Equinix expands amid a flourishing data center services market

The massive surge in data volumes companies are producing, processing and storing is great news for Equinix. The Redwood City, Calif., company, which operates more than 175 data centers on five continents, is expanding its reach, investing $39 million to enlarge its London data center. It recently formed new partnerships with Microsoft Azure and Google Cloud Platform, allowing its customers to connect to more of the cloud providers' services. And it is looking at yet more growth worldwide, eying South America, China and the Middle East for possible data center sites.

"We're always watching the market and looking for expansion opportunities," said Ryan Mallory, senior vice president for global solutions enablement at Equinix. In an interview at the MIT Sloan CIO Symposium in Cambridge, Mass., on May 23, Mallory spoke about Equinix's endeavors and potential future plans amid a booming data center services market. His outlook for the company's continued growth was optimistic.

The reasons: "exponential" increases in data translating into the need for more data center space; more companies experimenting with data-intensive technologies, like blockchain; and, in an economy where sellers of services often become buyers, the ever-increasing need for interconnectivity.

"Now, you have what used to be just an enterprise customer wanting to buy services from Microsoft or Azure in a very transactional manner," Mallory said. "You actually now have companies like Microsoft or Google or SAP turning around and buying services back from the enterprise -- more importantly, buying services from us together."

Ryan Mallory

Mallory also touched on potential dangers: overbuilding in the data center services market and whether Britain's impending exit from the EU would force contingency plans. Following are edited excerpts from the conversation.

Equinix is expanding its London data center in response to demand from financial services companies. How much is the growth in the amounts of data companies are using contributing to the need for more data center space?

Ryan Mallory: It's exponential, and it's exponential in a positive manner. You just touched on the financial industry. The capabilities associated with financial and the way they do transactions and the way they're starting to look at blockchain infrastructure -- those footprints become pretty massive. The need to have power, cooling and space becomes big. And you start to see trends in financial markets -- London, New York, Tokyo -- that have these builds for specific verticals. Now, when you start to look at the access to smart devices and those type of integrations, all it's going to do is incrementally increase the amount of capabilities that are needed for access close to the edge, therefore driving up more demand for data centers.

What we're seeing is with that comes the need for some of those early adopters of this neutral or this interconnected model to also benefit. Our network partners 10 years ago, people were going, 'Man, are these companies really going to make it and be viable long term?' We've seen a dramatic resurrection of the companies with fiber capabilities, and we're partnering with them very carefully and very effectively, because the network access -- unless you size that access to the infrastructure accordingly, all you have is big buildings with space and cooling in there.

Is that also what's driving Equinix's recent partnerships with Azure and Google?

Mallory: It is. You have to have that connectivity pivot point. But there's also the demand, because we've got the buy side and the sell side that sit inside our facilities. And what we've seen is those completely merge, because now you have what used to be just an enterprise customer wanting to buy services from Microsoft or Azure in a very transactional manner. You actually now have companies like Microsoft or Google or SAP turning around and buying services back from the enterprise -- more importantly, buying services from us together.

SmartKey is a great example. It allows third-party key management in an encryption fashion. What you're seeing is this buy-sell relationship really become essential, because it's not just a retailer and a purchaser. Those sides of the table swap often, and that's what's really helping drive the need to have these hyper-interconnected capabilities. And then have more services closer to that, because latency is important to applications and so is the design of how the application is accessed by the end user.

Is there a danger that the data center services market could get overbuilt?

Mallory: It's a question that hits us all the time because of the amount of development and growth that's going on. I don't see it, because the amount of demand and the growth associated with compute and storage that's out there is so high that that horizon is at least five years out, if at all. The demand that we see from the hyperscalers, as well as our network providers, is pretty substantial.

And now what we're starting to see is a massive pivot from the enterprise to look at this interconnected-oriented architecture that moves it to become highly distributed, because they know their workforces are highly distributed. Even if it's just a company in the North American or the U.S. market, they're still looking at edge deployments in a minimum of four locations, because they know that they've got the coverage from a latency and application perspective, either through their own bare-metal deployments or from the IaaS-SaaS providers.

There was talk early on after Brexit that some data center companies might relocate or build facilities in other parts of Europe. Is the expansion of the London data center evidence that those concerns were overblown?

Mallory: We didn't have those concerns because of the distributed footprint that we've had, basically organically and inorganically, over the past five years. The London expansion had to do with demand. We keep a very, very close watch on Brexit and, more importantly, GDPR [General Data Protection Regulation] -- what that meant for the markets in the U.K. and the European Union. And while there are concerns about what does that really mean for data flow, the cloud providers and access from the enterprise, we haven't seen any detrimental effect.

Do you have a Brexit strategy?

Mallory: We watch it, but it's nothing that we're building to. We're not looking at, hey, we've got to invest X amount more Capex or from an AFFO perspective and start allocating more capabilities to the U.K. specifically. We've got growth models based on land banks that we have, as well as just customer demand both near term and within the next 36 months that we watch and build to.

So, it's a scenario we need to watch because of just the dynamics of not only information, but revenue flow. But we've seen very, very strong demand in all the markets in Europe.

What can you tell me about any future expansions?

Mallory: We're always watching the market and looking for expansion opportunities. Right now, we're taking a look at South America, with the acquisition that we made a couple years ago in Alog down in Brazil and then the most recent one with Verizon -- that gave us nodes inside Colombia. What we've seen is a much larger than expected demand profile for companies wanting this repeatable, Equinized model in countries in South America. We're looking at it and saying, 'OK, what is it going to take from an entry point?' Because a lot of the core markets that we've wanted to be in, we've done a good job entering or land banking.

China has always got expansion capabilities. Beijing's on the list. India is always on the list; it's just a tough nut to crack, from an infrastructure standpoint and from some of the monopolistic rules that apply there and how you have to form JVs [joint ventures], etc. The Middle East is becoming a lot more appealing, with some of the new leaders that are in place and some of the relaxing of rules and laws that have historically made it difficult to enter based on a content distribution standpoint.

Right. There are lots of reforms happening in Saudi Arabia.

Mallory: Absolutely. We're seeing a ripple effect through the region.

Equinix's Ryan Mallory discusses what makes an intelligent enterprise in part one of this two-part Q&A.