Digital Realty scores a huge win by procuring the eight Equinix data centers located throughout Europe that Equinix was required to sell. This is a large cash influx for Equinix to grow into new markets, although I very much doubt that Equinix will grow into new markets and instead expand in markets that have been successful for them, only because this has been the same song they have repeated since they wrote it. Doing so will continue to limit Equinix’s growth and market share. I hope that Equinix has up its sleeve than the same song that is getting less airplay to the new hits getting more radio time than its classic approach.
However, the real surprise here is in this announcement in this Data Center Knowledge article is that Digital Realty may very well be back in the driver’s seat of its growth and acting like the leader it was and certainly can be. After years of Digital Realty standing by, collecting modest incremental revenue gains with decreasing margins, and giving up market share by not expanding into new markets, existing markets or adding new products, Digital Realty has been going thru a transformation and getting back on its feet. It’s like a prized fighter in a match getting knocked down over and over and then, finally getting up and punching back!
Digital Realty became invigorated again after Bill Stein took the helm, and it was at a tough time so it took Bill and team some time to figure out their options and growth paths. One big win was the acquisition of Telx. Another was adding cloud connections and products. And a third has been offering smaller retail colocation with services. This last one came first but took some time to formulate since it was competing with some of its customers and a very new set of services was needed to support this customer class, as well as needing to remove the minimum buy in of about 1 MW of capacity as it had always been for the first 10 years at Digital Realty.
I came along as a industry strategy consultant right after Bill Stein stepped into the CEO seat. He and I spoke my first week on the job for Digital, just a few months after he took the driver’s seat, and he and I had a great conversation about ideas in which the company could grow. As a past customer and industry veteran, I gave him my thoughts and he used my exact ideas and literally verbatim said them on the next quarterly earnings call a few days later. It was at this time that I knew he was serious about changing Digital Realty so that it could grow and expand unlike it had ever done before.
Over the next year or so, I helped to put into place with the great Digital Realty team many changes, from revising the website, focusing on adding different customers and developing new products, acquiring Telx, training and invigorating the sales team, developing cloud platforms and connections, and responding to customers’ unique needs that were different than anything Digital Realty had considered before. Digital Realty made great strides but was still adjusting to changes and a bit uncertain of the best path forward. Nonetheless, during my tenure at Digital Realty we made great advancements in all of these areas that were adding to the bottom and gradually changing the entrenched decade out of date ways of doing their business.
One of the areas in which I had made suggestions and growth changes was a continued expansion of interconnection hubs. We all know that Equinix is the Queen of interconnection hubs–they have the crown jewels of the industry. However, if Equinix is the Queen, Digital Realty is the King of the largest fleet of wholesale data centers with many of the largest growth customers in the world. So by interconnecting this data center fleet, and expanding its reach, Digital Realty is enabling growth with new customer connections and interest, as well as recreating some of the crown jewels that were once almost entirely controlled by Equinix.
It is the value of these European interconnection hubs from this acquisition that will garner the most value over time. Yes, these data centers are good data centers. Yes, they are in markets that Digital Realty wants to get into or can use some additional capacity in, and yes, the revenue from these data centers will be fantastic accretive revenue for Digital Realty and even more importantly, at a higher margin than Digital Realty’s norm. And yet, even more importantly will be the addition of many new logos to the Digital Realty customer roster. Yet, most important than all of these great facets of this acquisition will be the network interconnections that will propel Digital Realty to a much greater market position than it’s ever had in Europe.
And if Digital Realty can parley the lessons learned from these eight seemingly simple data centers about network interconnectivity, the customer value of those, and the global reach that these network connections can expand for Digital Realty, I believe that Digital Realty just might be back in the driver’s seat of the data center industry once again, collecting more crown jewels for itself but even more importantly, creating them, revenue and margin growth and adding not just shareholder value, but most importantly over time, customer value. I look forward to seeing how this will play out over the next several years.