7L Networks rides Toronto's start-up wave with specialized contracts

InsightaaS perspective: 451 Research is one of the world’s leading sources of insight into cutting edge technologies — especially in areas that are important to InsightaaS and our principals, including cloud, analytics, and sustainable IT.

InsightaaS.com works with 451 Research to bring occasional thought leadership pieces to our readers. In this piece, we are privileged to present insight that is of unique interest to our Canadian readers. 451 analyst Michael Levy, who wrote the groundbreaking Canada MTDC Market Assessment: Supply and Providers report in December 2012, offers his perspective on how 7L Networks is carving out a niche in the Toronto colo market by providing service agreements tailored to developers. As Levy says, this “‘for developers, by developers'” approach puts 7L in a unique position: “not competing with other colocation providers but rather with large IaaS and managed hosting companies like Amazon Web Services and Rackspace” to serve the Toronto cloud/startup community.

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Developer-centric datacenter services provider 7L Networks (7L) has spent the past year reassessing its positioning. When we last spoke with the provider, its customer base was growing increasingly diverse, with much new business hailing from outside the Greater Toronto Area. Observing the startup boom in the region, 7L decided to refocus its efforts on serving the new business flocking to the city. Since the company is targeting net-centric startups and the venture capital funds that support them, traditional three- to five-year colocation contracts are often too much of a commitment for them to make, considering their future is often uncertain.

In response, 7L decided to offer month-to-month colocation. For a small premium, these nascent companies can get access to pure-play colocation without having to worry about potentially breaking a contract. 7L has observed that many technologists and developers still prefer maintaining their own environment and prefer colocation to public IaaS. 7L believes that if IaaS and VPS offer short-term leases, why shouldn’t colocation providers?

In 2011, 7L achieved 22.5% Y/Y revenue growth. During this refocusing period, the company slowed its aggressive sales approach and Y/Y growth for 2012 dropped to 12.5%. The company expects 2013 growth to bounce back now that it has solidified its trajectory.

Context

7L’s founders are rooted in the Toronto real estate market. In 1996, they acquired 7 Labatt Avenue, which originally served as the first Labatt Blue distribution warehouse in the early 1900s. 7L’s founders inherited a single datacenter tenant that deployed its supporting infrastructure in an adjoining structure attached to the original warehouse. In 2000 the tenant was acquired by a Canadian services provider and moved out. Three years later, the current owners of 7L developed a shared dedicated hosting company within the vacated datacenter environment under the whimsical name LabattRacks. In 2007 the company started offering colocation, and rebranded as 7L Networks.

7L’s facility is a mixed-use building with 65,000 square feet of commercial and industrial space. 7L has multiple office tenants, many of which are developers that also leverage datacenter capacity. Currently, 7,500 operational square feet of capacity have been built out that is 40% utilized.

Services and competition

7L provides colocation, managed services, dedicated hosting, virtual private servers and IaaS. One aspect of the colocation service that 7L emphasizes is its willingness to allow customers to install their own dedicated infrastructure in the facility. The company still operates shared hosting services for a legacy customer base. In response to demand for a hybrid offering, 7L created a public resource pool from which colocation customers may draw when they need temporary elastic capacity. This service will launch Q4 2014.

The company’s virtualized offerings account for 25% of its revenue. Colocation also accounts for 25% and the remaining 50% can be attributed to hosting and managed services.