(WEB HOST INDUSTRY REVIEW) — Colocation provider Internap Network Services revealed on Thursday it will expand its Seattle data center as part of its overall strategy to move colocation services from its partner facilities into data centers owned by Internap, according to a report by Data Center Knowledge.
The announcement comes on the heels of Internap’s expansion of its performance IP services at a Switch and Data data center in North New Jersey.
Expected to be completed in the third quarter of 2010, the Seattle data center expansion is expected to cost $22 million.
In August, Internap first announced it would expand data centers in two or three markets during 2010, noting that it would set aside $50 million for the expansion.
The expansion will add 15,000 sellable square feet of capacity to the Seattle facility. The data center is designed to the standards of Internap’s other premium data centers features, offering N+1 redundancy, SAS-70 certification, 24-hour monitoring and enhanced carrier-neutral IP services.
“Seattle was a compelling choice for expansion because of our multi-facility footprint, local market knowledge, existing sales and support infrastructure as well as our ability to leverage brand reputation,” says Internap CEO Eric Cooney. “We feel this market offers Internap a unique opportunity to expand with relatively low risk and relatively high reward.”
According to Cooney, the new data center approach should help the company benefit from a greater profit margin. Currently, revenues earned from Internap’s data centers are evenly divided between in-house data centers and space leased from other providers.
Cooney says that Internap receives a 50 percent margin from customers in the company’s own data centers, compared to the 5 percent it gets from its partners’ data centers.
Internap will “proactively churn select loss making and or low margin partner colocation revenue.” Most of the customers in Internap’s partner data centers have short term contracts with less than a 12-month term, says the company.
In most cases ,Internap will decide not to renew these contracts, and in other cases, it will renegotiate the contract and pass the customer directly to the data center provider, says Cooney.
The shift in strategy should result in a quarterly decline of about $5 million in partner colocation revenue by the fourth quarter of 2010, says Cooney.
However, it will increase the profit margins on the remaining partner data center space from the current 5 precent to approximately 20 percent.
