Cologix emerged onto the data center and interconnection stage a little less than a year ago, after operating in stealth for a while. Starting with Dallas and three Canadian markets last year, they recently announced expansions in Toronto and Dallas, purchased the Minnesota Gateway and added yet more depth in Toronto by buying Carrier Connex. With us today to talk about Cologix’s business model and its plans for the future is the company’s President and CEO Grant van Rooyen.
TR: Where does Cologix fit it the more general data center segment of the internet infrastructure space?
GvR: Cologix provides colocation to customers that require network neutral access to a broad set of network providers. Our customers are looking to 1) ensure the lowest total costs for network deployments by taking advantage of an open market for network services, 2) de-risk their network relationships by reducing the switching costs so they won’t be held hostage by networks at the end of their contracts and 3) drive low latency and low-risk access to core network nodes. We meet this demand with flexible space, reliable power and dense connectivity by operating network neutral facilities in the carrier hotels in key markets.
Our core franchise is to exist in the most densely connected location in any market that we’re in. We go to locations where we can be either the primary or the only provider of access to that dense network. We don’t have a real estate ownership bias, and we’re not a wholesale datacenter provider. We’re folks that have control over dense interconnection points and provide managed, secure, scalable and cost effective access to the networks in any given market.
TR: Your footprint is quite different from the usual multi-market data center business, skipping the largest markets entirely and focusing on the next tier. What attracts you to these markets?
GvR: We like to go to places where we have a unique competitive differentiator, where competition is ostensibly less and the market has fallen off the radar for one reason or another. Examples are Montreal, Vancouver, and certainly Minneapolis. We think that’s good for our business, and it’s good for our customers since we can focus on them a whole lot more without distractions. Our customers expect us to meet their scaling needs and we do that better than most in all of our markets. It is also fair to say that these are all very large markets in their own right.
We also like circumstances where we have overcome the limitations our competitors may have, where we’ve navigated a forward-looking strength to our business. For instance we are one of the largest if not the largest interconnect player in Toronto, both in 151 Front St and beyond. And before we announced that deal, we made a bunch of decisions that positioned us to be a market leader there for a meaningful period of time: our 905 King Street expansion, our relationship with Allied Properties, and our ability to expand inside and outside of that building. Our Dallas position has a similar characteristic.
TR: This year you have announced the build-out of substantial additional space in Dallas and Toronto. Is such organic expansion within your current markets a big part of your plans?
GvR: Our plans are primarily driven by our customer needs and the demand we see in our markets. We have the economic horsepower to continue to expand in the markets we’re in, and we don’t like being constrained. Our customers aren’t interested in hearing, ‘It’s great that you’ve been with us for five years, but now we’re out of space’ or ‘we’re out of power’. That’s unacceptable and we go to great lengths to make sure we are in a position to enable our customers’ growth. In some of our markets, like Toronto and Dallas, we’re also receiving interest from customers that do not have a short to medium-term path to grow with their current provider and are evaluating their options. We’re absolutely committed to meeting that demand, both current and potential and you should expect to see us continue to expand within all of our markets.
TR: Do you see further acquisitions in Cologix’s future?
GvR: Firstly, we have put ourselves in a position now where we don’t have to acquire anything else. We’re scaled and operating very efficiently. Whenever you build a business initially by acquisition, that is an important benchmark or threshold to reach. But I think it’s fair to say that where we can find other markets that meet our strategic standard to enter by acquisition, we will certainly do that.
TR: How do you approach potential acquisition targets?
GvR: This is above ground, physical infrastructure, and we fundamentally believe you have to have feet on the street. We don’t evaluate markets from afar off of a spreadsheet or a PowerPoint deck, we go local very quickly and we never turn down a tour.
TR: Thus far you have added new markets inorganically, and invested organically into existing markets. Would you ever expand your business into a brand new market organically?
GvR: These kinds of dense network interconnection assets can’t be easily replicated or recreated. You can’t just pop into a market, buy a building, open the doors, call yourself a carrier hotel, and expect the networks and customers to miraculously appear. That dynamic happens over a very long period of time, and it’s very difficult to unseat the incumbent. Never say never, but those dynamics through our lens seem very limited and tend to be oriented around cases where the incumbent carrier hotel is completely full and there is the potential for the next location to be declared.
TR: Has Cologix any interest in expanding its interconnection business with things like an Ethernet exchange or an extended community/marketplace?
GvR: I would describe us as close observers of all things Ethernet and marketplaces/ communities, but when we’re going to commit to product expansion we want to do that with conviction because the market is getting good at spotting hollow press releases, which we are not interested in. I’d say certainly for both Ethernet and the broader bucket of ‘communities’ one can reliably assume we’re going to move, but for now we’re patiently observing. We want to make sure there is a robust customer driven reason before we commit.
TR: What do you think still needs to be resolved for exchange/community business models.
GvR: We are extremely sensitive about not competing with our customers, and this has become a little blurry for some folks that are operational in the market and we don’t do blurry.
TR: Cologix entered the scene with a substantial Canadian footprint, what attracted you to these markets initially?
GvR: When we started looking to put this kind of platform together, we looked aggressively in both the US and Canada and it quickly became obvious to us that there were some interesting franchises available in Canada. It struck us that the competitive set hadn’t focused on it, but Montreal, Toronto and Vancouver are huge cities with robust economies and are great telecom markets. We liked what we saw from a market perspective, and our deal making in Canada just moved more quickly than our activity in the US.
TR: Has this year’s partial deregulation of the Canadian telecommunications market helped, and were you expecting it when you entered Toronto, Montreal, and Vancouver last year?
GvR: That hasn’t hurt, but it wasn’t a strategic driver at the time. There was far more representation from non US carriers and of course domestic networks from inside Canada. We always knew that there might be a tailwind for US networks to come up into Canada. Since then we’ve focused on US carriers, and I think the US carriers have equally focused on the Canadian market. We have already announced that Abovenet has expanded into Toronto in our 151 Front St. facilities and have supported several others who have followed suit since the regulation changes were released. It’s been a nice tailwind to operate in. The business environment in Canada is very robust.
TR: What has been the most surprising, positive trend you have seen over the past year?
GvR: What we have found most encouraging is the emergence of the platform customer. It’s very easy to put the aspiration on paper that we’re going to build a platform to serve demand for customers that need more than one location. Everything we’ve bought had been single-market business, and customers have extremely demanding standards, particularly when the opportunity is multi market. We always knew that we could meet the standard and expected it would come, but the demand has come on much stronger than we expected. We believe this emergence has been driven in part by presenting options in markets where our customers want to expand their network and because there is an appetite for an alternative interconnection provider that offers geographic choice, extremely dense network choice and fair value while truly meeting the standard of supporting customers locally. It’s probably the most satisfying thing you can have in any business, to have a happy customer want to spend more money with you.
TR: Thank you for talking with Telecom Ramblings!