Equinix Debuts $1B+ Hypercloud Gambit

While much of the service provider industry adapts to a market that's been transformed by hypercloud providers, such as Amazon Web Services, Equinix looks at the hypercloud differently: as customers.

Equinix is ready to take that relationship to the next level, launching a joint venture this week to provide data center operations to the dozen or so biggest cloud providers in the world. The project launched initially in Europe, valued at $1 billion, with greater investment foreseen in the future. Equinix is partnering with GIC, Singapore's sovereign wealth fund.

There are six initial facilities in the joint venture, including one each in Amsterdam and Paris and two each in London and Frankfurt, on some of Equinix's existing International Business Exchange (IBX) data center campuses. Equinix is transferring existing properties to the joint venture, as well as doing new building.

Target customers include Amazon, Microsoft, Google, Oracle, Salesforce, Tencent, Alibaba and Baidu, Eric Schwartz, Equinix chief strategy and development officer, told Light Reading in July, when Equinix and GIC announced the project.

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It's a big opportunity. Microsoft Azure alone operates in 140 countries. Hyperscale operator capex topped $28 billion in the second quarter, up substantially sequentially but down 2% compared with record-setting levels seen last year, according to Synergy Research Group. The analysts attributed the decline to slowed spending by Chinese providers, namely Alibaba, Tencent, JD.com and Baidu.

Equinix is dedicating 15 full-time staff, which it calls the Hyperscale Infrastructure Team (or, redundantly, HIT Team), to the xScale venture, working with Equinix's overall staff, Schwartz said. GIC will own 80% equity interest in the joint venture and Equinix will own the remaining 20%.

The deal is a joint venture, rather than Equinix maintaining sole control, for financial reasons, Schwartz said. Equinix is already spending $2 billion on capex outside of xScale and anticipates xScale could deploy at least $5 billion in capital over several years.

Last week, Equinix entered Mexico, acquiring three data centers serving the Mexico City and Monterrey areas for $175 million, from Axtel S.A.B. de C.V.

Why this matters
Equinix is taking a clever approach to the universal service provider problem of finding air to breathe in an ecosystem dominated by hypercloud giants. Over the past decade, telcos first tried competing, launching their own public cloud services that failed to make a dent in the market.

Currently, service providers' enterprise customers are demanding new levels of service assurance connecting to mission-critical applications that have moved to the cloud, and service providers are launching SD-WAN and network virtualization projects to meet that need.

Equinix is building a successful business providing interconnect centers, where service providers, cloud providers and their mutual enterprise customers can locate network termination points, and connect to each other just by running cable from one side of a building to another. The xScale European joint venture is an extension of that strategy.

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— Mitch Wagner Executive Editor, Light Reading