Digital Realty Buys Stake in Cloud Connectivity Enabler Megaport

Digital Realty Trust has acquired a small stake in Megaport, the Australian technology firm that makes it easy for companies to connect their servers to the networks of top cloud providers, such as Amazon Web Services, Microsoft Azure, and Google Cloud Platform.

Digital Realty paid $8 million for a 4.9 percent stake in Brisbane-based Megaport in June, the data center REIT revealed in its second-quarter earnings report Thursday. The two companies have been partners since last year, when Megaport started offering its cloud connectivity services to companies inside Digital Realty’s facilities.

It’s not uncommon for companies to seek ownership stakes in strategically important partners, and the Megaport partnership is extremely important for Digital, which has made a serious move into the retail colocation and interconnection services market only recently, acquiring Telx in the US in 2015 and an eight-data center portfolio in Europe from Equinix last year.

See also: Digital Realty Study: Direct Connects to Cloud Bring 50X Less Latency

All players in this space have been beefing up their capabilities for providing private network links to cloud providers; these capabilities are seen as crucial to enabling the enterprise IT architecture of the future, where companies have a mix of physical IT assets they control and virtual infrastructure in cloud providers’ data centers, all interconnected as hybrid clouds.

A colocation data center where many enterprise customers and service providers can interconnect their networks is an ideal place to enable such hybrid architectures.

Fiscally conservative Digital spending millions on a stake in Megaport underscores the importance of interconnection in the market. The San Francisco-based REIT has integrated Megaport’s software-defined networking platform into its own interconnection platform, launching in November the Digital Realty Service Exchange, a cloud connectivity platform for its customers.

Read more: Digital Realty Challenges Equinix With Cloud Connectivity Platform

“We wanted to really maintain close ties [to Megaport as a] software development partner, because it’s integrated in our interconnection platform,” Jarred Appleby, chief operating officer at Digital Realty, said on the company’s earnings call Thursday. “Staying close in terms of service development roadmap and go-to-market.”

Instead of buying a physical interconnect between its network and AWS, for example, and doing all the engineering work required to implement the actual interconnection, Megaport’s SDN platform sets up the link for the customer automatically.

Interconnection deals signed in the second quarter will be responsible for $7.6 million of annualized revenue for Digital Realty, the company said. But the benefits of interconnection go beyond direct revenue associated with it; providing the ability to interconnect with other companies’ networks is seen as making a colocation facility more attractive for a company looking for somewhere to keep its servers.

See also: Digital Realty — How to Survive a Market Meltdown and Come Out on Top (Digital Realty CEO Bill Stein on The Data Center Podcast)