Tactic 2. Build a Network Umbilical for Later IXP Migration
Many new data centers have entered the market competing against the premium network-dense colocation centers. These new entrants are unable to charge the premium prices ($2000/rack) because they do not provide the value or sufficient differentiation. The highly competitive commodity data center market has been described as “trench warfare” competing for $400–$500/rack deals. At these prices, some customers are splitting their network deployments between the premium colocation and the commodity data center, as shown in Figure 13-3.
In this tactic, an upstart colocation provider builds its critical mass by starting as a data center, but positioning itself as a network umbilical (colocation extension) site. This data center company pitches its data center as a cheaper place to host the larger server deployments and edge routers. The customer keeps its core routers at the premium network-dense colocation site, but deploys the rest to the discount network umbilical site. The fiber between the two data centers is paid for by the cost savings of hosting the large number of servers at the cheap site.
Consider an example where the dark fiber between the two sites costs $15,000/month. Since the difference between the premium and the commodity colocation centers is $1500/rack per month, the customer has to move only 10 racks to the commodity colocation center for the split deployment to pay for itself. Since many customers have hundreds of racks at the premium sites, the cost savings can be significant.
Once the network umbilical site has enough participants, it has a roster of impressive peers that can help it make the transition to being a peering point. While some companies may not have their core routers at the extension site, some will. In any case, the roster of participants is impressive, helping build the credibility to establish a new IXP. Over time, features in the extension sites such a greater power density and a growing peering population may help the commodity data center to raise prices and emerge as an attractive player in the colocation market.
Value of the IXP = f(p, r, v, m) - c
p: The population
r: The routes available
v: The volume of traffic exchanged
m: The market perception of the IXP
c: The cost of participatioon at the IXP
Figure 13-3. Network Umbilical Pitch.