European Hosts Test Viability of Co-location Model Adam Eisner, theWHIR.com
February 27, 2002 – In North America, the demise of Exodus Communications was effectively responsible for equating the term “co-location” with “trouble.” Many businesses and investors, whether rightly or wrongly, came to believe that the business models of most co-location firms were not structurally sound. And as the hosting market heats up across the Atlantic, a similar question as arisen in Europe: is focusing on co-location like playing with fire?
For some companies, the answer appears to be yes. The recent financial troubles of European co-location firm TeleCity (telecity.co.uk), for example, have forced the company to reconsider its status in Europe’s Web hosting marketplace. The company maintains 11 co-location facilities across Europe, but said this week it would cut expenditures by selling a significant portion of the unused space in its data centers, and exiting leases in four buildings it deemed to be underused. And because TeleCity is struggling, it is also widely considered to be a candidate for consolidation.
TeleCity is confident, however, of brighter times ahead with less of an emphasis on co-location. The company says it has a secure cash position, has seen an increase in customer enquiry levels, and has reduced its overall cost base by 22 percent.”2001 was a difficult year for TeleCity; however, management responded quickly to the challenges by revising its business plan and significantly reducing the cost base,” said Michael Hepher, Chairman and Chief Executive of TeleCity, in a statement last week. “We remain optimistic that with a secure financial position, a more effective Sales and Marketing effort and an improving level of market activity, the progress currently being made towards achieving profitability and generating cash will gain momentum.” TeleCity says it expects to become EBITDA positive by the fourth quarter of 2002.
Meanwhile, London-based Worldport Communications (worldport.com) has also shifted its focus away from co-location and is now targeting more stable, old economy enterprises in an effort to generate more consistent revenue. In an interview last November, the company admitted the fate of now-bankrupt Exodus had influenced that decision. Soon after, Worldport was forced to close its flagship “SuperCenter” in Dublin to cut costs and focus on restructuring, and the company has since been reborn as a leaner, adaptable managed hosting firm that also provides a wide range of value-added services. And much like TeleCity, the company is confident of brighter times ahead. Worldport says it has “mothballed” its Dublin facility, and says it plans to keep it “available to be reactivated should market demand pick up.”
Still other companies, however, plan to simply ride out the storm. Pan-European co-location firm Redbus Interhouse (interhouse.redbus.com), for example, has no plans to diversify its service offerings unless specifically requested to do so by customers. “I’m quite happy with what we’re doing. The difficulty I’ve got is if you look at the gold rush that occurred last year, you’ve got everybody and their wife opening co-location centers? because it seemed like [it] was the in thing to do,” says Kevin Neal, the company’s managing director. Interhouse is the co-location division of the Redbus Group of Companies, a London-based collective specializing in providing seed capital to forward-thinking firms. Interhouse maintains nine carrier-neutral facilities in seven different European countries, and employs over 200 people.
Neal says the dot-com shakeout had a positive effect for Interhouse in that it has resulted in the company attracting a more reliable clientele than shaky dot-coms. “Luckily, in one respect, I’m quite pleased that marketplace is now gone and that people who come in are actually looking and saying, ‘let’s have a look at your infrastructure’,” he says. New concerns about security have helped the company as well. “Last year, we were order-taking from telcos, ISPs and the big Web hosters. Nowadays, and specifically since September 11, we’re getting far more of the old-economy type customers,” Neal says.
While Interhouse plans to stick to its co-location focus, however, Neal says the company needs to disassociate itself from the Internet somewhat in order to assure more established customers that their co-location provider is on solid financial footing, and is not another Exodus in the making. “We need to be attracting more to the old economy customers, the banks et cetera, purely for the fact of saying, ‘this is a stable business. This isn’t actually tied up to the Internet [so] that we can’t get away from it,’ and bring it to the real world.”
