Colocation: Introduction to Site Selection and Agreement Negotiation. Alan Howard Sr Research Analyst Cloud & Data Center Research Practice

Transcription

1 Colocation: Introduction to Site Selection and Agreement Negotiation Alan Howard Sr Research Analyst Cloud & Data Center Research Practice #DATACENTERWORLD #CPEXPO CHANNELPARTNERSCONFERENCE.COM DATACENTERWORLD.COM

2 Agenda Colocation Market Overview Site Selection and Assessment Agreement Evaluation & Negotiation Takeaways

3 Colocation Market Overview H5 Data Centers, Phoenix, AZ

4 Colocation Industry Very healthy - Cloud & enterprise growth drivers Colocation is a Trust & Design Excellence business Tier III DC construction $$ Colo providers ~ $7-8 million/mw Enterprises ~ $12 15 million/mw + staff Colo operational sophistication greatly improved Enterprise adoption of colo is ~20%+ - momentum accelerating 80 90% of tenants self-represent

5 On-premises Data Centers Are Giving Way to Off-prem Services Source: IHS Markit Colocation Service and Leadership Strategies North American Enterprise Survey 2018

6 Colocation Customers % of Racks in Colocation 60% 49% 58% Now Average Percent of IT Racks 40% 20% 40% 0% Percent of IT racks Source: IHS Markit 2018 IHS Markit Source: IHS Markit Colocation Service and Leadership Strategies North American Enterprise Survey 2018

7 Colocation Business Model Wholesale Data Center Space Everything down to and including the PDU Retail Data Center Space Everything down to and including the rack Wholesale Suite >250 Kw, 60+ cabs Can be whole building RE lease model $130/kW avg. Power utilized billed separately PUE cooling uplift charge Cages - both wholesale and retail Colo vs. Telco Carrier neutrality Network ecosystems Cloud connectivity Carrier hotels Underground DCs Retail shared cabinet space < 250 kw Can be subdivided down ½ or ¼ cabinets, or even 1u MSA model-avoids RE dept $275/kW avg. Power cost included regardless of utilization

8 Colocation Service Providers More Than You Know U.S. Big 6 Public U.S. Based Outside U.S. Based

9 Site Selection & Assessment Flexential, Phoenix, AZ

10 Internal Risk Mitigation Who are decision drivers and sponsors? Will you get the support / time to do it right? Are there IT cultural barriers? Do you have a real estate department? Are you special? Scale & Scope? Do you have adequate capacity planning & criticality data?

11 Establish a Process Request for Information (RFI) 15/8/4 Mutual Non-Disclosure Agreement (MNDA) & Request for Proposal (RFP or term sheet) Multiple terms, kw options, phased deployment x-connects, support fees, move-in timeframe, misc rqmts Total Cost of Ownership (TCO) Estimate Tours Agreement negotiation Network service availability and budget in parallel

12 Milestone Schedule Reasonable deadlines for providers, adequate buffer time for your team

13 Colocation Provider Identification DC search web sites Datacentermap.com, datacenters.com, datacenter9.com, datacenterhawk.com, openspectruminc.com, inflect.com, cloudscene.com, + ~12 more DC site selection consultants Partners National MCF, Kiamehsa, big consulting firms Real estate brokers Colliers, JLL, CBRE, North American Data Centers, Cushman & Wakefield Events & internet forums Source: IHS Markit Colocation Service and Leadership Strategies North American Enterprise Survey 2018

14 Geographic Location Physical location do you really need to be there? Core vs Edge Accessibility time, proximity to airports Natural disaster propensity, hazard proximity Tax incentives, taxes & tariffs Statutory & provider sponsored Infrastructure stability/history Power, water, network/fiber Ski resorts or golf courses

15 80% of Colocation Customers Employ Edge How are you addressing data processing proximity requirements? Proximity Strategy Use colocation services Use off-premises cloud services Purchase and deploy company-owned micro data centers Use content delivery networks 39% 41% 50% 53% 60% 68% 74% 77% Colocation and cloud remain the primary solution for edge needs for now Company owned micro data centers are gaining in popularity Build additional traditional company-owned data centers in new locations 37% 54% No need for data processing proximity 19% 18% 0% 20% 40% 60% 80% 2019 Now Percent of Respondents Source: IHS Markit Colocation Service and Leadership Strategies North American Enterprise Survey 2018

16 Services Availability Network services, cloud connectivity Remote hands & eyes or break/fix Hosting or cloud Managed services/msps on site Office space Monitoring/DCIM customer dashboards Open Compute Project (OCP) compatible

17 Colocation Adoption Drivers Decision drivers to adopt colocation services Improved application performance 75% Speed of deployment of new data center space Decreased operational costs Ability to directly connect with cloud service providers 67% 66% 68% Drivers Reduction of capital investment Ability to directly connect with partners or customers Geographic proximity to end users or devices Reduction of data center staff workload 53% 57% 59% 61% Tax incentives Access to renewable energy choices 47% 49% Source: IHS Markit 0% 20% 40% 60% 80% Percent of Respondents Rating Strong Driver Source: IHS Markit Colocation Service and Leadership Strategies North American Enterprise Survey IHS Markit

18 Colocation Selection Criteria Most important criteria for choosing a colocation provider (mean rank,1 most important) Security 3.5 Service and support Pricing structure Reputation Criteria Solution breadth Number of connectivity providers available Financial stability Power usage effectiveness (PUE) Direct connections to cloud service providers Power density capability Availability of renewable energy choices Global footprint Source: IHS Markit Average Rank 2018 IHS Markit Source: IHS Markit Colocation Service and Leadership Strategies North American Enterprise Survey 2018

19 Provider Evaluation Financial stability / litigation threats Reputation start asking now Site owned vs leased Renewables / sustainability Support protocols online vs phone Geographic footprint Corporate level security standards & function

20 Site Evaluation - Pre-tour Meets established requirements Acquire one-line and supporting documentation Tier level, SPOF analysis, dual POEs/MMRs, diverse routes Maintenance protocols & schedules PUE w/supporting evidence Physical / network security standards and technology Room to expand - ROFR (right of first refusal)

21 Data Center Site Tour Checklist THIS SLIDE INTENTIONALLY LEFT UNREADABLE Invite an engineer

22 Agreement Evaluation & Negotiation Aligned Energy Data Center, Phoenix, AZ

23 Agreement Evaluation Agreements are not written for you Most proposals are different formats / calculations Real Estate lease vs MSAs Capital vs operating leases SLAs typically have no teeth Fee escalators Flexibility good to be negotiated Ambiguity bad prevailing market rates

24 TCO Estimate THIS SLIDE INTENTIONALLY LEFT UNREADABLE

25 TCO Estimate (left half)

26 TCO Estimate (right half)

27 Agreement Negotiation 2+ term quotes - longer = cheaper Retail 2 3 year term = 5 7 years occupancy Wholesale 5 7 year term = year occupancy $/kw not the whole story - lowball Limits on fees - escalators Not just about price Somebody may get paid a fee Negotiation is deal & provider size dependent Not asking is not getting

28 Agreement Adjustment Request Examples (1 of 2) Expansion option to move entire footprint within the facility * Client should have the right to withhold disputed funds * Contract assignment section needs to be mutual Option to renew at existing rates for one or more years Provider press release only upon written approval of client First three month free from installation of first cabinet * Option to amortize NRC over the term *

29 Agreement Adjustment Request Examples (2 of 2) Credit for each SLA applicable service in any 24-hour period * All costs should be fixed during the term Provider right to terminate in 10 days, change to 60 days * Provider right to relocate customer - only with client approval Termination, indemnity, and limits to include mutual language Maximum credits & termination option states 3 events in 1 month change to 3 events in 1 year *

30 Takeaways Perform your own thorough due diligence Know the industry and engage your peers Let data drive decisions Manage your risk and exposure

31 Thank You. Questions? Alan Howard Senior Research Analyst Cloud & Data Center Research Practice