Posted By Rich Miller On July 30, 2012 @ 8:00 am In Dupont Fabros,Rackspace Hosting | No Comments
What’s that lurking there on the horizon? Is it a bird? A plane? Nope. It’s Super-Wholesale, and it’s here to devour your data center space.
In an era when superheroes translate into big box office at the multiplex, a new breed of customer is having a heroic impact on the bottom line for data center developers. The “super wholesale” category includes users with large Internet infrastructures who used to build their own data centers, but are now looking to lease “plug-n-play” space from developers. Leading examples of this trend include service providers like Rackspace and Equinix, as well as fast-growing social media companies like Zynga.
In the wholesale data center model, a tenant leases a dedicated, fully-built data center space. This approach is quicker and cheaper than building an entire data center facility. The tenant pays a significant premium over typical leases for office space, but is spared the capital investment to construct the data center.
One of the biggest beneficiaries of this trend has been DuPont Fabros Technology (DFT), which signed leases for nearly 20 megawatts of data center space in the second quarter of 2012, including two large deals with super-wholesale clients for space in its ACC6 data center in Ashburn, Virginia. DFT does not identify the tenants, but one is clearly Rackspace and the other is believed to be Facebook.
“With the super wholesale (trend), people see the value of taking something potentially off their balance sheet and using their capital for their main core business rather than a specialist technology,” said Hossein Fateh, President and CEO of DuPont Fabros. “So we’ve done 8, 10 megawatts with a couple of tenants.”
Rackspace has leased significant amounts of data center space with DuPont Fabros in both Virginia and Chicago, and with Digital Realty in Dallas.
“Our perspective on data centers is that we are a wholesale purchaser of data center space,” Rackspace CEO Lanham Napier said in a recent earnings call. “Over the past year we entered into some transactions with DuPont Fabros as well as Digital Realty. We believe we’ve gotten good performance in our partnerships with those companies. We believe those companies will continue to be there for us and will continue to do good work for us as we grow.”
Napier said the wholesale approach to data center expansion is a key strategy for Rackspace, enabling it to manage rapid growth without having to make precise capacity forecasts that extend two or three years down the road – and then laying out the capital to build that capacity up front.
“Our strategic intent here is to make our data center lease expense entirely variable to demand,” said Napier. “Another way to put that is to match our lease expense to revenue growth. In order to do that, we have to plan out our capacity and then forecast within a reasonable amount of accuracy what our growth is going to be. We then provide ourselves levers and option value in the (lease) agreements so if we need to accelerate space, we can do that, if we need to delay space, we can do that. So we’re never taking on too much space too soon, or taking too much risk by pushing space off too far.”
In recent years other service providers have adopted the wholesale model, including some companies that are famed for their data center design and engineering. Equinix has built dozens of data centers, but in recent projects has contracted with wholesale provider Digital Realty to construct the facility. The companies have partnered on deals in both northern Virginia and Seattle.
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 Rich Miller: http://www.datacenterknowledge.com/archives/author/richm/
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