Jason Shepard Compares Retail and Wholesale Colocation in Southern CA at Southwest Summit

Oct 26, 2018
by Josh Anderson

LOS ANGELES, CA — The opening session of CapRE’s Seventh Annual Southwest Data Center Summit: The Telecom Evolution was a Keynote Presentation by Jason Shepard, Founder & Managing Principal at Cresa MCS. Findings from Cresa MCS Annual Colocation Survey provided a snapshot in to the state of the industry, and to kick off that discussion, Shepard provided some clarification about the reason that some companies are trying to get out of Southern California, while some other companies are trying to get back in.

“Let’s talk about definitions for a second,” began Shepard. “The Southwestern United States, by the United States census, is literally Arizona, Colorado, etc. And technically Southern California is considered the West. But in our survey questions, we submitted the same survey questions to nine colocation providers that provide services here in the southwestern and western united states. I’ve grouped the responses together. All of the colo providers responded under condition of anonymity, so I won’t be saying any names.”

Jason Shepard, Founder & Managing Principal, Cresa MCS

“One of the questions was about direct deals vs deals represented by third-party agents,” Shepard shared. “What percentage of deals are completed directly between the colo provider and the sales team? The end-users, reported, on average, 56%. 56% of all deals are completed directly between the IT team and the sales providers of the different colos. Of the non-direct deals, who is actually represented by third party agents? Telecom agents take 46% of the deals.”

“Then there are resellers, so if you’re buying your serves in bulk from a different provider, those people who are selling you servers are also doing data center transactions,” he continued. “Commercial real estate brokers, like myself, licensed individuals, only represent 11%. Overall it’s about 5%.”

Next, Shepard wanted to talk about power. “So one question we asked was, what percentage of your clients have separately metered power? This is a big one,” he explained. “First of all, what do we learn here? Number one, the majority of providers are providing retail colocation. Retail colocation isn’t wholesale colocation. Wholesale colocation really means separately metered power consumption.”

data center summit“On the other hand, retail colocation is where a provider will say, you know what? We’re just going to charge you the cost per months for your cabinet, and on top of that, we’ll charge you $1000 per month per whip,” continued Shepard. “And some people might say, well, that’s a little too high. But the analogy that I use is like going into the airport to rent a car, and you go to the Hertz counter, and they say, Jason, for the convenience of not having to stop by Chevron before you drop off the car, we’d like for you to pre-pay your power capacity. Sure, that’s convenient, I’m going to prepay for that.”

According to Shepard, there are three power grids. “There’s the East Coast power grid, there’s the West Coast power grid, and then there’s the Texas power grid,” he listed. “With the Western power grid, I’ve tracked all of the rates. If you look at the average for year-end 2017, the average cost of commercial power is 10.8 cents per kilowatt hour. If you look at an analysis of 10 cabinets, for a traditional corporate user of 5 KW per cabinet, that’s 50 KW.”

“So that means, if we do a colocation deal and we do those 10 cabinets at $1000 per month, per cabinet, for the power, that’s $10,000 a month,” he concluded. “However, if we were to separately meter those cabinets, at 10.8 cents per kilowatt hour, in a targeted load utilization of 70% and a 1.5 PUE, your actual cost is $4000 per month. So if you separately metered your power, you would save over $5000 per month.”

Jason Shepard specializes in representing end-users in multi-market evaluation, site selection and acquisition of data centers and/or real property for data center conversion across North America. Widely recognized as an expert in this field, Jason is regularly asked to speak at industry events, has been quoted in multiple media sources and has a specialty consulting practice exclusively for data center occupiers. Jason’s platform evolved during the technology boom of the late 1990’s. While most abandoned the market after the crash of 2000, Jason committed to building a better knowledgebase and client service offering. Between a decade of data center tenant representation, the volume of completed projects and a multitude of consulting assignments, Jason’s experience is unparalleled in the industry.

For more from Shepard, check out a previous CapRE Insider ReportThe State of Colocation: If You’re a Large Data Center, You’re Trying to Get Out of CA

Sign Up For Updates: