DC for less than the price of power?

Notwithstanding the industry’s fixation on growth in cloud services markets, the colocation business is alive and well. While many individual players are executing on expansion plans in this area, aggregate research has uncovered similar cause for optimism. For example, in Datacenter Dynamics’ most recent review, North America Data Center Key Trends Report 2013-2014, study authors have estimated that investment in data center outsourcing & colocation increased by 13 percent in the past 12 months and is now an $8.8 billion opportunity in the US and Canada. By the end of 2014, the firm expects to see additional growth of 15 percent, which Nicola Hayes, managing director of DCD intelligence, attributed to increased IT capacity requirements and need to access new technologies in the face of reduced corporate budgets. For the Canadian market, the 451 research group has also calculated healthy growth — a CAGR of 16 percent from 2010 to 2014 — as well as high occupancy rates throughout this period. Experts would tend to agree, it appears, on growing demand and the persistence of market interest in the colo approach to building private data centre capacity.

Within this broad market swath sits the Montreal region which is also experiencing increased demand — though comparatively less than the Toronto area — while exhibiting unique characteristics. Home to several large incumbent players, such as Bell Canada, Cologix and iWeb that are expected to expand capacity over the next few years, and composed largely of local customers, the Montreal market has been described by 451 analysts as having “demonstrated favouritism for local providers.” For new market entrants, this combination of evolving local demand and domination by incumbent players poses significant challenge: how to develop a distinctively compelling value proposition that will draw local business while attracting customers from outside the region?

While cloud offers one solution to this conundrum — remote access to servers allows colocation clients to service international users and customers from whatever location — ROOT Data Center, which launched a new facility in Montreal this spring, has combined cloud with other data centre technologies to develop a distinct and highly competitive offering. ROOT boasts colocation services “for less than the cost of power,” an eye catching tagline that has attracted market attention. Like all things that sound too good to be absolutely true, this is; however, the phrase does speak to the source of ROOT’s competitive positioning. As CEO Jason van Gaal explained, “if the company was selling services to clients in Ontario — or any other province or state with high power costs — their cost of power would be higher than our cost of services.” In other words, ROOT’s value prop is aimed at non local customers who can take advantage of remote services to access cheap Quebec power.

If its tagline is somewhat leading, ROOT’s aggressive pricing is real: the company advertises services for 30-70% less than other providers, and promises to deliver three months of free service if its pricing is not 15% better than a competitor’s quote. ROOT pricing is based on lower power costs, but also on the implementation of advanced cooling technologies that have helped to shave operational costs: in the average data centre, energy costs for cooling can consume up to 40 percent of the total, but Gaal pointed to 50 percent lower power usage relative to other local colo competitors, achieved through cooling and other infrastructure efficiencies. These savings can be targeted at Montreal-based clients in addition to those from out of province.

As Gaal explained, “our MSRP would be less than the total costs for competitors, and in some cases less than their cash costs” based on a comparison of four primary cost centres for data centre: power, which can consume 30-70 percent of total cost, depending on density; space or the physical footprint (70 percent less expensive than it was in Ottawa, home to the first ROOT data centre); staffing (a modified Ubersmith data centre management software automates a lot of the web-based monitoring and control interactions with clients, tying this into backend systems like accounting for unified management and reduced maintenance); and equipment amortization costs. In contrast to many existing colo providers that Gaal claims ignore the (already sunk) cost of amortization and base price only on operating cost, ROOT pricing is based on all four components and hence more sustainable. Providers who ignore amortization cannot upgrade equipment without increasing prices — for lean operation technologies or state-of-the-art cooling, for example, which ROOT has deployed to improve operational efficiency.

ROOT operates with a PUE of 1.15 to 1.18, a range that compares favourably with the 1.6 to 1.9 PUE rating that Gaal believes existing colo providers in the Montreal region typically achieve. He attributes ROOT’s PUE achievement to real time metered energy billing (circuit-based billing is also available) that works to reduce consumption, to the facility’s advanced Kyoto cooling, a direct air-to-air heat exchanger that enables the facility to operate with free air cooling in the Canadian climate approximately 98 percent of the year, and which allows ROOT to support the same number of customers with 25 percent less space. Gaal explained: “the Kyoto cooling has allowed us to go down from a 1.6 to a 1.2 PUE, and there are other major innovations, like 98 percent efficient transformers, changes in power distribution to eliminate transformers, and an efficient UPS that have provided another .08 reduction.”

As compared to its first data centre built in Ottawa (which was sold to Rogers last year), ROOT has reduced its operating costs by approximately 75 percent and managed to accommodate twice as many customers into half the footprint with no loss in service delivery quality. Gaal attributes this advance to the design team’s ability to take advantage of new cooling and software management technologies that were not available during the Ottawa build out. Since “customers will not spend green to go into a green data centre,” Gaal explained that ROOT has worked hard to integrate the cost reduction green technologies can deliver into its business model. “We can’t deploy a [advanced green] Google design in the colocation space — it’s just not practical from a design perspective so you need to deploy a hybrid model, balancing efficiency improvements with capital costs to find balance that makes business sense.”

The new $20 million 5MW ROOT facility which goes live between August and September is Tier 3, carrier neutral, equipped with 500 server racks and located less than 15 minutes from downtown Montreal and the airport to take advantage of burgeoning opportunity in the region. Gaal sees this coming from you know who — technology companies and cloud providers that in their search for good colocation facilities are especially price sensitive. So far Gaal has seen “strong demand” from customers looking for ROOT’s unique green/green value proposition.