The market forces driving the New IP are also reshaping the landscape of interconnected data centers and one of the companies capitalizing on that trend is Cologix, a network-neutral interconnection and colocation data center company headquartered in Denver. Its strategy is to build out data centers in network-intense spaces in Tier 2 cities such as Minneapolis, Vancouver and Jacksonville, where there is increasing demand.
The company, founded and operated largely by former Level 3 Communications Inc. (NYSE: LVLT) executives, is making significant investments, both organically and through acquisition, to create a new breed of company that doesn't provide either network or cloud services, but facilities for those who do.
"Increasingly we see trends that point to new demand or new growth away from traditional Internet hubs like New York and Chicago, and into Tier 2 markets like Minneapolis," says Graham Williams, chief commercial officer of Cologix .
Just as content delivery networks started by pushing content caches closer to the customer, the same thing is happening today with all content and data, such that traffic growth in these smaller markets is moving at a faster rate than in the larger markets, he notes, and much of that traffic stays local -- it's metro only, not long-haul.
"I see this trend picking up speed as large file delivery becomes an increasingly significant portion of the traffic on the Internet, and we see more content providers pushing out caches closer to the edge of the network," Williams notes. "For us, that means traffic is leaving markets like Chicago and moving to markets like Minneapolis. The local Internet exchange in Minneapolis has tripled in the last 18 months, growing at a more rapid rate than in Chicago."
He sees that trend continuing to push traffic deeper into other small metros as well. That will inform where Cologix invests and expands. The company currently operates 20 data centers with over 500,000 square feet of space, and has 850-plus customers and 350-plus unique network connections. Its customers include network service providers, cloud/IT providers, big media firms, financial services companies and other enterprises.
"Increasingly we are starting to see the cloud providers, who obviously are very sensitive to scalability and cost and performance, start to mimic the architectures that CDNs had into their cloud," Williams says. "We are seeing the same sort of network node in connected locations connected back to a big farm of designated CPU power. So we are starting to see that in the cloud space as well."
Riding the outsourcing wave
Within these smaller markets, Cologix works to take advantage of another trend the company is seeing, which is enterprise movement to outsource their data centers. Many of these companies first built them internally in the '90s, but as these data facilities come due for a technology refresh, enterprises are questioning that expense and hassle and increasingly opting to outsource their data centers.
The company operates in carrier hotels or, where those aren't available, common interconnection points, often in downtown areas that are physically close to the headquarters of their large enterprise customers that like physical proximity to their outsourced data center. This colocation strategy enables them to guarantee enterprises and others dependent on network connections a degree of buying power -- as network prices changes, there are multiple connection options that are just a cross-connect away.
"That's important because if they are going to bolt their equipment to the floor, they want to know they aren't locked in to a single network option," Williams says.
Network movement also affects Cologix's data center business. When the decision was made to terminate multiple subsea cables from Central and South America in Jacksonville, Fla., bypassing the more typical landing spot of Miami, Cologix took advantage by acquiring Colo5, a colocation and disaster recovery provider with more than 225,000 square feet of space in two hurricane-resistant facilities in Jacksonville and in Lakeland, Fla. The growth in traffic between North and South America is expected to continue and expand, making this investment a strategic choice for Cologix.
Jacksonville represents about one-fifth the hurricane risk of Miami, which is what made it more attractive as a landing spot. While Williams notes this kind of opportunity based on a unique moment of network disruption is relatively rare, there is growing concern about concentration of carrier facilities and the potential for major disruption. That drives a broader demand for diversity of location that companies such as Cologix are willing to address.
The company has largely grown its footprint through acquisition, making at least eight in recent years, but is now more focused on organically growing its existing markets through expansion of its facilities, Williams says.
"Instead of getting more dots on a map, we want to invest and get deeper into those Tier 2 markets and we are investing hundreds of millions into funding organic growth," with major expansion projects either commissioned or completed in every market, he says.
And Cologix is staying true to its promise to customers that it won't get into the services business -- such as cloud or managed services -- on its own, which would put it into competition with companies it currently serves.
"We have had a core philosophy from the beginning of being very focused on what we provide," he says. "We have been consistent and disciplined in what we do. We will keep looking at other Tier 2 markets that need a player or provider like us. That's where our growth will come."
— Carol Wilson, Editor-at-Large, Light Reading