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Also posted on: IT Infrastructure
After a busy year in which VIRTUS received significant strategic investment from ST Telemedia, started to fill its new LONDON2 data centre and then acquire InfinitySDC’s Slough facility, Cassini Reviews met with CEO, Neil Cresswell at its London headquarters to find out how all this was positioning VIRTUS for the future.
Q. Last year was quite a pivotal year for VIRTUS with the new investment and the acquisition of the Infinity Slough data centre. How does that position you for the future?
NC. Yes, it was a good year. It was actually the culmination of a few years of repositioning. After I joined a few years ago, we had Brockton Capital come in in 2011 and then ST Telemedia mid-way through last year. Over the past three years we have been repositioning the company into what we see as the new style of data centre. Underneath it all it is still about power and security but we see ourselves as very much part of the IT world. We are here to help CIOs from many different types of company achieve what they need. So we have spent 2-3 years rounding out our portfolio to cater to those new types of need…super-efficient data centres, in the right place with great connectivity and lots of flexibility that provides speed to market and plenty of options. Up until last year I guess having that sort of proposition was still work in progress. While I suppose it will always be work in progress as the market keeps changing, but what we have, in terms of efficiency, agility, connectivity and location is proving very popular. Co-location has proved very popular with the web-scale IT companies and enterprises.
Q. Originally if you look back a few years VIRTUS would have been seen as a wholesale co-location company. Have you seen that change and shift in the last couple of years?
NC. Yes, I think so. As I said, we very much see ourselves as an IT company who happen to own data centres. So we talk about ITIL, we talk about IT Service Management, we talk about problem management, but within that we are a pure-play co-lo. I started programming on a Burroughs machine at a French bank in the 1980s. So my background is software, that became managed hosting, that became cloud and then data centres. We get the IT world, but our part in that is providing the very best co-lo you can have. We don’t do managed services; we are not a cloud company. But we are part of that world, so we provide direct connects to AWS, and Azure. However we know what we are and our aim is to be the best colocation company we can be. To answer your question we have extended out our proposition from essentially a property play, ‘here’s a building – rent it’, to an IT Service based around co-location and broadened it out to smaller solutions. We have around 70 customers averaging about 200kW which means that there are both smaller and larger requirements within that picture. That’s a reflection of the market. It’s no longer a one size fits all. Our customers have much more varied requirements driven by new partners, new international markets and new technologies. Their IT is much more sophisticated, more spread out and they need smaller, more flexible real estate in many locations.
Q. Data centres have tended to be the bottom of the IT stack. If you are in the role of the pure-play co-lo, how do you get to the CIO to say, “Here is how we help you move”? Do you partner with services companies?
NC. Yes, absolutely, we partner with people. Our customers are the cloud providers and the service providers. Also, I would say data centres seem to have become a bit sexier in the last few years. I was reading an article the other day and one of the analysts was saying that even the multiples are higher in pure-play data centres than they are in managed hosting companies. Another was saying that managed hosting is dead – you are either a datacentre provider or a cloud provider and that there will not be anything in between. I am not quite sure about that. I think what we are seeing is the majority of the mid-market still has a requirement for that relationship the hoster or managed service provider brings.
Q. Would you see VIRTUS becoming a REIT like Digital Realty and Equinix?
NC. Ultimately, we are here to provide value to our shareholders. If that financial vehicle does it, then yes absolutely. But from a customer and service and proposition point of view, we need good property in the right places. Our model is freehold wherever possible and we believe that gives us some advantages that we can pass onto our customers. There is a big property element to our model. You’ve got to build. You’ve got to get planning permission, etc. etc. There is a big building property part to it, but ultimately, what we deliver to our customers is an IT service. We use property to do that.
Q. Are you seeing changes in behaviour or requirements from customers? Are they looking for different things than they were a couple of years ago?
NC. I think it is definitely evolving. Before I came here three years ago, I was at Savvis for six years. They were a very good cloud and managed service provider, network provider, co-lo provider. We had a very good public cloud offering…probably ahead of its time really. I remember standing up in 2010 and saying that this would be the year of enterprise cloud adoption. It wasn’t [laughs], but I think last year… maybe, five years later.
There are a couple of things that we see. You have got the big web scale operators, internet giants, who are driving a lot of data centre demand all over the world. They are very capable of building their own datacentres, but in certain instances they do not want to do that for variety of reasons. They want to rent lots of space locally, megawatts of space. They are very savvy buyers. They want massive scalability, massive flexibility. They want a number of sites. The location is incredibly important to them. For technical reasons, they need to be close to their end users. Then, what has happened with Safe Harbour has only compounded that. They are driving particular kinds of requirements. They need custom deployments. They might have specific types of technology. They need massive scalability. They work at a very fast space, so they need speed. The days of the old wholesale model where you have an agreement, you go away and build something and 18 months later they take occupancy, that’s gone. They want it next month. That is a very big part of the market.
Then you have got the enterprise IT world. It has been economically and financially challenged for the past six or seven years. It has now re-emerged but their IT estates are getting obsolete. They need different ways of doing things. That may be a mix of public, private and hybrid cloud. They all want, typically, a capital light model and are looking to outsource to a good, quality datacentre. We also see quite a lot of requirements for regional sites. They want one in Europe, one in Asia, one in the States for example, but it needs to be close to their people, so again, it needs to be in and around major urban centres.
Then, at the lower end retail co-lo is still a great market. That is probably the market that will be most affected by the public cloud, but will take a long time. What we do see in the market is a lot of requirement for high and ultra-high density configurations; people who want 20, 30 kilowatts a rack, which they can’t get from normal retail co-lo providers. So, yes it probably is different from a few years ago.
Q. Do you see yourself remaining focused on the greater London market?
NC. I think so, certainly for the moment. There seem to be a lot of demand for that and as long as it continues, why wouldn’t we carry on with that? However, you can never say never. There are many different types of model. For example there are providers in Norway and Iceland. They are great if that is what the customers want, if it serves their specific need. It is just not what we do.
Q. How do you see the London market at the moment?
NC. If you have a good proposition, London is a really good market. We had a record sales year last year. It has taken a lot of hard work to get here because it is a really advanced market. There is a large number of really good local or international co-lo providers and you have to have a really honed proposition to do well. Increasingly, big customers want to be with the bigger players. They need a view on scalability. If somebody comes and says, they need two megawatts in three datacentres, there are not that many providers. And if it needs to be high density and well connected, well then, you are basically in a market of one or two. As a result we have seen pricing pretty stable over the last couple years, and it has even started to tick up again in the last six months. That is perhaps driven by consolidation, but there is plenty of investment going on.
Q. As the datacentre market grows and develops, how easy are you finding it to get the right business management and technical operations people?
NC. I think at a technical level there are some very good people around. Given that we are known for innovation, which is great, we search long and hard for those types of people who instantly get it, who are excited and into what is happening in the few years. We have managed to attract a lot of very good people here because we are a flexible, small company with an attractive proposition. The key part is finding and retaining innovative engineering people, which we have been able to do.
Q. There was a survey recently that said the average age of datacentre operations and engineering people is 54. Do you have programmes to bring in and develop young people?
NC. Certainly a lot of young people come in on the service side. We try and keep a production line going. We help them learn on the job from the gnarled industry veterans who built and run 20 datacentres and some move into the engineering side. Also, from day one, when we were 20 people, we have had a particular department called future thinking and product development. For a company our size, that is a huge investment in resource. We recognize that we need to stay ahead. You have got to focus on it. That might be anything from that kind of whacky stuff should we be using like nuclear batteries, to what impact photonics is going to have on computing, to open source. We constantly think about what is coming down the line and what impact that might have on us.
Q. It is interesting you say focus on those things coming down the line. The Internet of Things is one that springs to mind most. It potentially changes the nature of transactions and storage requirements. It is going to go quite local. How do you see yourself playing in that world?
NC. I definitely think that is one to watch. It points to the whole edge concept as well and I would say we are still trying to figure that one out. Certainly some of the big web scale operators, who look globally, see us as edge nodes. We had a project last year to look whether we should be building data centres in Bristol, Manchester. The economics were not quite there. There wasn’t enough reliable demand. So we decided it was not our thing at the moment. There is a very small section of the market which needs ultra-low latency, microseconds; financial trading systems and the advertising exchanges for example. There, you have to be in the same building. For everybody else the need is in milliseconds probably. That is a hundred miles.
Q. You are very well funded. You have just bought the Slough data centre from Infinity and have well advanced plans for LONDON3. Are you going to have a period of consolidation or do you see yourselves growing the number of data centres you own? Are you constantly looking where the next ones are going to be?
NC. We are constantly looking. There is a very good market in London. We bought the Infinity Slough data centre because of the demand that we have seen. From deciding to when it is open building a data centre takes two to three years, best or worst case. LONDON4 at Slough is already selling well as well and so we are looking at LONDON5 and LONDON6.
Neil, thank you very much for sharing your views and insights with us.
This post first appeared on the old Cassini Reviews website.