Enterprises and service providers alike are looking to colocate more within the data center to support hybrid clouds.

August 27, 2015

7 Min Read
Equinix Drives Hybrid Trend to Colo Growth

For Equinix, increasing revenues is an old story: The interconnect/data center company has seen revenue growth for the last 50 quarters and yes, that's more than 12 years, consecutively. But it's the way that revenue is growing today that offers insight into how networks are being impacted by the rise of hybrid computing and how colocation is beginning to be more attractive than interconnection.

Private enterprises and providers of network and managed services are all seeing the value of replacing wide-area network transport with direct connections within an interconnection facility such as the many operated by Equinix Inc. (Nasdaq: EQIX), says Jim Poole, VP of global service providers. Such private connections eliminate the unpredictability of the Internet and can be made more secure, he notes. This is a transition typical of the move to the New IP, a more scalable, on-demand but also secure infrastructure.

Equinix has offered direct connections to Amazon Web Services Inc. since 2011 and added Microsoft Corp. (Nasdaq: MSFT) Azure in 2013. Its Equinix Cloud Exchange added Google (Nasdaq: GOOG) and more. (See Equinix Spices Up Chinese Cloud With Alibaba, Equinix Brings Exchange Model to Cloud, Google Teams With Carriers for Cloud Interconnect, Cloud Exchange Gathering Steam, Equinix, Microsoft Team on Azure Connection and Equinix Unveils SDN Engine for Cloud.)

Private connections to these clouds and others are growing at a 65% clip annually, according to Poole. This latest trend comes on the heels of significant growth over the last several years in content storage and interconnection to fuel over-the-top streaming video, particularly to smartphones and wireless devices enabled by LTE. (See 4 Digital Economy Eras.)

Figure 1: Jim Poole, VP, Global Service Providers, Equinix

What Equinix is now seeing, Poole says, is requests for those kinds of connections from within its facilities -- where an enterprise or a software-as-a-service provider or even a network services provider decides to colocate with the gateway of its infrastructure-as-a-service provider, to eliminate the transport altogether. (See CEO Chat With Ihab Tarazi, Equinix.)

"For us, that is the ideal scenario," he says. "Interconnection is good because it drives profits in our business, but when you see that hybrid scenario playing out, it results in colocation. That has been going quite well -- just in terms of growth rate, that's the fastest-growing activity off a small base."

That growth could be one reason the colo market is expanding -- but also consolidating, with heavy M&A activity, according to a recent Heavy Reading report. (See Colocation Market Shows Strong M&A Activity.)

The enterprise angle
Equinix has been marketing this capability to large enterprises but is also seeing network service providers and managed service providers reselling space within an Equinix facility to avoid having to resell access lines leased from a local service provider.

Poole cites a typical example of a US carrier with a multi-national customer who has a branch office in Singapore, and also needs a connection to its public cloud at that location. That's an increasingly common scenario these days, as enterprises look to cloud-based IT across their far-flung organizations.

"They themselves can't deliver a solution cost effectively to the customer prem because they have to put in too many circuits, or it's type 2 [leased access from a local network operator]," he says. "Rather than try to find type 2 circuits into the customer's building they will take down space from us and resell it to the customer and have the customer put their kit in our Singapore facility and then they can directly connect to Amazon."

This approach fits neatly with the shift of major operators away from trying to compete with the cloud giants like AWS and toward more of a service orchestration role, where they offer their enterprise customers secure, manageable and sometimes on-demand connections into whichever clouds they choose, and, in some cases, let them manage all of that from a single pane of glass. (See AT&T Cloud Strategy Now Focuses on Network and Verizon Says Focused Cloud Strategy Working.) "This is exactly where they need to be," comments Poole. "They are the one interesting entity in all of this that could pick up higher margin revenue."

As he sees it, enterprise customers have increasingly complex deployment scenarios in the hybrid cloud world, since the vast majority of companies either want to use multiple clouds or want to combine the cloud with some things hosted on premises or both. They are looking for "high-volume, high security, low-latency access" to multiple cloud providers and that provides the interesting opportunity for network operators that also operate as systems integrators for their larger customers -- as many do -- to monetize providing and managing all of those connections.

Generally speaking, Poole adds, that systems integration/management generates higher profit margins than just providing connections.

Hear the hybrid
Equinix also see its future revenue and profit growth springing from the move of enterprises to the cloud and to hybrid and multi-cloud approaches in particular. Some of that growth is in sheer numbers. Enterprises that have long outsourced their data centers to Equinix once needed maybe two interconnects -- one to a primary network operator and one to a backup -- but now operate more like network service providers and connect to multiple clouds or software-as-a-service providers, he says.

That produces a dramatic increase in the average number of interconnects for enterprises -- though their numbers are still dwarfed by carrier interconnects.

Stay up-to-date on data center strategies including the impact of cloud growth in the data center connectivity section of our Data Center page here on Light Reading.

More significantly, though, Equinix is seeing a whole new breed of enterprise customers looking for interconnection and colocation that didn't need it before. The firm's initial enterprise customers were financial services companies looking for the low latency that direct connections could provide. That list has continued to grow and it increasingly includes companies using the Internet of Things, big data and analytics and other forms of data-driven applications or processes at the core of their business, according to Poole.

One new customer, a manufacturer using sensors throughout its plants and in its shipping processes, is typical: The company maintains its own "data lakes" on premises to store all the data coming in from the sensors but is looking to a cloud computing resource for analysis of the data, to be able to act on it. To handle that analysis in a relevant time frame, Poole says, the company needs multiple cloud options across its global footprint, essentially two per continent in North America, Europe and Asia.

"They are thinking like an enterprise, in a way that manufacturing wasn't historically," he says. Equinix is stepping up to meet these new customers with its Equinix Performance Hub, introduced in March 2014, to offer a combination of data centers, networking capacity and connectivity and cloud computing access, so that enterprises looking to this hybrid, multi-cloud world can get a consistent experience globally. (See Equinix Offers Optimization Options.)

"This is our way of communicating to an enterprise that here are the things that service providers have been doing at facilities like ours, that save them money and increase performance, increase security, and you can do this same thing," Poole says. "Now it is more of a necessity for them because they have this co-dependency on cloud resources that sit here, there and everywhere, and just the volume of data that is coming at people, and is persistent -- never stops -- means they have to change the way they operate."

Poole says Equinix prepared for this trend by not only building out large campuses for its data centers but also positioning those close to connectivity. Its Ashburn, Va., site, for instance, is 1 million square feet in size, surrounded by 12 million square feet of wholesale space, "almost all of which is connected to us, by people trenching fiber into the building to have access to networks and cloud providers that sit in our campus," he says.

— Carol Wilson, Editor-at-Large, Light Reading

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