The changing EMEA data center market

FOCUS catches up with Digital Realty and Sungard, which are taking a new approach to  the EMEA market

27 August 2013 by Ambrose McNevin - DatacenterDynamics

The changing EMEA data center market
Digital Realty's Bernard Geoghegan

Bernard Geoghegan re-joined Digital Realty Trust as EMEA MD in April 2013. He was re-joining a company with a significantly different approach to the market. In the two years following his departure Digital Realty had completely changed its visibility in the UK market with a £700m purchase of UK operator Sentrum.

“Sentrum was one of the biggest deals ever done by Digital Realty. The acquisition of that data center portfolio raised the profile of the company to a whole new level in the UK market,” Geoghegan says.

Digital Realty completed its acquisition of the Sentrum portfolio of data centers – which included 761,000 sq ft across three facilities in Woking, Watford and Croydon – in July 2012. The deal was carried out for £715.9m.

“If you look at Sentrum as a business it was very successful. Based mostly in the London market it was 80% occupied and with a long life to run on most of its tenants. We at Digital Realty don’t look at an exit on these investments so it was a natural fit with our model of delivering constant refurbishment without disturbing the customers,” Geoghegan says.

“We operate at scale and it represents an extension of the our customer base.”

The other change to the business is Digital Realty’s intention to demonstrate its ability to run facilities.

The blurring of traditional market demarcations means the roles of developer, wholesale and retail colo can look interchangeable.

But although Digital Realty has changed its market position Geoghegan says it is looking at larger deal sizes in particular verticals. The market has provided an opportunity for developers to move up through the value chain, he says.

“Look at it in the context of the changing sophistication of the buyer. Previously it was a case of ‘I need a data center. I will buy a large shell which requires excessive amounts of capital and in essence try to use a crystal ball to predict future use and capital return’,” Geoghegan says.

“Now customers are more careful and focus on critical spend. Internally to Digital Realty there is a recognition in terms of capital efficiency at the top and even down into areas of workload criticality. That we had to increase the sophistication of the products we are delivering was clear.

“We’re building a solution framework for different categories of data center operator. Such a framework allows the user to pick the best approach for its business.”

Despite the declared move by Equinix to become a REIT (Real Estate Investment Trust) Geoghegan points out that the companies have significantly different business models.

“It is driven by market perception. There is a perceived convergence because the same words are being used but it is not the same business,” Geoghegan says.

“We don’t have a heavy cross connect business. Also we know how to be a successful REIT. It presents a different set of challenges.”

The UK and broader EMEA market is still a trying place for those looking to raise funds for data center investment. On the demand side, Geoghegan says the broader economic environment is challenging. There is a steady flow of business and requests for proposals, even if decision timelines remain extended.

Now firmly back in Digital Realty he sees flexibility as key to success. Monolithic approaches to customer needs are no longer sufficient to service an extended customer base.

Sungard – expanding out of recovery
Sungard knows that its value proposition stops at the app, says EVP for Europe Keith Tilley.

As a managed hosting provider Sungard knows its solutions stack stops at the layer below the application. As a virtualized cloud provider it concentrates on addressing specific market needs, whether these are in in financial services, healthcare or government.

What it is not is a developer, owner or operator of data centers. Its value proposition is services sold off its own, predominantly Cisco UCS, or others’ IT infrastructure from third-party owned data centers. As such, it sells services based on certifications including ISO27001, being PCI compliant and it is investing in the UK government’s IL2 and IL3 security clearance level for managed cloud services.

“It presents its own challenges,” says Keith Tilley, UK and EMEA MD.

Sungard is expanding beyond recovery services, he says. “In Europe over half of our business is in managed services.”

The model is changing. “Customers are asking, ‘first, do I need a data center?’ Then ‘if I have my stuff in your data center for recovery what else can you do for me?’ Over time it might change to the customer wanting to move to virtualized cloud while maintaining its legacy systems. Elsewhere it is about bursting capacity, say for example in the travel and leisure industry which has seasonal peaks and troughs, and paying for what you use.”

The hosted cloud market has yet to reach a tipping point, he says. Barriers include companies working out internal chargeback for services, orchestration, who controls it and enforceable contractual SLAs.

Sungard is now established in Europe and the firm is pushing into the US market and has operations in India. The strategy is to set up with recovery services and then establish managed services from there. Singapore and Hong Kong are the latest markets targeted for expansion over the next 18 months.

This article first appeared in FOCUS Issue 30. To read the digital edition, click here. Or you can download FOCUS 30 from the iPad Appstore at DCDFocus.



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