Colocation meltdown sparks hysteria

Copyright: David Lawson 2002


Market meltdown is nothing new in the property industry. Anyone older than a TV weathergirl will remember when it was unsafe to walk the streets without risking a severe headache from office agents jumping out of unlettable buildings. But before long the gentle patter of body meeting pavement subsided and  the risk switched to flying champagne bottles as tenants piled in.

  So why the hysteria over the new breed of high-tech centres designed to accommodate rack upon rack of computers? Of course too many were created. That’s the nature of the new technology beast. Too many motorway miles were laid for the number of cars at the time. Too many  railways were built in the 19th century, bankrupting swathes of investors. But try and find a spare rail nowadays.

  Does that mean waiting 100 years before the echoing spaces are filled? Decidedly not. Try a couple of years. Demand is repressed by fear rather than fundamentals. The economy has not collapsed in the way that left forests of empty office blocks in the past. Nor has technology stopped proliferating.

  Many businesses underwhelmed by the snail-like speed of the internet will fall over themselves to get online as BT accelerates the rollout of ADSL, the super-fast digital communications network. Two-thirds of the country has already been switched on and satellite trials are under way to fill the gaps wires cannot reach. They won’t want to spend time fiddling with the knobs ands switches, nor sacrifice space for more equipment. They will look for co-location services. 

  Computers will swell the queue of services already set for outsourcing. In a flat stock market firms are desperate to satisfy shareholders by concentrating on core activities and laying off anything that looks like a cost. New technology is an obvious candidate.

  Another potent force emerged after September 11, when many a chairman looked across the Atlantic at the chaos of the World Trade Centre and realized how easily their business could slip away. Most have paid lip service to disaster recovery, particularly since the IRA faded as a threat. Storing data off-site has suddenly moved  from luxury to necessity.

  The critical decision they have to make now is not whether to sniff around for a specialist to handle communications, store essential technology and provide the insurance of back-up data. They must gamble on which specialist to choose.

 There are not too many left after the shakeout.  The once-booming industry is littered with humbled names like Global Crossing, Flag Telecom, 360networks, Viatel, Winstar and PSINet,  Globix and Exodus. But as vultures swoop to acquire cheap assets from banks and receivers, the list of operators will swell again. Fees could also shrink as they rush to lock in customers. Make the most of this while the conditions are right but the last thing on anyone’s mind should be choosing simply by price.

  After the troubles of the last couple of years, financial strength should be top of the list. It may not be the name on the letter head but the power behind it that is important. Global Switch, for instance, appeared to lose its lustre when the market weakened yet a buy-in by major shareholder Chelsfield  means it is now supported by a company with net assets of almost £1bn. It also has the strength of its own freeholds on data centres rather than the worry about finding rents for a demanding landlord.

  Obviously, technical proficiency is also paramount. Some things should be taken as read: backup power to guarantee continuity, multiple telecoms operators to offer choice. But experience could also be crucial. Operators that have been around for a few years have discovered – and overcome – the problems that can threaten this relatively new technology.

 They have also learned that not everyone wants the same thing, and have learned to cut and slice to match demands.   Some centres were doomed from the start because, like many speculative office blocks, they were designed to a set plan which suited the investors. Users don’t like being forced into round holes when their  needs are distinctly squarish. Again, operators owning property have an advantage because they can fit out to individual needs.

  The survivors in this endgame will be those offering the greatest flexibility. Some customers, for instance, may want a range of managed services including security and monitoring. That requires broader skills. Others could be looking for an integrated approach via a single operator with centres in several countries.

  In other words, this is not just a property issue. And  it is worth keeping in perspective that it is not always the first to market that makes the real money out of new ideas. It is the ones that survive.