Data Centres. Look to Your Business Models

Forgive me for misquoting Charles Dickens, but for IT companies this must feel like the best of times and the worst of times. The acceptance of Cloud Computing and the potential of Big Data and the Internet of Things offer exciting opportunities for those prepared to grasp the initiative. However, for existing vendors in all IT sectors these opportunities are coming at a cost in the shape of challenges to their existing business models.

Software companies face the pain of switching from annual or onetime licences to SaaS based models. Traditional VARs and Managed Service Providers are seeing new Cloud based competitors disintermediate or disaggregate their businesses. Hardware vendors are seeing challenges not only from increasing commoditisation but also from the power of Google, Amazon and Facebook to design their own architectures and go straight to OEMs and ODMs, cutting out some of the established brand manufacturers.

No one is immune so it seems. HP has split itself in two and is facing some painful job cuts and restructuring. IBM is trying to turn itself into a cloud oriented company having ditched its PC and Intel based server business. Oracle, Cisco and SAP are all grappling with making significant business model changes at speed with varying degrees of success.

You might be forgiven for thinking that data centre operators, dealing more in physical infrastructure than in the increasingly virtual world of IT, would be somewhat immune to the destruction of existing business models going on around them. But on closer inspection we can see that they too face challenges.

For some data centre operators the question is, should I become a Real Estate Investment Trust (REIT) or not. Companies like Digital Realty and DuPont Fabros have already gone down that line and it appears to be reaping rewards  . Now Equinix has followed them. There are clearly a range of tax and other financial benefits for doing that, but there are also a number of rules which restrict an operator’s ability to derive revenues for added value services. You might argue that Equinix acquisition of professional services firm Nimbo is an attempt to have their cake and eat it on that score.

Nor are data centre operators immune from the challenges of pay as you use contracts. CIOs struggling to control costs and remain agile are starting to turn their attention to the data centres themselves. Contracts that allow for scaling up and down of cabinets and energy costs are increasingly seen as mandatory, bringing with it a renewed focus on pricing and utilisation.

Many smaller data centre operators face the challenge of providing global network connectivity for the prospective customers in a world where some of the major players like Equinix, Softlayer and the Telcos have an inbuilt advantage. In such a situation some are now looking to form strategic alliances with other independent operators around the world. For others the reality is a need to focus more clearly on identifiable niches and profitable segments in which they can compete.

The ability to understand your business model and be able to flex it rapidly to meet changing market dynamics is as true for data centre operators as it is for the rest of the IT market.

This post first appeared on the old Cassini Reviews website.