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| Observation Post |
Q&A with IXEurope CEO Guy Wilner.Introduction A private UK company founded in 1998, IXEurope provides data centre services, hosting infrastructure and business continuity solutions from facilities located in France, Germany, Switzerland and the UK, for corporate, communications and technology customers in Europe. The business currently claims more than 400 customers. IXEurope has raised a cumulative Euro 120 million (approximately $143 million) in financing during four funding rounds from investors including European Acquisition Capital and Bank of America Equity Partners, most recently closing a Euro 12.5 million round in July 2002. Could you give an overview of IXEurope's business? IXEurope is a data centre services company that provides facilities and services to customers with intensive IT applications. The company builds facilities with sophisticated power, air-conditioning and security systems within which customers set up their own data centre operations - such a facility can house the equipment of 50 or 100 companies. For customers, the advantage is that their data centre equipment is located in a site with better network connectivity than would be available from their own building, plus the power and environment is very carefully managed and there are technicians on-site to quickly deal with any faults. What distinguishes IXEurope from its competitors? The first difference is that IXEurope is passionate about what it does and provides high specification facilities designed for corporate clients, backed up by aggressive SLAs. The bottom line is that the provision of data centre solutions is IXEurope's core business, so it is essential that we do it right! There are larger, better-known businesses that offer similar services, for example IBM Global Services, but generally data centre services are but one facet of their business, so they may not have the same focus on data centre process and operations excellence that we do. Are there technical differences between IXEurope's offering and that of the competition? No, in the same way that there are no fundamental technical differences between a Lada and a Mercedes. The important factor is how the data centre is operated once it is up and running - although our facilities are definitely more at the Mercedes end, the design and construction of facilities is not the most complex part of the puzzle. There are many issues relating to management and control in a highly populated data centre, including power supply and environment, that affect the quality of the service offered. What are the main challenges of managing an operation such as IXEurope's? Currently one of the main challenges for IXEurope is running the company as a pan-European business, which means maintaining a company culture centred on quality as well as providing services tailored to customers in each country. From an operational perspective, IXEurope is running a business akin to a factory where it is crucial that the machinery run smoothly every hour of every day, day after day, without fail. The operation is therefore suited to a 'total process management' approach. Do customers actually visit data centre facilities? Yes! In fact almost all meetings with customers are held at IXEurope sites, even initial discussions. Customers are keen to see the facilities where their IT operations are situated. This is true to such an extent that it was a remarkable event recently when a new customer did not visit an IXEurope data centre facility. Would IXEurope consider providing services such as, for example, dedicated video servers for a customer? This is a possibility that has been considered. However, IXEurope has to provide a neutral facility that allows customers to do whatever they need to do - it is important that customers have confidence that IXEurope is not trying to steal their business. This is an area where the company has been very successful, maintaining an extremely broad customer base. There are certain facilities where there may be a concentration of customers from a particular market sector, which can potentially be promoted. An example would be an Internet exchange that can be marketed to ISPs, but not generally beyond that market segment. With regard to video specifically, IXEurope is currently running a video platform - acquired from another company - at a site in Germany, where two or three customers operate video streaming services. The company does offer ancillary value-added services, one is providing low bandwidth - 2 or 10 Mbit/s - connections. To do this IXEurope set up an IP multi-homing platform with several IP providers, complete with failover facility in case one carrier link fails. This offering has proved attractive to corporate, financial services and outsourcing companies. IXEurope recently launched a VLAN service - IXLAN - to provide customers with a link between individual data centres. Currently this service is offered only within a geographic region, for example to provide a virtual presence at three facilities in Germany. Regarding valued-added offerings, IXEurope is very cautious about offering specialised services as its 'neutral', pure data centre model has been extremely successful to date and the company does not want to jeopardise the standing in the market. You mentioned the IXLAN monthly sub-service - is this aimed at small and medium enterprise (SME) customers? No, IXEurope does not have any significant traction in the SME sector. The only exceptions are small enterprises that are 100% technology based - such as software developers or ASPs. The focus on corporate customers is due to the fact that IXEurope provides only one element of the IT services package - the data centre. In addition, the scale of its offering is suited to large corporations with substantial IT operations - a regional accountancy company, for example, would be very unlikely to have an IT operation requiring five or ten racks of equipment space. The typical customer for IXEurope would be a large bank, city law firm, industrial or pharmaceutical company - IXEurope counts a number of pharmaceutical companies as customers. Is virtualisation of data centre facilities an accelerating trend? Virtualisation within data centres is happening but is far from widespread - in general companies still select and set up their own systems in a facility. Virtualisation is dependent upon software and how effectively an individual customer's operations can be applied to a standard software package. What is the relationship between international VPNs - provided for multi-national customers by the likes of Equant - and the services of IXEurope? These services are complementary. In this context, a VPN basically allows a service provider such as Equant to link together servers sited in disparate data centres. This is an add-on service that may be required by a customer with a presence in two or more IXEurope data centres. With the increase in demand for disaster recovery services, disk mirroring and high bandwidth links between data centre facilities, this offering is becoming more important. An increasing number of IXEurope customers are installing equipment at more than one facility; it is therefore logical that facilities can be connected easily. The data centre market is growing quickly, but would you agree that given the importance of the service to the communications industry, it ought to be growing faster? Yes! There are two main reasons for this slower-than-expected growth, one is that there was a 'gold rush' to build data centres a few years ago, which resulted in overcapacity - many facilities remained empty and the operators went bankrupt. As a result potential customers became very wary of putting key IT operations into the hands of a company that might go out of business. The second factor is that the data centre business is an outsourcing measure, implemented primarily by large corporate customers, and IT managers are disinclined to move strategic operations to a building that is outside of their control. How does IXEurope overcome these issues? IXEurope is 'outsourcer neutral' - meaning that the customer can select an IT platform from an outsourcer and have it built within an IXEurope facility. This gives the customer the flexibility to change elements of the service - perhaps the applications manager or IT services supplier - at a later date without the need to change the platform. Considering the data centre sector as a whole, how do you see operators expanding their addressable market? This is a challenge for those at the Lada end of the market. To date, the data centre market has been driven principally by telecom and ISP customers, which do not generally demand the same level of quality as corporate customers require. Trying to sell this type of facility to the corporate market does not work because these customers require much higher levels of quality and reliability. For data centre operators that have survived the past four years, it is frustrating to discover that while there is a huge potential market, they cannot address it because their facilities are not suitable. Over the past 24 months we have been expanding our network of corporate data centres and added two more in November 2005, one of which is on a 20-acre campus. Is there anything to prevent such companies doing what IXEurope does? In theory no, they simply need to start building new data centres. However it is a very capital-intensive business so barriers to entry are very high. It is also difficult for outsiders with no real reputation in the market. As housing core IT services is based on a trust relationship many companies will simply refuse to work with new players until they have a proven track record. Among the existing players, a number are however beginning to build or extend data centres to bring more capacity to the market. This is beginning to happen now in the U.S. and Europe. IXEurope is presently installing a facility in west London at Park Royal and has a major development underway north of Frankfurt, Germany. As the market has evolved and stabilised prices for data centre services have started to increase, so making the construction of new facilities viable once more. Why do you believe the data centre business as a whole is so fragmented geographically? In Europe, this is due mainly to the fragmented nature of the IT services market in general. For example, SunGard generates in the order of $500 million in turnover per year from its availability services and disaster recovery division in Europe, but earns the bulk of this in the UK and probably under $30 million from Germany. Another example would be IBM Business Recovery services, which generates around $600-700 million in annual revenue in Europe, 75% of which comes from the UK market. The UK is the most vibrant market for IT services in Europe; global companies tend to find breaking into other European markets very difficult. Looking at the market at a national or regional level, there remains a significant geographic pull influencing where a customer will want their IT operation sited - if a company has its IT department located in a certain area of, for example, England, it will generally seek to outsource the operation to a site in the same locality. Do you see this as indicating that the market is less to do with economies of scale and global reach than with specialised services tailored to the requirements of the individual customer? There are certainly cultural differences between countries, but I don't believe the market is yet at the stage where provision of specialised services is important. Many large companies continue to build their own facilities in-house using non-standard technologies, particularly in Germany and France where there is less of an economic incentive to outsource IT operations. Companies in these countries tend to be highly technocratic, preferring to retain control of their IT operations where possible. Many of these companies operate as effective monopolies in their domestic market and so are not subject to the same competitive pressures as those in more liberalised countries such as the UK. As IT-intensive industries such as banking and insurance are liberalised in Europe, such companies will come under pressure to reduce costs to stay competitive - IT services will be one of the first areas that will be targeted for outsourcing. In the UK, many companies instigated wholesale outsourcing contracts covering their entire IT operation, using a single IT services provider, around ten years ago. Numerous companies then experienced problems as a result of these large deals and subsequently tend to implement multi-sourcing agreements, with data centre services forming one part of the whole. The same scenario may play out in other countries in Europe. IXEurope issued a white paper in December 2000 - do you believe there have been any changes regarding the company's market opportunity since that time? Yes, definitely. The basic proposition of providing data centre services to corporations still holds, and demand is greater today. Beyond that, specific segments of the market have perhaps gone out of fashion and come back in over the intervening period, such as the ASP sector. The biggest change is with respect to the carrier market. This sector has finally stabilised after several years of upheaval, but I do not expect ten or twenty service providers to start rolling out networks across Europe any time soon.  |
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