I have had the great fortune to be in front of dozens of prospects and clients in the colo/cloud environment.  Some meetings are one on one, while others are at large industry sponsored events.  The tone from those in the space is positive, even enthusiastic about the state of the industry. 

However, something still does not feel quite right. Are companies letting (potentially) self created excitement in this segment drive complacency in how they drive business? I think so. Are service provider companies expanding their commercial footprint the same way because “that’s the model and it works”?  If I had a nickel for every time I heard this I would be rich.

The world is changing and competition is real. There are more regional companies joining the mix, including retail and wholesale providers moving up and down the stack. We have seen changes in the executive leadership in big name providers like DuPont Fabros and Digital Realty.  There has also been recent speculation on a pending rise in the cost of capital and how it might impact organizational growth. Maintaining a competitive edge (and providing investors the returns they demand) is going to get complicated if service provider companies don’t step outside of their comfort zone. 

Multi-tenant data center and service provider companies must address their needs holistically in order to achieve real competitive edge. Companies need to reduce the total cost of ownership and optimize cash flow.  They should dramatically simplify data center solutions and resources needed to design, build, commission, maintain, and optimize data centers.  In addition, they need a strategy to win mindshare and secure debt or equity capital for growth. 

Now, let’s drill into the different ways that service provider companies can differentiate themselves in a competitive industry and become successful: 

• Reducing Total Cost of Ownership– In today’s highly competitive data center market, service providers need to protect their investments by controlling their total cost of ownership (TCO).  Successful service providers reduce operations and maintenance costs, as well as eliminate any hidden energy costs.
• Preserving Capital and Flexibility – To survive in a competitive environment, service provider companies should seek lower upfront investment. They should definitely optimize CAPEX and OPEX to assure long term sustainability. Successful companies also eliminate the over-engineering and overbuilding that steals valuable capital, preserving the flexibility to change on a dime to meet specific target end-user demand.
• Managing Risk – Service provider companies need to carefully manage their risk profile, in terms of resiliency, availability, operability, and maintainability. Successful data center businesses take careful steps to reduce financial, operational, and reputational risks. 
• Strategizing Business Expansion– Ultimately, as with any business in any industry, service providers need effective strategies to acquire capital investment, expand footprint, and win tenants. As data centers have become a mature asset class and banks have become more aggressive with loan proposals, service provider businesses may consider the balance of debt or equity capital to fuel expansion. Smaller service provider companies also need cost-effective ways to raise their brand awareness or mindshare in order to attract anchor tenants, thereby avoiding the classical “chicken and egg” problem. Successful multi-tenant data center businesses are able to find the right financing and marketing solutions that allow them to grow without an over-commitment of resources.

By adopting a holistic approach towards cost, risk, capital preservation, and business expansion, a service provider business can finally achieve real success - elevating and differentiating itself in a crowded landscape of more than 300 competitors. I strongly recommend that more multi-tenant data center companies get out of their comfort zones.

Give change a chance ....