Will Colocation Space
Yearn To Be Free?
CityReach CEO: Managed Services will
fundamentally alter price equation
By
Rich Miller
ColocationGuide News Staff
WASHINGTON,
D.C. (Nov. 16, 2000) -- "I'll probably be giving away
space for free 12 months from now," says Sanjaya Addanki.
The word "free"
has always been an attention-getter on the Internet. It did the
trick for Addanki, the new chief executive officer of CityReach
International, during his talk Thursday at the Colocation Summit
as he outlined his company's plans to provide free rack space
while profiting primarily from managed services.
"It's very much
like Gillette, where you give away the razor for free and then
sell the blades," said Addanki, 43, an IBM veteran who joined
CityReach as CEO in September. "All this is predicated on
success in the managed services space."
Even if free server
space never becomes widespread, some industry observers worried
that such predictions could eventually pressure the lucrative
margins in the colocation business, where top-tier facilities
can charge thousands of dollars of annual revenue per square foot
of rack space.
The critical importance
of keeping e-commerce sites online on a 24x7x365 basis has convinced
corporations of the value of reliability and redundancy in the
data center. As a result, hosting and colocation providers have
been able to maintain attractive price structures.
"Demand
is still high for colocation services and prices for both 'pure
colocation' and managed services offerings is set to rise in the
medium term," notes The Phillips Group, the sponsor of last
week's forum, in an upcoming study of the U.S. colocation market.
Nonetheless, the Internet's
culture of free stuff is a business challenge. Last year numerous
consumer e-commerce sites set out to swap free services - including
Web pages and e-mail - for eyeballs for advertising. Many of these
"B2C" players with ad-based revenue models were among
the hardest hit in the NASDAQ stock market's dot-com selloff last
spring.
Meanwhile, application
service providers such as BigStep.com
have offered free hosting and shopping carts to small businesses,
hoping to build a captive market for value-added paid services
such as merchant banking accounts.
London-based CityReach
has made believers of its investors. The company currently has
1.5 million square feet of space in 12 cities, and has about $325
million available to pursue its vision of the service-driven colocation
market, including $200 million in equity financing and $125 million
in senior debt. It recently opened a U.S. headquarters operation
in Ft. Lauderdale.
"Corporations
want to work with other companies on the Web," said Addanki,
who. "That's what the Business Internet is all about."
