Is Equinix The Next Exodus And Are You Their Next Customer?

This US-based collocation leader announced on June 27th that they intend to purchase IXEurope for approximately $482 million dollars giving them sorely-needed presence in Europe and now the ability to provide customers full global coverage. This European expansion comes on top of an on-going $450 million expansion in the US and Asia, started in 2006. When they are through with these two efforts, they will command more than three million square feet of data center space and consume close to 40 megawatts of power in total.


Any time a collocation service spends this magnitude of money on expansion, one can hardly avoid comparing them to dot-com flame-out Exodus. But the comparison is not justified. First off, Exodus over forecasted the market demand and became too reliant on startup customers who lacked profitable business models. When the bottom dropped out of the market so did their customer base.


Equinix caters mainly to enterprise customers and well-established Web giants including Google and Yahoo!.


Equinix’s in-place resources are all full and have waiting lists. And to protect its future investments it pre-sells and oversells its cage space in case anyone reneges on their reservation. They also have minimum reservation sizes that keep low value customers out.


Another advantage they bring is that the majority of their data centers also serve as peering points for the major Internet carriers. This puts their data centers smack on top of the major freeway intersections moving nearly 80% of all Internet traffic. If you want performance, this is where you want your server to sit.


Another big difference with Equinix is how they lay out their data centers. Most of their facilities have forgone expensive raised floors and they mount their racks directly on the concrete slab. All cabling and cooling takes place overhead, which is easier to manipulate and secure (no crawling under one customer’s cage to move cables for another customer).


And they are now larger and far more profitable than Exodus.


All strong reasons to consider outsourcing to Equinix.


But as they get larger and more dominant arrogance can creep in along with premium pricing. Several customers have told Forrester that recent price hikes by Equinix seem out of line. Certainly some price increases are inevitable with rising power costs, but the increases seem (to them) to be coming to accelerate the pay down of these new investments. Equinix was unavailable for comment.


One has to wonder, though, with Microsoft, Yahoo!, Google, and other Web giants building out massive data centers of their own (look for new Forrester research on this topic later this summer), if they will feel less dependence on Equinix. With the growth rates they are experiencing we doubt they will move away from Equinix but such a move could present a unique outsourcing opportunity for enterprise customers.


Location is also a concern. All of Equinix’s data centers are in or near large metro areas where real estate, property tax and power costs are higher. While proximity can be very beneficial to customers (drive over to fix something instead of get on a plane), the Web giants who are building their data centers far from the big cities (read more about Google’s latest 55 acre data center expansion) where land and power are cheap could end up as competition for Equinix bringing a substantial cost advantage. The question at that time would be, “Will enterprises embrace very remote data center collocation?”


This will be an interesting issue to watch.


What are your thoughts? Are you an Equinix customer? What are your likes/dislikes?


By James Staten

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