NEW YORK, March 6, 2002 -- Data center operators who aren't already active in second-tier cities will have trouble entering these markets now, according to panelists at this week's IMN conference on Carrier Hotels and Internet Data Centers.
"I don't think you're going to see any new entries (in second-tier markets). I'm quite confident of that," said Scott McCormack, vice president of BancBoston Capital.
McCormack noted last year's swift rise and fall of Relera as a cautionary tale. "They were real late to the game and they're already gone," said McCormack.
"If you got there early, life is good," said Jim Pastreich of Pinetree Capital, who agreed that smaller markets require different strategies than tech meccas like New York, Silicon Valley or Washington, D.C.
That offers some breathing space to existing players, many of whom have seen colocation "chains" like Relera come and go.
"A year ago there were 12 data centers in Portland, and now there are three," said Richard Bader, president of EasyStreet Internet. "I wouldn't call it consolidation, I'd call it evaporation. Nobody's going to come back into this marketplace anytime soon."
That's fine with Bader, who has carved out a modest but profitable niche in Portland, Ore., the nation's 30th largest city. The key, said Bader, has been minding his overhead and expanding sensibly.
"I've got a 'micro data center,' which sounds better than saying 'tiny data center,' " Bader joked of his 5,000 square foot facility. "But we're 60 percent occupied, cash-flow positive and making money."
Panelists operating in secondary markets - defined in this case as cities outside the 10 largest fiber markets - said the "cookie-cutter" approach to expansion often encoutners problems in these markets.
"Portland has been described as being provincial," said Bader. "We take that as a compliment. When the Verios come to town, we watch as they buy full-page ads (in the newspapers and business journals). It's not how business is done in Portland. It's about familiarity and networking. And they don't get it.
"When the nationals come to town, they'll come with a two-rack minimum (for new customers)," Bader added. "There's 50,000 to 70,000 businesses in Portland, and over half of them have 10 or fewer employees. I have a lot of folks working from home in their underwear over a DSL line."
When large companies target a smaller market, they need to acknowledge those differences to succeed.
"I think a lot of national providers have tried to crack these cities with a national sales force," said McCormack. "If you're going to crack these markets, you've got to have a local sales force and a local presence. You need to be going to events and joining the Chamber of Commerce."