Brian Oley: The No. 1 criterion is environment – a site's exposure to natural and manmade disasters. Second would be the cost of power. But latency -- fiber -- is right behind and gaining ground. Fourth: tax impacts. There are a bunch of states within the last two to three years that have legislated data center incentives. Fifth is construction cost [of both] materials and labor. We look at the construction cost index that lists cities on a scale of 1 to 100. If New York is 100, Des Moines, Iowa, might be a 1. Lastly, it's labor. You're only employing 50 people, but still you want talent there. Have more companies said, "Screw Newark. Let's put our data center in the Midwest where the power and construction costs are cheap." Or is geography still a major constraint for most
Oley: That's a client-specific question. You'll have financial institutions that want to be 10 fiber miles from their existing location. But for a company that says latency in the milliseconds isn't as important, they might be able to get away with it, as long as they're on the major fiber routes that run east to west, along the highways and rail. Some people may be able to sacrifice that latency and go to an area like Omaha or Oklahoma City. How does fiber location work? Oley: My responsibility as a site selector is to locate the fiber, find out if fiber companies can provide diverse routing from site to site. Speaking to the fiber companies is impossible. They claim security and secrecy, and it's an extreme challenge to deal with them. They hide behind the security issue. Companies like AboveNet are very transparent about what they have and where they have it. They're an emerging company; they want to become big players so they're using that transparency as a competitive advantage. They'll give us a map saying exactly where they are – dark fiber, conduits. We're seeing more of that kind of behavior – not a lot, but more than we used to. Your company also does colocation site selection. What trends have you seen there? Oley: Colocation is a Band-Aid approach. Companies are looking for a short-term fix, and paying a premium for it. They turn to colocation and typically like to sign a two- to five-year lease. What's appealing about colocation is timing. Companies need a short-term space, and they need it yesterday. We've got a classic situation where demand is outpacing supply. Tier1 Research estimates that in 2009 there was a 6% growth in supply and a 14% growth in demand on colocation space. Anecdotally, we've heard about more companies leasing data center facilities. Are you seeing more companies getting out of the data center business? Oley: Absolutely. We're seeing that from the colocation side, where people just want to move into a place and put the servers on the floor. The colo takes everything from the PDU back. That's common and we're seeing a lot of it. And we're also seeing companies going out and building their own data centers and outsourcing the data center operations in the facility. It's not their core competency; they don't want to deal with it. Are more companies looking to build data centers outside the U.S.?
Oley: Absolutely, we're seeing a lot of activity in the Asia-Pacific region. Singapore is a pretty hot market. I've heard complaints that it's not a good idea, but any place outside the U.S. is going to have pros and cons. The pros of locating a data center outside the U.S. [include] tax advantages. This is one of the primary reasons that Dublin, Ireland, is of extreme interest to data center users. The other reason is for a company's data center to be closer to an emerging group of users, as in an emerging market like Singapore or China, where number of Internet users is skyrocketing. The location could give a significant competitive advantage when other data center users are trying for market entry. The cons are potential asset control risk -- risk of government takeover in emerging countries like China, where the social capitalist mentality reigns. They'll accept capital investment, but rarely if ever forfeit control. There are also weak infrastructure and reliability issues. In places like India, the existing system resiliency is extremely weak. Companies have to fork over capital for improvements or depend on a weak grid and expect material outages. Have you seeing more containerized data centers among your clients? Oley: We've seen a lot more of it. It provides flexibility that customers want from a location. We've got one confidential client that runs them, and they seem to be pretty happy. It takes a specialized customer to employ that technology. But I haven't' heard anything bad about them and people in IT tend to be pretty opinionated.
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