Strategy in the Southwest: “Customers in Los Angeles Today Are Not the Same Ones from Ten Years Ago”
by Josh Anderson
LOS ANGELES, CA – The Southern California data center arena isn’t exactly the easiest to sum up in a sentence or two. It’s got its strengths as well as its weaknesses, and a lot of firms want to be there. But that doesn’t mean they can make the deals pencil. That’s why CapRE’s Seventh Annual Southwest Data Center Summit: The Telecom Evolution kicked off with a panel discussion called Southwest Data Center Market 360: Has the Outlook for the Los Angeles Market Changed with Advent of Edge, Micro Data Centers and On-Site Power Generation? Below, we highlight a snippet of that conversation, honing in on how SoCal compares to its closest neighbors.
“Not to say that Los Angeles isn’t an active market, but it seems that [it is] pushing a lot of development, and we are seeing this, to the Phoenix market,” remarked Moderator Michael Siteman, Director for Chapter Relations at 7×24. “I think that over the next two years it’s probably poised to maybe even be the #2 data center market, just after Ashburn.”
Next, Siteman looked to one of his panelists, Zane Alsabery, CEO of Alchemy Communications, Inc for further insight. “Zane, given the fact that there’s another competing market close by, what do you do as a provider to protect your revenue and your customer base? What do you have to do in terms of services and flexibility to retain your market position?”
“I think that the type of customer that we are getting in the data center business in LA is different than it was 10 years ago,” replied Alsabery. “Ten years ago, it was going to be some small company like a start up and like investors, some of them have blossomed into huge companies, going from 2 racks to 200 racks, and others, they wouldn’t. But those start-up companies now go to the cheapest locations”
“And right now they’re doing Clouds, starting out with AWS, which makes sense,” continued Alsabery. “So our customer base is different today. All of the customers that I’m getting are real brick and mortar companies that are pulling their data venters out of their corporate office, and they’re afraid of doing it. They’ve always had their servers with them. Those customers are not as price sensitive. They’re more sensitive to having control over their servers and stuff. They want to start maybe doing Hybrid, where some stuff goes to the Cloud but they want their data for instance in a location that they can control.”
“So those customers are the ones you have to cater to if you have them in L.A,” Alsabery stressed. “So one of the things that we do is make our data center open to Hybrid. So we have our fiber metro ring that is 100 gig-lit and we could easily increase our dark fiber to a gig-lit, just a few card changes. Then we offer those customers a low-cost connection to One Wilshire, where they can go on-ramp to any of the new Cloud providers out there at a very low cost.”
“Earlier someone mentioned having to pay $2500 for a ten year connection, well we can offer that at a dramatically lower cost, because we have the dark fiber,” he intimated. “And that’s part of what we do to attract these larger customers. We also have customers that want to be in Los Angeles. Los Angeles is customer rich. That what we have over phoenix. We don’t have to get 100% of the customers to do well. We have 20+ million people and they have large corporations.”
According to Alsabery, another major source of demand is foreign companies. “We just landed China Mobile,” he revealed. “China Mobile wasn’t concerned about the power costs. They wanted to be in California and they had a preference for Los Angeles. We’re bidding on other complicated RFPs and other large Chinese companies, so a lot of these Asian companies want to be in California specifically because they feel more comfortable here. And the price sensitivity isn’t there as much.
What they want is for someone to hold their hand, he asserted, and do everything for them. “China Mobile is new in the Los Angeles area, and so they like the relationships we have them, which is that they tell us to jump, and we say, how high?” he chuckled. “And so that’s the relationship they’re looking for. In conversations they talk about how they’re the big brother and we’re the little brother. As long as we treat them like the big brother with respect, and work with them and help them, they’re going to grow.”
“So we have some advantages in Los Angeles, and the commodity customers, they don’t care, they could move to Phoenix to save a few dollars. But we have banks for instance that care more about security,” shared Alsabery. “We don’t even have to worry about security in our data center because they hire a firm that tries to break into our data center on an annual basis, both physically and through the network, and then we get a report.”
“So they’re not so concerned about the price-per-KW. They’re concerned about a whole lot of other issues,” he concluded. “The long answer to your question is that we have customers here who are going to stay here for a variety of reasons.”
For more coverage of this panel, check out earlier CapRE Insider Reports: