in the same 10 data center markets.
[n]GI Partners: Buy It, Grow It, Sell It[/b]
When it comes to having an eye for talent and opportunity in the cloud computing and data center industry it would be hard to come up with a more impressive resume than San Francisco-based GI.
The firm manages over $12 billion in institutional assets and is currently the sole investor in Peak 10.
GI is well-known for acquiring and growing portfolio companies and then harvesting the profits by selling, or taking them public. Over the years, its data center and cloud computing investments included:
Digital Realty Trust: IPO of first data center REIT in 2004, GI Partners fully-exited by 2007
Softlayer Technologies: sold to IBM in 2013
The Telx Group: GI sold Telx to ABRY/Berkshire Partners in September 2011; Digital Realty acquired Telx in October 2015
This past July, GI entered into a JV with Corporate Office Properties Trust (COPT) to buy half of an existing portfolio of six single-tenant data centers totaling nearly 1 million square feet.
Being a privately held company, Peak 10 has an advantage of being able to play its cards close to the vest. The executive team has been together for over a dozen years, and Peak 10 has a distinct culture.
While Peak 10 has a marketing presence in the Northeast, Midwest, and Southwest, there have not been any new market expansions since 2010. Instead, the company has invested in building up its portfolio of solutions.
Spalding mentioned that providing capital and resources to support large national partners could become a stepping stone leading to new data center markets. However, when it comes to expansion into other markets through more acquisitions, they would have to be a good fit “on the people side, as well as the technology,” he explained.
The priority remains supporting growth of existing Peak 10 customers with data centers and tailored solutions adjacent to their local and regional business locations. Spalding said, “We started our company in 2000 with a clear focus on the customer. Even though the marketplace has changed dramatically since then, how we operate has not. We have remained grounded in providing the best customer experience possible. It is why we remain successful.”
How TierPoint Quietly Built a Data Center Empire in Secondary Markets
TierPoint now operates 39 data centers, totaling over 600,000 square feet, in 21 US markets located across 18 states.
by Bill Stolle
June 23, 2016
While the current cloud data center leasing frenzy involving the six publicly traded data center REITs in the biggest markets tends to command the headlines, it’s easy to lose sight of other major trends in the data center industry. One of them is the amount of activity in secondary data center markets.
Example of a company that’s been successful at taking advantage of that trend is St. Louis, Missouri-based TierPoint, a private equity-backed colocation, hybrid cloud, and managed services provider that has quickly become a force to be reckoned with in the data center industry. Over the last year or so, it has accelerated pace and scale of acquisitions, while also expanding through new construction and development. Most notably, it recently completed a 70,000-square foot facility on a 15-acre campus in Oklahoma City.
Strategy and Future Plans
Gartner recently recognized TierPoint in its June 2016 “Magic Quadrant for Disaster Recovery as a Service” report. As Shea Long, TierPoint’s senior VP of product, put it in an interview with Data Center Knowledge, the company sees DRaaS as one of the key “mousetraps” in its expansion strategy.
Here are the highlights from our conversation:
TierPoint’s private equity owners are not looking for an exit. They have a long-term plan for the company, which is still in growth mode.
Providing hybrid cloud solutions is the foundation for TierPoint’s business moving forward, with a marketing focus geared to mid-size and large enterprise customers with $100 million to $1 billion and higher revenues.
Long said TierPoint’s advantage compared to larger competitors like Rackspace Hosting and CoreSite, “is a high-touch local presence in larger secondary markets.”
On the Disaster Recovery side of the ledger, he touted TierPoint’s software defined DRaaS solution “as being a better mousetrap, and a key element of TierPoint’s expansion strategy.”
Expect M&A by TierPoint to continue, with a focus on markets like northern and southern California, Phoenix, Denver, and Salt Lake City.
When it comes to new market expansions, TierPoint’s preference is still to buy a local company and acquire the data center clients and innovative software capabilities.
International expansion is also on the radar, with London and Singapore at the top of the list.
Founded in 2010 as Cequel Data Centers, the company almost immediately started to acquire local data center providers in targeted markets. When Cequel acquired TierPoint’s Spokane, Washington, facilities in 2012, it chose to rebrand its data center products and services as TierPoint. At the time, those three data centers in Spokane boosted TierPoint’s platform from 70,000 to 100,000 square feet.
Subsequently, TierPoint continued to roll up additional local and regional multitenant data center providers, primarily in underserved regional markets.
During October 2014, the company logged another significant milestone when Ontario Teachers Pension Fund participated in the acquisition of Xand, which added 1,000 customers and greatly expanded the data center footprint in the Northeast.
In just the past six months, TierPoint has closed on two major acquisitions, paying $575 million for Windstream Hosted Solutions, and an undisclosed sum for Midwest data center provider Cosentry. Cosentry had a staff of 200, which increased the headcount at TierPoint to over 850 employees.
Source: TierPoint – June 2016
TierPoint now operates 39 data centers, totaling over 600,000 square feet, in 21 US markets located across 18 states.
Thousands of Customers
Perhaps the most impressive result of the roll-up strategy of buying existing businesses is the number of customer logos. According to Long, TierPoint now has 5,000 customers generating annual revenues of about $350 million.
To put that into perspective, interconnection giant Equinix, the world’s largest data center provider, currently has about 8,000 customers around the globe. Connectivity-focused CoreSite Realty, the top performing REIT of 2015, operates in eight markets and currently has 900-plus customers.
From Small Player to National Provider
TierPoint has evolved from a small local data center consolidator to a big-fish player in several regional markets to a full-blown national provider of hybrid IT solutions. However, due to the large number of acquisitions and the need to upgrade legacy facilities, the available products and services currently varies by market.
Notably, TierPoint announced in April that it has been selected by GlaxoSmithKline to support its global data consolidation and protection initiatives. This was a concrete example of a DRaaS strategy win and of a deal that would probably look attractive to some of the big data center REITs.
If TierPoint hasn’t been on the competition’s radar before, by now it certainly should be.