This article is a sneak peek into the state of public cloud infrastructure, edge network provisioning, and the growth and trend predictions that we discussed with Bill during the interview.
Bill Fathers has been in the communications infrastructure industry for a long time: President at SAVVIS, board member at Telx, Cloud services general manager at VMWare, Ciena board of directors, operating partner at Stonepeak, and more. In short: He’s seen every evolution of hosting and virtualization from the very beginning.
Now as the head of Cologix, Bill is focusing a lot of attention on the hyperscale market. David asked him what has changed over the years to push his business in that direction.
Bill notes that for their first seven or eight years, Cologix built carrier neutral facilities in Canada and the United States. 650 discrete carriers in total, across ten different markets. Then AWS came to them with a proposal to connect to their clients at near-zero latency. It was an immense opportunity. So they deployed customer edge nodes throughout Cologix's footprint, covering eight of their ten markets. Up until that point, they were focused mostly on carrier peering, Internet exchanges, CDM platforms, and the like. This was new territory.
But more and more queries came in for similar services, and their focus rapidly shifted in that direction. Over the last three years, they've been expanding public cloud space. Deployments from Amazon, Google, Microsoft, IBM, AliBaba, and other big players in the Cloud represented a lot of work. Their requests simply dwarf what most private companies will ever ask for, as far as network scaling.
They are now growing that ecosystem across all of their markets. Cologix is about to announce their 30th public cloud onramp. These activities, of course, attract corporate clients who want to be closer to the edge network of their preferred Cloud services. This resulted in specialized hyperscale edge facilities, which offer between 1 and 50 MWdeployments.
Purely by the numbers: 65% of their bookings are hyperscale and the businesses that follow them. 25% of their bookings are carriers. And the last 10% are other ecosystems. That's how much their business has shifted in just the past three years.
We inquired about how the needs of those bigger users have changed over the last few years.
Bill said that the main shift has been moving Cloud based compute and storage resources as close to the customers as possible. Data center services like DB hosting and artificial intelligence farms need low latency and flexible cost options. The edge is the logical place for those kinds of operations.
Specially built hyperscale facilities are cheaper than carrier hotels for these players. Azure is one of the fastest growing entities in this field, rolling out these kinds of compute and storage options in dozens of markets all over North America. AWS and Google aren't far behind. They're all bringing vast resources right to the network edge. Together, they represent 32 billion in revenue, and yet core operations are growing at a staggering rate of 40%.
From the supplier side: It's a daunting amount of new hardware that needs to be deployed all across the globe. The business opportunity is immense, but the companies doing the provisioning have to be flexible. They need to keep up with the extraordinary momentum that the big cloud services have.
We then asked, with this shift in demand, what will happen to the secondary cloud providers over the next couple of years.
Bill said that he’s seen quite big RFPs from those secondary providers in recent months. Some of them used to be quite comfortable with half a dozen global data centers, and that was working for them. Enterprise software companies were their primary focus, and latency sensitivity wasn't that big of a deal.
But with tax breaks available in a lot of secondary markets, expanding into select edge holdings just made sense. It increased the scope of new customers they could onboard, as they could start to service edge networking requests.
Recently, environmental considerations came into focus. For example, Montreal is 95% renewable energy, a big draw for data centers and their clients who are looking to go green. So, anyone moving into the Canadian market will want to take advantage of this. The rule of thumb is to put 60% of operations in Montreal, and 40% in Toronto. This is the blueprint that these secondary cloud providers are using to enter the Canadian market rapidly.
When asked about the demand of the closer international markets, Bill noted that Canada is 60% of Cologix's business. The country is examining its backbone situation, among other things. It's strange because there's not much east-west backbone infrastructure in place currently. Most of the traffic gets routed through the U.S. right now. The notion of digital sovereignty has taken the country by storm.
So, submarine cables that natively land on their east and west coast is the new trend. Facilities that can act as cable landing sites, like Cologix's Vancouver operation, are at a premium. They're also sponsoring a lot of international carriers to get more local, driving traffic and competing in their peering markets: Australia, Singapore, Korea, Japan, as well as Scandinavian and European agencies. Chinese social media platforms are making huge inroads. It's estimated that they may become as much as a third of the colocation market in North America within the year.
We then got Bill’s thoughts on what U.S. markets companies are embracing.
Cologix has seen Columbus become a hotbed for hyperscale. They had two facilities in the area before building their bespoke hyperscale operation. In 18 months, they sold out their entire 32 MW capacity. This has triggered the need to build a 4th and 5th facility in the area, just to keep up with demand.
Minneapolis is also a strong market, geographically central with growing demand. But customers were always asking about gateways in core regions, so some additional expansion was required.
About 4 or 5 months ago, they acquired a Silicon Valley colocation that had 20 megawatts with planning permission for an expansion of 10 more. Ashburn was the other major request from major corporations and governments, so even with the huge number of providers already there, Cologix made a move. They grabbed the land adjacent to Equinix's DC2 facility and started building. They're pad-ready as of this month with 72 MWs. There's no way they could have afforded it in years past, but in 2020, Cologix doubled the size of their business. That's how profound the impact of recent events has been on data center services.
We noted that a lot of companies were flush with funding. We asked how the influx of cash into the industry has impacted the way Cologix and other providers operate.
Bill said that privately held companies have done a lot of creative borrowing recently, just off the back of their potential value growing so much. Some of them are leveraged ten times over, with interest rates at 2% or less. That's game changing, highly disruptive to financing in the sector. Outside investors are querying companies with traditional debt in the 4% range with leverage at around four times their value and looking to buy them out. Then they copy this kind of hyper-leveraged scheme to double their value.
This is making companies reconsider equity. If debt is that available and that cheap, why give away a chunk of the company? So, investors must compete. Still, new investment is coming in at every level of sophistication, from brand new players to old hands in the industry. The veteran investors are being a lot more selective, requiring diversification, broader market penetration, hyperscale capabilities, and the like before they'll invest a penny.
Bill noted that even though he called out digital infrastructure investment as a major theme the last time he was on the show, he underestimated the tremendous speed and scale of such moves.
As for newer development, the Asia rollout over the last six months has overtaken North America and continues to grow. Europe has a severe lack of supply and a growing demand, so huge premiums are being paid on the infrastructure supply chain side.
Latin America is suddenly taking off. Stonepeak just announced the acquisition of a fiber and data center business in the region, as the growth boom starts to take hold.
In North America, the Biden infrastructure bill should impact things. Road, water, industry, power, and supply will finally catch up with the digital investments already being made. This means more viable sites, higher quality facilities, and a better cost of living all around the hot markets.
Cologix just published their first ESG roadmap, showing that 48% renewable energy is being consumed in their company. Investment partners are now requiring additional green clauses, including hitting certain renewable energy percentages, increasing efficiency, and otherwise reducing carbon impact and resource consumption. Bill wouldn’t have it any other way.