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Everybody into the Pool

Everybody into the PoolMan, this wholesale provider getting into the colo business thing is starting to look like one of those piranha feeding frenzies that you see on Animal Planet when they throw a pig into the Amazon. If you’re not a regular viewer, or just lost interest in all things animal related after the Crocodile Hunter went to that big safari in the sky—I miss that guy—the sequence of events goes as follows: squealing oinker is selected to take a dip, its entry into the water is quickly followed by a lot of frothy churning water, and, in less time that it takes to microwave a bag of popcorn, a few hundred toothy finned predators are off in search of dessert.  In terms of wholesale providers that want to add “retail” to their corporate descriptions, the latest addition to the ravenous fish brigade is DuPont Fabros with more sure to follow. As to who will be appearing in the roll of the ill-fated porcine end of the equation, I think those folks know who they are. So as we contemplate what wholesaler may be the next to take the plunge, let’s look at what’s driving this carnivorous industry trend.

A recent article that I happened to read attributed the emergence of the Open IX movement as a primary driver of this exercise in role reversal. I agree that this makes some sense. Connectivity is a major factor in any colo decision, and Open IX definitely enhances the ability of your friendly neighborhood mega wholesale provider to undertake the metamorphosis into a retail colo provider. While maybe not as miraculous as a caterpillar emerging from his cocoon as a pretty butterfly, the basic concept is the same. While a new open standard certainly lends credibility to the rationale for entering a new market segment, we all know the real reason for this new religious zeal—they want the low hanging fruit.

I don’t know about you, but I like a little honesty in my red tooth and claw capitalism, so it makes me laugh when I read these announcements in which the wholesale provider seeks to explain the reason they are now going to compete with their own customers in semi-apologetic terms. “We just have a little extra space to fill” or “it’s going to be a very small operation” may placate a little competitive guilt, but it’s not fooling the customer who just went from peaceful industry companion to Amazonian appetizer in the blink of an eye. The interesting element of this shifting dynamic between provider and customer will be the level of the “competitor formerly known as customer” response to these recent actions.

At this point the competitive landscape appears a little murky since the colo expertise of many of the wholesale providers crossing into this new market is unproven, and service providers appear to be playing their cards close to the vest for now. My guess is that a number of the large colo players will use this time to evaluate their own product offerings and existing partnerships, while their wholesale counterparts seek to determine the best way to grow their “small operations” into big ones as quickly as possible. These are the type of activities that make things exciting for all of us.

It will be interesting to see how this new market shift plays out over time. Right now it appears that the mantra de jour is, “Jump right in. The water’s fine”. For some I might caution look before you leap since, when everyone is in the pool, you never know who is going to wind up being the hungry fish or the reluctant main course.