(WEB HOST INDUSTRY REVIEW) — The past few years have seen a massive growth in data center footprint expansion across the globe. With that growth, data center building and operation has become its own area of specialization, according to data center wholesalers like Digital Realty Trust (www.digitalrealtytrust.com).
According to Digital, Web hosting providers may miss out on certain opportunities as a result of operating their own data centers instead of leasing them.
In a presentation at HostingCon 2010, “Expand Your Revenue Not Your Data Center,” Dan Ephraim, director of sales at Digital Realty Trust addressed this issue.
During the session, Ephraim discussed “risk mitigation strategies” as well as the importance of “maintaining control of revenue.”
In an email interview with The WHIR, Ephraim discussed the some of the key points addressed in the HostingCon presentation, along with some practices web hosting providers and what practices Web hosts can follow in order to maximize their revenue.
WHIR: Why is it that hosting providers only gain minimal value from operating a data center?
Dan Ephraim: To answer that, I would look at that question from a slightly different direction – from the cost perspective. I would argue that it doesn’t make financial sense for a hosting company to build and operate a data center facility themselves. When you consider the capital costs associated with building a facility coupled with the annual costs of the personnel dedicated to operating the facility, it just doesn’t make sense for hosting companies to do it themselves. Hosting companies that build and operate their data centers themselves are spending more than they need to and negatively impacting their bottom line. Those higher costs require them to either charge higher prices that make them less competitive, or accept lower margins that make them less profitable. Obviously, neither is desirable. Leasing a facility from a wholesale provider and allowing them to operate the facility significantly lowers data center costs for hosting companies, which directly impacts the bottom line. It also allows hosting companies to focus on their core business objectives and services rather than devote financial and personnel resources to something better handled by a data center facility expert.
WHIR: What are some of the risk mitigation strategies that data center operators can deploy?
DE: That’s a great question because operating a data center is truly all about minimizing risk-exposure. For hosting companies that are looking at leasing data center space, the most important risk mitigation strategies are working with a landlord that does not “flip” properties, in order to ensure stability for the hosting company’s mission critical infrastructure; verifying their provider’s financial strength and scale in order to ensure that the provider has the staying power to be with you over the long haul; and looking closely at the company’s track record (success/failures) when working with customers similar to you.
WHIR: What are the biggest challenges in maintaining a data center?
DE: The biggest challenge is anticipating the unknown. Let’s face it, bad things are going to happen from time to time. While these instances can’t be precisely forecasted, their likelihood and impact can be minimized through the use of field tested and documented processes and procedures. At Digital Realty Trust our use of this strategy has resulted in five nines of reliability across all of our turn-key data centers for the past five years.
How would you describe the current state of the data center industry?
DE: In a word, robust. I think we’ve seen a great deal of maturation within the industry over the past few years and today’s hosting and colocation firms are much more cognizant of all the factors surrounding their businesses. Where previously the focus was on the things that were most visible to their customers, like technology, I think you see a new realization that every aspect of the business in customer affecting. Because of this new holistic perspective you are seeing firms adopting models that are most economically and operationally advantageous for them. They don’t feel like they have to do everything themselves and are looking to alternatives like wholesale providers to handle the aspects of their facilities and operations that are not core to their business so that they can focus on delivering the best customer experience possible. As the need for computing capacity has steadily grown, the demand for data center space has outpaced supply by a significant margin and this imbalance of demand and supply shows no signs of abating for the foreseeable future.
WHIR: Do you tend to include Digital Realty Trust’s experiences as a focal point of the discussion?
DE: Definitely. Our experience in working with companies across a variety of industries has enabled us to incorporate the best practices that we have observed and learned into our own operations. As a result we are able to explain the how and why that we do things in terms of customer needs and requirements.
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