The global multi-tenant data center (MTDC) market is still showing strong signs of growth as revenues have increased 4.7 percent (USD) in Q2 of 2015 compared to the same quarter in 2014. In terms of space the global MTDC market grew by 90,000 square meters in this quarter according to a new report from IHS.
The IHS report says that the ability to provide interconnection, or cross-connects, among tenants is a strong influence on the growth of the market sector. This is the practice of linking tenants to other tenants or carriers within the data center via physical cables. This increases speed while reducing costs given that communication does not have to go through an outside Internet Service Provider (ISP). IHS currently estimates that slightly under 10 percent of all multi-tenant data center revenue comes from cross-connect fees.
Interconnects push revenues up
The report goes on to say that retail colo data centers are finding that cross-connects are a useful driver of additional revenues because they not only provide additional income but the increased kilowatt usage is billable. The problem comes when the data center becomes inundated with cross-connects and needs more investment in order to expand.
The ability to directly connect with a company’s peers in its own industry has created vertical-specific data center environments. For example, in London, Frankfurt, and New York many financial institutions group in certain data centers to more efficiently make trades and link to exchanges. In California, there are data centers geared towards digital media companies that use cross-connects to deliver content to partners within the same facility.
The ability to offer a deep interconnection environment is a huge barrier to entry for new vendors, says the IHS report. This is because it requires a large network of carriers and a large data center with an equally large tenant list with potential customers with an eye to getting value out of peering. This kind of business takes years to build, which is why colocation companies with major interconnection ecosystems are particularly appealing as potential acquisition targets.
Digital Realty spoke frequently on its recent earnings call about the attractiveness of Telx’s interconnection business when looking for a partner in the retail colocation space. It was reported that Telx’s top-line revenue growth was at a 20 percent CAGR, while interconnection revenue was growing even faster. Equinix recently reported 50 straight quarters of continued growth. Since they are the leader in the interconnection market they are another reason to be optimistic about the size and speed of growth.
The ability to offer a deep interconnection environment is a huge barrier to entry for new vendors says the IHS report. This is because it requires a large network of carriers and a large data center with an equally large tenant list with potential customers with an eye to getting value out of peering. This kind of business takes years to build, which is why colocation companies with major interconnection ecosystems are particularly appealing as potential acquisition targets. Digital Realty spoke frequently on its recent earnings call about the attractiveness of Telx’s interconnection business when looking for a partner in the retail colocation space. It was reported that Telx’s top-line revenue growth was at a 20 percent CAGR, while interconnection revenue was growing even faster. Equinix recently reported 50 straight quarters of continued growth. Since they are the leader in the interconnection market they are another reason to be optimistic about the size and speed of growth.
IHS expects that revenue from interconnections, or cross-connects, will account for a growing share of recurrent revenues in the multi-tenant data center market and continue to drive differentiation among providers, helping to d commoditization of colo services.
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