At first glance, there’s nothing duller than what Interxion does: Providing basic data center space (a raised floor, physical security, power (including HVAC and backup) and network connections to stock exchanges, ISPs and telecom providers. The customers have to roll in everything from the equipment racks to the carrier-grade switches, and then manage all that gear themselves.
So how did Interxion earn about €27 million on revenue of €138 in 2008, and why does it expect to grow 30 to 40 percent this year despite the global recession? As Group Managing Director Anthony Foy describes it, their 120,000 square feet of data center space across Europe is just the foundation for a global network of digital bazaars trading in 1) network bandwidth and 2) stocks, bonds, and other financial instruments.
First, the bandwidth: Interxion runs “carrier neutral” data centers, meaning that as many as 45 different network providers might serve the site, compared to only two or three for the average co-location facility, says Foy. That means lower prices for bandwidth as customers play one provider off against another.
The second factor lifting Interxion out of commodity status is that it gives very high-volume traders physical space and network connections right next to each other, speeding electronic trades in stocks and other financial instruments. Eliminating even the smallest delays is critical for computerized systems trying to make money predicting whether the price of a stock will rise or fall in the nanoseconds it takes for a buy or sell order to travel from, say, Frankfurt to London. In addition, European Union regulations require that all trades be made at the best current price – which means, again, getting the very latest price information.
Interxion also enjoys economies of scale (in everything from floor space to electric power and bandwidth) that individual companies, as well as smaller co-location vendors, cannot. Its attractive business model also makes it easier, says Foy, for it to get credit than competing co-los or companies looking to build their own data centers.
Sure, Interxion has headaches, ranging from competitors to what I’m sure are demanding customers to rising power costs. But I’d trade their problems, and their margins, to duking it out only on price with competitors offering essentially the same service. They did it by moving beyond cheaper or faster versions of what their competitors offer, focusing instead on the fundamental challenges facing their customers – and lifting themselves neatly out of the commodity death-trap.
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