A Closer Look at Internap's Expansion Plans

Last week Internap Network Services (INAP) outlined plans to invest an additional $50 million to expand its data center footprint in "two or three markets" during 2010. "With successful track record of growing our data center business, a strong industry outlook, and the intrinsic value of more company controlled occupancy, we believe this is a sound investment for Internap," said CEO Eric Cooney. Internap says it doesn't foresee a need to borrow to fund the expansion.

Internap operates its own data centers, but also leases space from data center partners. Internap operates 144,000 square feet of its own space and leases 106,000 square feet. Paolo Gorgo has an interesting analysis of Internap's data center operations at Seeking Alpha, which shows that Internap had actually done a better job filling space in partner facilities than in its own sites, partly due to churn issues. So why build additional space of its own?

It turns out that Internap is taking a close look at its data center partner relationships, and the additional space may provide flexibility in consolidating space as it evaluates its partnerships.

"We have today a large number of data center partners," said Cooney. "Our intention is to streamline those partnerships i.e., reduce the number of data center folks that we partner with. We’ll be looking to partner in markets where we don’t have data center square footage and we’ll look to do that with a very small number of partners that generate for them a meaningful amount of revenue. So I think for those partners we choose to work with. I think it will be a compelling win-win relationship and for those we choose not to, there’s probably good reason for that frankly on both sides."