Notes from IMN: Wholesale vs. Retail, Standards and Sandy

Yesterday, we covered some of the general themes at last week’s IMN Conference on Financing, Investing & Real Estate Development for Data Centers in Santa Clara, Calif.. Today we bring you some of our favorite notes and quotes from the keynotes.

During a debate of the merits of Wholesale vs. Retail, and which business model is best, Avner Papouchado, CEO of Server Farm Realty used an interesting analogy.

“(Entering the retail market) is a dangerous play, because a lot of our customers are retail providers," said Papouchado. "It is like owning apartments and hotels – it’s just not the same business. It’s a value trap. We don’t know it, and we have a strong incentive not to compete with our customers.”

Papouchado knowsa a little about these businesses. Server Farm Realty is part of the Red Sea Group, known primarily as a developer of upscale hotels and residential developments.

The consensus on whether wholesale vs. retail was summed up, with brevity, by Peter Feldman, the CEO and Principal of Datagryd, a new player in the New York market. “Not one model is going to fit every market and every aspect,” Feldman said.

On the importance of standardization, Tony Wanger president of IO, used a Boeing analogy: “(Boeing) manufactures the same planes, not different ones, hoping pilots get accustomed each time.” Wanger has plenty of analogies. Like this one, when asked whether Tier Certification is cost prohibitive:

“The reason I’m not an MD isn’t the $200 to take the boards," said Wanger. "(Certification) is a very good trend for our industry. Data centers are a collection of systems – is one hospital better than another because of the building? Probably not. So design certification is good. Very few industries self-regulate.

It’s worth noting that IO is heavily invested in its modular technology, so the company is obviously a huge proponent of consistency in design.

Reflections on Sandy

The event also had a lot of Sandy Talk, from both a high level perspective and on the front lines. Here are some quotes from the event on Sandy, and other topics facing the data center industry.

“We never guessed we’d have water at the front door of 95 Christopher Columbus.”
Mark Waddington, Chief Business Officer at Quality Technology Services .

“It’s important to convey what we’re doing to customers. We were able to get diesel form Baltimore. From a customer perspective, for the most part, customers understood it. If you had a plan and were communicating, they were responsive rather than retaliatory. They recognized effort.”
Michael Higgins, Senior Vice President, Data Center Services, Internap.

“At the property level, there’s gradually recoving fundamentals. Hurricane Sandy will take a bit of a bite out of GDP growth, but get past near term hurdles, and the immediate term outlook is pretty good.”
John Stewart, Analyst, Green Street Advisors

“Hurricane Sandy is finally getting CEOs to recognize they need redundancy.”
Zane Alsabery, CEO Alchemy Communications.

“We went through 20,000 gallons (of diesel) a day during Sandy.”
Peter Feldman, CEO and Principal, Datagryd 

On Entering New Markets

“One of the questions is, Is Dupont Fabros in the market or not? (It’s a) big question in terms of pricing the market. A lot of operators have gone into really low rates and can’t sustain it. I see more firming of pricing in most areas. Digital Realty, the biggest player, has a lot of discipline. TCO (total cost of ownership) in Eastern Washington is always going to be cheaper, but is that the right choice?"
Avner Papouchado, CEO of Server Farm Realty.

“The Northwest is the lowest cost. Northern Virginia is getting competitive with tax incentives. Phoenix is now the LA market, but it wasn’t always.”
Matthew Mochary, CEO, Fortune Development Group.

The evolution of the customer

“More and more customers have run into that box. 'My provider can’t grow, what do I do?' So customers are more careful about the long term planning."
Mark Waddington, Chief Business Officer, Quality Technology Services

“It amazes me how sophisticated customers have gotten in terms of power. At various levels of customers. ‘I want to pay for the power I’m using’ is no longer just a wholesale discussion … it’s down to 4 cabinets.”
Michael Higgins, Senior Vice President Data Center Services, Internap

“Cloud could hurt. (Customers) can move out of state. But we can combat that. We went from the evil enemy removing servers from the office, to the good guy keeping it in state.”
Zane Alsaberry, CEO, Alchemy Communications

The Wholesale players, On how to operate

“Seventy five percent of failures are from people. We would rather loose a few percentage points in efficiency in order to have a simpler mechanical situation – remove people out of the process.”
Matthew Mochary, CEO, Fortune Development

“In urban markets, all sorts of constraints and building codes get in the way. Certain maintenance that you think is required, isn’t; it is the result of failures when people jiggle with it. A lot of times, batteries are your biggest enemy because you don’t know it. You need backup plans as stupid and simple as a jumpstart. During Sandy, one of our generator chargers died, and we had to use the UPS to jumpstart the generator. Keep a room full of spare parts.”
Peter Feldman, CEO and Principal, Datagryd