Providers in London and Frankfurt are finding it is no longer enough to fill space. They are now becoming more selective about who they will let into their exclusive datacenter clubs to sustain long-term revenue from the cloud.

1. Spotlight
Fitting the bill: Why some European colos
are now subscribing to a door policy
Analyst: Penny Jones 10 Apr, 2015
Colocation providers in two of Europe's key metro datacenter markets – Frankfurt and London – have begun to rethink their place in the supply
chain for IT services. Differentiation from competitors in these cities – where demand and supply rarely correspond, due in part to lengthy building
approval processes and a desire for phased datacenter space delivered 'just­in­time' – now appears to be a goal of most major multi­tenant
datacenter (MTDC) providers. This means colocation providers are focusing less on price and utilization as they become increasingly selective
about what companies they will sell to. It is all about ensuring they have the right mix of service providers and end users that can feed off each other
inside the datacenter, and a clearer message for the wider market based on reputation and ability to meet a subsector's needs.
The trend is not necessarily unexpected. Over a year ago, colocation providers started building cloud marketplaces, hinting that a new alignment of
services with end users would be on its way. Cloud ecosystems (or marketplaces, hubs or the like) allow partners and customers to connect inside
the one facility or provider portfolio, creating valuable meeting places that add greater strength to the colocation environment. At the same time, the
division between wholesale and retail colocation started to become less clear, with providers realizing both large and smaller deals could be
valuable in the colocation­to­cloud supply chain.
What is different now is that colocation providers have become more selective about who they will sell space to, and this is likely to have an affect on
end users, some of which have been used to greater levels of choice in the market. This is especially applicable to those that don't yet have a cloud
or services strategy. The flipside is that the move is likely to open doors for smaller regional providers operating out of older facilities that may have
based business models around utilization but struggled to sell straight colocation space in the past.
The 451 Take
Colocation providers in London and Frankfurt are now realizing that the days of the 'one­size­fits all' datacenter have gone – but not all
providers will have the finances or ability to reshape the way they build facilities and do business. Those providers with enough resources
will inevitably have a leg up in the hybrid cloud world, especially with customers more concerned by services from the MTDC provider or its
partner, from migratory to consulting and connectivity. This shift in thinking will help ease concern from the investor community, which is
increasingly seeking proof that colocation companies can weather the rise of the cloud. Providing vertically aligned strategies, including a
mix of services and technologies that will appear to particular industry requirements, from education (where data processing may be a
concern) to finance (as already seen with high frequency trading ecosystems), is a clear way colocation providers can capture a market and
investor confidence.
Natural selection
Our focus on London and Frankfurt is due to recent conversations with, and the increasing maturity of, ecosystems and operators we are seeing in
the markets – as well as their key differences. London is one of the world's leading datacenter locations by size, and is currently suffering with
colocation oversupply. Frankfurt is one of the fastest­growing locations for cloud and MTDCs in Europe – the market is struggling to keep up with

2. demand.
A large number of the leading providers in both markets say they have been turning away custom over the last year, or passing it over to partner
operators in an effort to build brand and marketplaces and in Frankfurt, conserve space. This is altering the competitive landscape, creating new
categories of providers that are more focused on the datacenter blueprint, with some providers saying they are incorporating both commerce service
provider (CSP) desires and those of the enterprise into future builds – one provider even said they are considering using pre­fab modular
datacenters to allow for differing levels of resiliency required by cloud partners on one site (this provider has generally built more traditional
facilities).
The enterprise that wants to simply relocate from in­house to third party, which does not desire value­added services or connections to service
providers, will seem less attractive to these top­tier providers. Most colocation providers realize the shift in dynamics that is likely to occur as
enterprises eventually reduce the colocation space required as they move to the cloud, or outsource as a managed or hosted service. They know
that cloud will offer more avenues for growth moving forward, and the use of services inside an ecosystem makes it more difficult for the enterprise to
migrate away from a contract.
Door policy in London
The London market has seen an oversupply of space come online in recent years – and we predict more than 670,000 square feet of new
operational space will hit the market in the coming two years. MTDC utilization is currently about 80%, but our estimates show take­up could be as
low as 75% come 2016. This means colocation providers in the London market will be playing in an even more competitive environment.
The effort of providers to differentiate will be heavily focused on this dynamic – in London, selective bidding will be about creating environments that
stand out from the rest to attract custom. Most major providers in the market today have a cloud strategy that focuses on the marketplace – Interxion,
Colt, Telecity, Equinix, Infinity, VIRTUS Data Centres and Digital Realty Trust, for example.
For some, it is about focusing on strengths organically acquired over time. Retail colocation provider Datum Datacentres and wholesale provider Ark
Data Centres are a case in point. Both have facilities located at the high­security Cody Technology Park, managed by defense technology contractor
QinetiQ. For these companies location has been key – QinetiQ operates a highly secure site that already has a strong reputation in the public sector.
Ark and Datum have increasingly sold to the public sector and to service providers targeting this lucrative market – and say they will increasingly do
so as they vie to be public sector providers of choice.
Datum says most of its customers are concerned with security, and that it receives a lot of its new business through providers already inside its
datacenter. Its average deal size today is 400kW, which leaves Ark Data Centres next door to tend to the larger end of the market.
Ark Data Centres recently signed the Crown Hosting joint venture with the UK government, for provision of its government colocation needs for the
next four years. It hasn't taken long for service providers already using Ark to start promoting their own services to government. Cloud computing
company Outsourcery is one. It already has government certification to provide G­Cloud services to the public sector. So as well as Ark's previous
focus on the public sector helping it to win the Crown Hosting JV, we expect Crown Hosting will attract more cloud service providers focusing on the
public sector and systems integrators also targeting the government. Ark will become known as a key provider for this vertical, and it says its focus
will be on services that complement this, with a focus on regulation and data sovereignty.
Wholesale provider Infinity SDC is another example of how colocation providers in London are shifting toward selective bidding. It has five facilities
(three operational) across the UK – each will eventually provide to different communities of interest. Infinity SDC says this is in part due to levels of
efficiency the approach can provide through more standardized needs for infrastructure, but also helps it to focus its sales strategy on the cloud –
especially on large US cloud providers. Its Here East facility in Stratford, for example, will focus on media and education, while its Slough facility will
be built around an ecosystem of retail colocation deals. Contracts will be aligned for these differing use cases and infrastructure and services
developed to suit each vertical – efficiencies here will then flow back into the business operations of Infinity itself.
Other providers such as Six Degrees are focusing solely on what they see as their sweet spot for deal size in kilowatts, to preserve the mix of
customers and CSPs in the facility and those that provide networks, such as C4L, and hosting or managed services say they often sell only where a
mix of one or more use cases is required, with the focus being on margins.

3. Space saving in Frankfurt
For Frankfurt operators, a lot of the argument for selective bidding appears to be around the conservation of space. Inner­city space constraints are
driving up costs in both markets, but in Frankfurt, this challenge is multiplied by the length of time it can take to receive building approvals – between
five to six months for the right environmental approvals for facilities over 50MW on top of three to 12 months for city building approvals. In this
market, preapprovals for building last only between two to three years.
As a result, we are now seeing operators become conservative with density and space in Frankfurt; at the same time, the market is seeing
unprecedented demand from US­based CSPs wanting to set up shop in the city to harness its strong connectivity and overcome the country's strict
regulations around data protection.
Global retail colocation provider Equinix has had a keen focus on the financial services vertical in Frankfurt but also offers ecosystems for digital
media and healthcare, among others. The company has been steadily building out space across Europe – it will launch its newest datacenter in
London (LD6) this month. However, in Frankfurt it is feeling constrained by a lack of space – and says it is becoming much more selective about the
enterprise deals it will entertain as a result.
Equinix already supplies a high number of US cloud providers in Frankfurt, and says that of the top 20, all are now requesting a presence in the
country. It feels its success will be heavily reliant on enabling more space to come to market in time to meet their needs. Adding to the pressure,
contracts for these providers are often done in megawatts, as opposed to the kilowatt deals often signed by the enterprise. The company is planning
two new datacenters for the market and says some of its new space could be designed to meet the lower resiliency needs of cloud providers that
battle with Germany's high power. In the past, Equinix has been much more conservative in its approach – the challenges in Germany are pushing it
out of its comfort zone and leading it to think more about how cloud providers build architectures, and end users consume the cloud (for example,
risk analysis companies using Amazon Web Services and Google for bursting, or those that use cloud for disaster recovery as a service). This is top
of mind when it is doing enterprise deals now in the market.
Space is likely to become even more of an issue in Frankfurt with many regional cloud providers expected to merge as part of global expansion
efforts. This will lead to even higher megawatt deals being done by colocation providers, placing even further pressure on the enterprise bidding
process.
Interxion – the Frankfurt market's largest provider – says it is seeing similar trends to Equinix (it is now building out a new datacenter to cater for
demand on its huge campus in the city). So is Colt, which has 22 datacenters in Europe – three of these in Germany (where Frankfurt makes up 46%
of the market). Colt is focusing on its financial services ecosystem, which includes insurance companies. It also has cloud customers. It likes to sell
to customers that require use of its network or other services that add to its margins, and says its biggest challenge in the market today comes from
rising density. It is becoming increasingly selective about what customers it lets into its datacenters in Frankfurt. Like Interxion, it will rarely sell to
enterprises in Frankfurt that want to do a straight swap from an enterprise environment into colocation without consuming cloud or services. Both say
a likely taker of space will have to prove their worth for the overall ecosystem, from service and connectivity providers to other financial services
participants.
This report falls under the following categories. Click on a link below to find similar documents.
Company: No primary company
Other Companies: Ark Data Centres, Amazon Web Services, CONNEXIONS4LONDON, Colt, Digital Realty Trust, Equinix, G­Cloud, Google, Here East, Infinity
SDC Ltd, Interxion, Outsourcery, QinetiQ, VIRTUS Data Centres, Datum Datacentres
Analyst(s): Penny Jones
Sector(s):
Data centers & facilities / Location, space & real estate
Cloud / General
Data centers & facilities / General

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