by Gerrit Jan de Vries, Senior Sales Manager of Global Connectivity at VEON
Are you an investor or customer considering investing in data centers? Chances are, you have already asked yourself how do you determine the real value of a data center? Before investing, you should learn what data center cross-connects are and why they are important, what their price can tell you as a potential customer or investor about the real “hidden” value of a data center, and the type of data that you cannot find by reading only the financial reports of a data center.
WHAT IS A CROSS-CONNECT AND WHY DOES IT MATTER?
A cross-connect is a direct fiber or copper connection between a customer’s equipment rack and another party in a data center. Customers often use cross-connects to connect to a carrier or internet service provider which is used for connectivity services.
The average customer needs 10 or more cross-connects., but some cloud and connectivity providers require hundreds of cross-connects.
In highly connected U.S.-based data centers in New York or Miami, it is not uncommon for customers to pay $300 USD per month or more per cross-connect! In Amsterdam and Frankfurt, the cross connect price is still around $100 USD per month but it has also steadily increased in the last couple of years.
So why do data centers charge hundreds of dollars every single month? And what does that number tell you about the real hidden value of the data center?
COMMUNITIES OF INTEREST AND CHURN-RISK
Highly connected data centers have spent many years building rich communities of interest; communities that allow customers to monetize their cloud platform and make it available to other customers.
In very crowded and competitive markets such as Amsterdam or Frankfurt, the highly connected data centers differentiate based on the value of their communities. And connecting to these communities of interest should, logically, come at a much higher cross-connect price.
Less highly connected “edge data centers” or “hyperscale data centers” have a different business model and tend to focus more on very large wholesale requirements and less on smaller customers. As a result, their profit margins are much thinner. Often their total revenues rely on only a couple of very large customers. That makes these hyperscalers and edge data centers a much riskier investment. Compared to the highly connected facilities, that have a wide and large variety of unique smaller customers.
For investors, highly connected data centers mean far less risk of revenue churn and a solid future proof investment as long as the data center has a clear strategy for how to guarantee space and power for future expansion. The demand for highly connected data center hubs has a very positive outlook.
THE STRATEGIC IMPORTANCE OF THE MEET-ME ROOM
A meet-me room (MMR) is one of the most important areas in any data center. It is the central room where all the cross-connects are established between enterprises, the cloud, and content and telecom providers.
Before making any investment in a data center, you should conduct a detailed study on the MMR to find out how well it is maintained and who customers can cross-connect to.
The more parties that are available for cross-connects, the higher the probability that the site will continue to do well. As a result, the site will generate significant revenues not only from space and power, but especially from cross-connects.
The cross-connects in the MMR are literally the life arteries and value enablers of a data center.
PREMIUM PRICED CROSS-CONNECTS ENABLE FUTURE-PROOF MAINTENANCE
I strongly recommend to investors and customers to find out how much money the data centers are spending on the preventive maintenance and testing of their facilities. These investments should ensure that customers will never experience any downtime and that the highest service levels are always guaranteed.
When a data center can successfully do this, customers will never leave. Additionally, more customers will automatically flock to the data center because of its excellent proven track record.
Data centers are an extremely expensive business. The real spending starts from the moment a data center goes live, and a very large portion of that spending should be invested in maintaining the key infrastructure of the facilities.
Please note: This article contains the sole views and opinions of Gerrit Jan de Vries and does not reflect the views or opinions of Guidepoint Global, LLC (“Guidepoint”). Guidepoint is not a registered investment adviser and cannot transact business as an investment adviser or give investment advice. The information provided in this article is not intended to constitute investment advice, nor is it intended as an offer or solicitation of an offer or a recommendation to buy, hold or sell any security. Any use of this article without the express written consent of Guidepoint and Gerrit Jan de Vries is prohibited.