World's Two Biggest Data Center Providers Take Different Paths for Software-Defined Connectivity

DCK Investor Edge: Can a garden be so beautiful, you don’t care that it’s walled?

Bill Stoller

February 7, 2019

5 Min Read
Optical cables connected to a switch in a data center

Everyone thinks their baby is the cutest, which seems to apply to data center providers and their SDN-enabled network fabrics.

Digital Realty and Equinix both recently presented at industry conferences touting the superiority of their respective connectivity platforms powered by Software-Defined Networking and ecosystem approaches. Digital is best known for a real-estate DNA and a massive global data center footprint, while Equinix’s early core focus on interconnection and platform building has earned it a reputation of the data center provider with more tech in its genes than the rest.

The world’s two largest data center providers both have large balance sheets that enable organic growth and fund strategic acquisitions. But each company is increasingly investing in growth in the other’s core domain. These initiatives are where competition between industry giants is increasingly playing out, as the giants evolve and expand their business models and go-to-market strategies.

Some Recent History

Digital Realty had primarily been a wholesale data center landlord before its big pivot to add retail colocation and interconnection in 2015 by acquiring Telx. This was arguably the first major incursion by either firm onto the other’s turf. At the time, Telx and Equinix were two of Digital’s five largest customers.

A few months later, European antitrust regulators forced Equinix to sell several key interconnection facilities on the continent – which it ended up selling to Digital – in exchange for approving a merger with the London-based giant TelecityGroup. The deal gave Digital its first big presence in the European interconnection market. In a separate agreement, struck around the same time, Equinix acquired from Digital a data center in Paris. Equinix later identified the facility, Paris 8, as its first dedicated hyperscale facility in Europe, part of its new hyperscale infrastructure initiative called “HIT,” which focuses on deals that are closer in size and nature to Digital’s bread-and-butter wholesale business than its traditional retail colo business.

The companies have also hired key talent from each other. Long-time Digital Realty executive, its former CTO Jim Smith, last year took the helm of Equinix’s HIT team. Smith left Digital in 2015 (shortly after the Telx acquisition) to be replaced by Chris Sharp, who had been in charge of Equinix’s cloud strategy. Another example was Digital’s recent appointment of Corey Dyer as executive VP of global sales and marketing. Dyer used to lead all sales across the Americas at Equinix.

Equinix remains a major Digital Realty customer, leasing space in 20 data centers which cumulatively generate 2.6 percent of Digital's annual base rent.

Virtual Connections

In a recent interview with Data Center Knowledge, Sharp explained Digital Realty’s current market angle of providing campus-based colocation and interconnection offerings adjacent to global cloud providers’ massive storage and compute engines. This "interconnection at scale" strategy allows customers to colocate a cabinet, cage, or data hall near their applications running in the cloud. 

Sharp pointed out that customers can land and expand cost-effectively on Digital’s campuses tethered to highly-interconnected “gateway” locations. Colocation inside those gateway facilities, also known as “carrier hotels,” can be prohibitively expensive for enterprise deployments larger than 200kW, he said.

Digital Service Exchange, the company’s answer to the Equinix Cloud Exchange (ECX), is powered by Digital Realty partner Megaport's SDN fabric. Sharp emphasized that Service Exchange was an "open" network by design. Customers can provision one port and gain access to top cloud infrastructure and cloud software (Software-as-a-Service, or SaaS) providers around the globe, including data centers not operated by Digital. Megaport currently provides access to more than 300 service providers, giving Digital customers access to all cloud regions and availability zones globally.

Sharp, who as we noted above is a former Equinix exec, attempted to contrast this approach with ECX, which he described as more of a "walled garden" design that only allows connections between Equinix IBX data centers.

While this is mostly true – Equinix only lists one non-Equinix, or “partner” data center, in Jakarta, on its list of ECX locations – there’s nothing that precludes an Equinix customer from using Megaport, which is an Equinix partner also, directly to access all the locations Megaport has to offer. Notably, Digital’s Megaport-powered fabric has some proprietary features that are exclusive to Digital, an investor in Megaport, the data center provider’s executives have said on conference calls.

Unsurprisingly, Bill Long, VP of interconnection services at Equinix, told us ECX is not a walled garden. He emphasized the wide variety of interconnection options available in the company’s data centers outside of ECX, including physical cross-connects to edge nodes of the cloud platforms, which provide a lot more bandwidth and speed than virtual cross-connects do on an SDN platform. A customer can start with an SDN link but as their traffic scales, they can switch to a physical one.

According to Long, "given the density of clouds and other counterparties within Equinix, less than 10 percent of connections traverses the backbone." In other words, most customers can make the connections they need inside a single Equinix building, without having to move traffic over long distances. About a third of the traffic on that 10 percent of connections that do use a backbone is generated by network providers using ECX, he said. (ECX can in some cases compete with network providers, one of Equinix's most important subsets of customers, but some of them use it to extend their own backbones.)

Responding via email to the “walled-garden” charge, Long said, “We actively enable our customers to connect to any network provider they want – that’s the value of interconnection.” There are more than 1,500 network providers on Equinix’s list, including Verizon, AT&T, Telefonica, as well as SDN fabric operators like Megaport and Packetfabric.

“When an Equinix customer uses our interconnection capabilities to connect to their network provider, the network provider can carry that traffic anywhere in the world, including to a customer’s headquarters, branch location, or infrastructure residing in a different colocation provider."

Investor Edge

At the end of the day, a customer decides which data center to use based on many factors, not just the availability or feature set of a connectivity platform.

Players in the interconnection ecosystems, applications, networks, subsea cable landings, and cloud node locations vary in each market, and every customer has their own mix of all of the above that works best for them.

The bigger picture here is that global data center and cloud IP traffic are expected to grow at 25 percent and 27 percent, respectively, through 2021, according to a Cisco estimate included in Digital Realty's latest earnings presentation. This data tsunami is a tailwind that will benefit the entire sector.

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