Breathing space for business - Why neutral colocation makes sense for organisations in an unpredictable business environment
by Geoff Pflaumer

The perception of the colocation sector as the “white elephant” of the 21st century is finally beginning to change. Of those who embarked so optimistically a few short years ago, there have been some spectacular failures, quite a few players who still hover more or less at the brink and a very few who have demonstrated that their models were more in tune with reality and who are now on course for success.

Even though the arguments for and against colocation service providers climbing the mountain of added value continue, the issue of whether carrier-neutral or carrier-tied facilities offer customers the better, safer bet for their outsourced hosting requirements appears to be heading for resolution. While many carriers offer a stable and secure platform to which hosting services can be attached, others have shown that they are no more immune to the laws of economics than anyone else, and clients in single carrier environments could find themselves dangerously exposed.

One of the most important lessons learned by those at the heart of the colo industry is that their own perceptions of the sector differ substantially from those of the financial institutions upon whom they rely for investment funding. Even though both are looking at the same thing, the expectations are very different, and this has led to many of the problems experienced in the colocation industry. Our view is that colo is an absolute necessity for the efficient delivery of internet-based products and services. A few also recognise how vital these facilities will be for the safe storage and back-up of the data produced by enterprise clients, how crucial they are for the efficient delivery of content and the functioning of the next generation of wireless technologies. All true. All very relevant.

But many of those who have invested in these ventures, whilst they appreciate how important colocation is for tomorrow’s technology, have today’s pensions to pay, so it matters little to them how vibrant our market is going to be in nine months or a year. Having had their fingers burned so badly, it may be that, even as we now see a real surge in demand beginning to take shape, the exodus of capital could continue for a while yet – hence the prediction I made at a conference in Amsterdam last summer that the 2002 space crisis in colocation would be one of shortage rather than glut.

That a dearth is looming is further borne out by the steady muting of talk about the commoditisation of colocation space – an issue that most thinking people dismissed from the outset. In addition to issues of how large the actual colo footprint is and the quality of various parts of it, potential clients and their consultants are finally beginning to look at the number and available capacity of carriers present, the robustness of backup systems as reflected in SLAs and the geographical location of many of these datacentres.

The paper that follows reiterates the arguments for outsourced, neutral colocation as the most logical mechanism for offering enterprise clients of all sizes the degree of “breathing space” they need to prepare themselves for business methodologies of the 21st century. For those companies that have designed themselves to support more than e-commercial ventures and their investors who chose to stay the course, the coming year should prove a rewarding one.

Executive Summary

The destabilising effect of the global economic downturn and general lack of confidence have focused the attention of organisations of all sizes and sectors on outsourcing all non-core business activities. In particular, colocation of IT and communications resources offers a “breathing space” for many organisation striving for stability and a chance to redefine their strategies. This paper examines what factors make up a successful relationship between any organisation and a colocation service provider. It highlights common concerns and questions that should be raised in discussions, measuring the answers against the strategy and services of many neutral colocation facilities operators. It also looks at why neutral colocation can serve as an invaluable solution to outsourcing for any organisation, whether it is a product of the new economy or has its roots deep in the old economy. From facilities management to web hosting, neutral colocation allows any organisation to retain control, access and choice.

Outsourcing – Common Sense in a Volatile Market

The business case for “outsourcing” – arranging, via a contractual agreement, for a third party to provide managed services that would otherwise have to be deployed by the organisation in-house – has never been stronger.

The global economy is reeling from months of harsh conditions. The downward spiral of financial results sparked by the high profile collapse of numerous dot com companies, the loss of confidence in the telecommunications industry and beyond, the consequent losses of orders and jobs and the continuing aftermath of events in the US on 11 September 2001, are forcing organisations of all sectors to revise their business plans.

The upshot is a renewed focus by organisations on their core business, preferring to outsource, entering contractual agreements with third parties who have the relevant expertise and dedicated resources to deliver essential but non-core services, such as the provision of IT and communications.

Outsourcing of services within a purpose-built datacentre makes sound business sense, particularly in volatile times, whether due to market uncertainty or rapid growth. Anything other than the core business is an overhead that could, potentially, be bought in as a service at a predictable cost. It is invariably more cost effective than providing the service in-house, although cost is only one of numerous factors influencing an outsourcing decision. Likewise, for a company experiencing rapid expansion, outsourcing is an opportunity to ensure service delivery without risky capital investment or distracting operational burdens.

Moreover, the term “outsourcing” in popular industry parlance covers an increasing array of services, from the provision of a secure, resilient physical environment to the delivery of applications to the desktop. Within IT and communications, “traditional” outsourcing is a multi-billion dollar global business. Under this conventional process, the outsource company takes over the IT process – this often includes the former IT department staff and the hardware. It runs the operation – ostensibly more efficiently – for a set fee.

The last few years have witnessed the rise of the datacentre: dedicated, controlled space housing IT and telecommunications resources. The catalyst was the explosion in Internet business and the term “Internet” hotel accurately described the activity in those early days, fuelled by the anticipated boom in

e-commerce. Now the colocation of IT equipment, applications and communications circuits inside a best-of-breed datacentre, when business plans are constantly being revised, is an increasingly valid option for organisations of all sizes and sectors. With the appropriate colocation partner, whose own experience, strategy and goals are congruent with the customer’s organisation, the customer gains valuable “breathing space”, in which to consolidate, reorganise and marshal its strengths, ready for the next – equally inevitable – upturn in the economy.

Ingredients of Successful Colocation

The colocation market is undergoing a period of rationalisation. Inevitably, any organisation wishing to colocate needs to be secure that it is partnering with a quality provider that can guarantee its mission critical infrastructure under any eventuality. For a partnership to begin on a sound footing, the issues surrounding quality, management expertise, network connectivity, control and cost benefits are prerequisites that should be covered at length by a potential customer and supplier during preliminary discussions.

Quality

Service level agreements need to be scrutinised carefully and a clear understanding given of the meanings of uptimes, service deliveries and compensation in the event of non-compliance. Most quality datacentres can offer levels of service far higher than can be achieved in-house.

What 99. 999% actually means

SLA guarantees are usually based on a percentage of uptime, and to put this into perspective, this table shows downtime, depending on which SLA is offered:

Level of Downtime Downtime uptime per month per year

99% 7 hours 12 minutes 3 days 15 minutes
99.5% 3 hours 36 minutes 1 day 19 hours
99.7% 2 hours 10 minutes 1 day 2 hours
99.9% 43 minutes 12 seconds 8 hours 46 minutes
99.99% 4 minutes 19 seconds 52 minutes 35 seconds
99.999% 26 seconds 5 minutes 15 seconds

Management expertise

Building datacentres is only a small part of the overall service, and it is worthwhile to understand the levels of competence of the supplier’s technical and commercial personnel. Does the company offer 24 x 7 x 365 technical support and expertise at the level each customer requires and defines, vital for mission critical infrastructure?

Network connectivity

A principle objective of carrier-neutrality is to enable the colocation services provider to offer its customers connectivity from a number of different carriers, an arrangement that ensures commercial and qualitative advantages to the customer through competition. It is generally accepted that between four and ten different network operators can ensure meaningful choice whilst still enabling them to win worthwhile levels of business.

In this manner, customer organisations can select the most cost-effective solution. As the providers “compete’’ in the same building, costs are reduced and delivery times significantly decreased. Alternatively, complete resilience can be offered by “multi-homing’’ across a number of networks.

Control and cost benefits

From the customer’s perspective, whether looking for an e-business solution or to outsource mission-critical IT and applications, colocation delivers substantial savings in long-term operational costs, particularly in a secure, quality-assured optimum environment.

From the service provider’s perspective, the colocation market is still in the process of maturing and the challenge for players in this sector is to deliver best-of-breed facilities and services to a growing, mixed client base, while also delivering on their own business plans and projections.

The Dedicated Colocation Advantage: Providing Breathing Space for Every Organisation

Every organisation, from SMEs up to major corporations – even those with a corporate culture of self-reliance and total internal control – is increasingly reliant on its infrastructure (whether its focus is on e-business or business continuity). Evidently, there are understandable issues surrounding both internal capabilities and those of a potential outsourcing company that must be addressed before embarking on such a relationship.

The majority of corporate datacentres are housed within existing office space in city locations that are not designed for housing computer equipment. When the data room is built, there are normally many compromises made due to physical restrictions or landlord regulations, e. g. accepting a reduced floor height. In contrast, purpose-built neutral datacentres are specifically designed to house computer equipment and are usually located at conjunctions of networks and customers.

As a business grows so too do the mission-critical resources it requires and the challenges it faces. When a new data room or more space is required, it can be a difficult issue to resolve due to limited space and conflicting demands. The demands upon IT specialists’ resources and time means that frequently these aspects cannot be adequately addressed. However, by collaborating with a neutral datacentre services provider, an organisation can access expertise to ensure that essential maintenance procedures and controls are properly carried out.

Despite the economic downturn, almost every organisation faces the additional challenge – sooner or later – of integrating e-commerce into its strategy. The dotcom roller coaster ride of the past twenty-four months has propelled the market to take a healthier perspective on Web opportunities. E-business has entered a new stage of maturity.

For any organisation to support web-related functionality there are huge resource demands on front and back office software, hardware, the skills to support 24 x 7 operation and the scalability to meet peaks in Web demand. By outsourcing mission critical infrastructure, many e-businesses have already shown demonstrable strategic advantages: reduced time to market, reduced long-term costs and a global e-presence within 48 hours.

Conclusion

As economic patterns change, and old and new economy companies’ fortunes fluctuate, neutral colocation provides that critical breathing space for any organisation. This presents a new definition of outsourcing, in which choice and control are returned to the customer. Crucially, it allows any enterprise or IT Department to focus on key issues and core competencies, secure in the knowledge that mission critical infrastructure is running smoothly 365/24/7. As Guy Willner, CEO of IXEurope says, “Partnering in neutral datacentres ensures that the customer retains control. Every customer has the security of knowing that it is receiving the best-of-breed services it requires at any point in time. The customer is both king and architect of his empire.”