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Q&A: J.P. Balajadia, 365 Main

Carrier Hotels Staff Posted Mar 1, 2004

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J.P. Balajadia is vice president of 365 Main, a mission-critical data center in San Francisco that was originally developed by AboveNet.

1. What's your take on the "State of the Industry?" What do you see as the most important developments and trends of the past year?

The industry, from my view, has begun it's climb back from its descent of the past 2-1/2 years. We definitely see a renewed interest in outsourcing data centers by companies of all sizes and a new level of sophistication in the people shopping for it. There have been many important developments over the past year.

On the connectivity side, we have seen the rapid fall of bandwidth pricing from all of the major carriers and re-sellers, the cost reduction has been disproportionate to the decline of real estate prices for colocation.

On the hardware side, we have seen strong interest and growth in the SAN/NAS storage market. It seems that every customer requests to see pricing from our storage vendors.

On the infrastructure side, we have seen a definite reduction in the amount of available space on the market. Our company has toured many of the open data centers abandoned by their previous tenants. In California many have been converted back to their original use - warehouses and office space. Much of the space that has been brought back to original use was never fully built/deployed and would have cost too much in capital improvements to compete with the finished space available.

2. How have bankruptcies and their outcomes affected the competitive landscape? Has it been more or less disruptive than you expected?

The first set of bankruptcy filings in 2000-2001 created a search for financially secure data centers. There was a lot of movement in the industry from one provider to another with shorter contract terms and provisions written in for automatic out provisions if there was change of ownership. As colocation companies continued to file for bankruptcy they also became more aggressive at customer retention - getting court stays and threatening with legal proceedings if leases were broken. Customers also became more callous to the fact that their providers were in Chapter 11 protection and did not want to bother with the pain of moving colocation spaces. Now that everyone is back to square-one with their business plans, it has forced the market to be more aware of where each penny of expense is generated and paid for. Customers are more savvy in their negotiations for new license terms with guarantees, free rent, free move costs, etc.

3a. For landlords and property owners: What's your assessment of the current market for leasing of data center space? What trends are you seeing in demand for space and lease rates?

The current market has been gaining strength for the past six months. We have seen increased traffic through all the data centers in this area, and have been signing contracts weekly. This momentum has been happening in all sectors - government, private (traditional brick & mortar companies), education, non-profit, e-commerce, ISP, storage, ASP, etc. All of the deals have been structured differently. Because it is a demand-side market, colocation customers have been able to require complete break-out budgets for space, power, bandwidth, managed services, etc. and pick and choose which, if any, they will take. It is a much different market from 4 years ago, when providers of colocation were able to dictate a bundled price for all of their services without any competitive pricing for pieces of the contract.

4. Give us your outlook for 2004. What are the key trends you see affecting the industry?

We will continue to see growing demand for Tier IV data center space and a decrease of the older/obsolete and unfinished space. The increased number of requirements and decrease in available space may cause a slight increase in the rate colocation providers are able to demand. The regions of the country that will see the most growth will continue to be San Francisco (Bay Area), Washington DC, Seattle, Miami, Boston and Austin, TX.

Customer service will begin to drive where customers go. As the cost of available space equalizes and the lower level data center space is converted back to other uses it will be of utmost importance to the colocation provider to be able to detail where all costs are at and be flexible enough to tailor each contract. The days of the 300,000 square foot cookie cutter colocation boxes are long over.