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COLOCATION
SUMMIT 2000:
Managed
Services Debate Heats Up
Despite
hype, some execs say 'commoditization' is far off
By
Rich Miller
CarrierHotels News Staff
WASHINGTON, D.C. (Nov. 16, 2000) -- Is operating data centers
still a highly specialized field, or is colocation on the brink
of being "commoditized" as managed services take center
stage?
The ongoing
debate was one of hot topics at this week's Colocation Summit
at the Marriott Wardman Park Hotel, sponsored by The Phillips
Group.
The answer? That depends whom you ask.
One industry
veteran made a strong case for the ongoing business value of infrastructure.
"This
is not a trivial business, and issues of specialization and focus
really matter," said James Lavin, vice chairman and founder
of Switch & Data Facilities Corp., the Tampa-based carrier
hotel developer. "Many
(customers) don't need managed services, but they need the basics
to be done very, very well.
"It's
going to be a long time before we get to true commoditization
of well-run facilities," said Lavin.
At the other end of the spectrum was Sanjaya Addanki, chief
executive officer of CityReach International, a European facilities
company which sees its future in managed services.
"Twelve
months from now, those of us that are successful (in managed services)
will be giving the space away for free," said Addanki, whose
London company is focused on bundling physical colocation with
packages of "high-end" managed services like security,
database management and storage solutions.
"Most
of the value-added services we see are basically (providers) having
wam bodies available to look at blinking lights and check simple
cable layouts," Addanki said. "We're moving toward a
new category of hosting provider."
A growing number of colocation providers are offering menus of
value-added services as a way to try and carve out a market niche
and distinguish themselves from competitors.
A new study by The Phillips Group, to be released later this month,
suggests that while these packages are attractive to some enterprise
customers, the basic criteria for colocation decisions remain
the same.
"While
the corporate end of the market may require a 'one-stop-shop'
solution from their data center, ebusiness companies ... are more
attracted by high level security, bandwidth availability and reliability,"
said the study, based on a survey of over 200 colocation customers.
Reliability was the top criteria for 21 percent of survey
respondents, followed by bandwidth (21 percent), security (16
percent) and price (10 percent).
A significant number of providers are seeking a middle
ground in the evolving colocation marketplace, somewhere between
the "pings, power and pipes" facilities-centric approach
and business models that emphasize managed services.
Many
industry watchers believe there's plenty of room in the market
for both approaches - at least for now - as well as many lucrative
partnering opportunities.
"There's
a very clear delineation between hosting companies and ASPs,"
said Azfar Haidar, co-founder and chief operating officer of Mi8,
a New York-based application services provider focused on messaging
and collaboration. "We depend upon our colocation partners
and facilities partners. It's very hard to try and do everything."
"Not everyone can do everything," agreed Pat
Walker, executive vice president of Marconi, a services firm that
embraces the "telecom general contractor" model.
"You have to stick to your core competencies," said
Walker. "But service differentiation will be key as the market
saturates."
Industry
veterans differ as to if and when that may happen.
"You
could look at this industry and say there's too much space out
there in some places," said Art Zeile, chief executive officer
of Inflow. "But the overall need is actually twice as large
as the amount of space.
"The folks who are most at risk are those operating
in cities where there's an enormous amount of space (already built),"
said Zeile. "I think the (colocation) space is definitely
going to come down in price."
Others
believe prices will be determined by how quickly the market for
managed services develops.
"Pure
real estate is going to be squeezed because the first guy who
succeeds in managed services is going to be giving it away for
free," said Addanki.
Switch & Data's Lavin remains skeptical of such predictions.
"How
many profitable managed services providers are there out there?"
he asked. "There aren't that many.
"I
would argue that 'pure colocation' is a misnomer," he added.
"The reality is that this is a difficult business. We think
the numbers work and the value proposition is very real."
OTHER
COLOCATION SUMMIT COVERAGE:
Power
Supply A 'Big, Big Issue'
Aging grids challenged by growth of the 'Net economy (Nov. 16)
Will
Colocation Space Yearn To be Free?
Cityreach CEO: 'I'll be giving space away.' (Nov. 16)
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