Equinix (EQIX) is the world's largest provider of Internet and cloud interconnections with 145 data centers, including some of the world's busiest Internet hubs such as those in Ashburn, Virginia and San Jose, California. The interconnection and colocation provider is a major beneficiary of the transition to cloud. Its revenue grew from $1.19 billion in 2010 to $2.44 billion last year, through a mixture of organic growth and acquisition. Net cash from operations grew by 76% in that period, to $689 million last year. In the last five years, the stock has gone from $93 to $317 a share. We caught up with Equinix VP of Ecosystem Development Jim Poole, who gave us some insight into the evolution of today's cloud networks and the drivers of Equinix's own growth. As business embraces "the cloud" and multiple clouds, some fundamental changes in the world's networks are taking place.
WAN reinvention is what Poole calls it when enterprises re-design their wide-area network connections to better meet their needs in a cloud world. Before the cloud, a typical enterprise would have one or several large data centers, often located near their largest corporate offices, which would be connected in hub-and-spoke fashion over connections purchased from telecom providers, to dozens of remote offices. Nowadays, many businesses use multiple clouds, including SaaS providers for services like customer relationship management, email, HR and more. All those outsourced cloud providers reduce the scale of the large corporate data center. But they increase the need for multiple reliable, low-latency connections to all the cloud providers. Traditionally, corporate IT departments have bought MPLS networking connections from telecom providers because MPLS guarantees performance in a way that basic telecom connections (such as T1 lines) or public Internet connections cannot. But it gets expensive to buy dedicated connecitons to many different endpoints. Equinix tells enterprises they can save money by moving their data center to an Equinix facility and replacing those MPLS connections with Ethernet connections, which can be as much as 90% cheaper. He provides an example of an enterprise that was paying between $10 and $20 per megabit for a private telecom connection to its office. By moving to an Equinix facility, it cut that to under $1 per megabit. "I call it the service providerization of the enterprise," says Poole. "Enterprises have learn to think more like service providers." In other words, they have to focus more on the cost and performance of their networking, instead of leaving that job to a service provider.
Equinix data centers (Equinix calls them IBX's for International Business Exchange) are interconnection points where dozens or hundreds of telecom companies and Internet service providers provide physical connections to exchange traffic. Equinix has leveraged the availability of all those network services, and used it to build a data center colocation business, renting cages to cloud services providers and enterprises who find it advantageous to be housed alongside many network connection options. "Colocation provides 80% of our revenue, but interconnection provides the gravity," Poole says.
The growth of hybrid cloud architectures is another trend driving more enterprises to choose to colocate in Equinix IBXs, says Poole. While Amazon Web Services (AMZN) is the undisputed leader in infrastructure-as-a-service (IaaS), enterprises are increasingly choosing to go hybrid, i.e. retain some compute power in their own facility. "Data sovereignty, security, application performance, and cost, those are the four big things that push you into a hybrid scenario," Poole says. Dropbox's recent decision to build its own storage resources and pull out of AWS is one example, driven primarily by cost. Another example is tech startup Tapjoy, covered by the Daily Cloud here. Tapjoy moved from AWS to its own compute resources in an Equinix IBX for cost and performance reasons. For many health care providers, certain applications can be moved into the public cloud, but some applications are kept in private facilities for privacy, security and compliance reasons. "We don't expect people to lift and shift their existing applications into an Equinix center, but as they launch new applications, they come to us," Poole says.
The next big trend Poole sees in cloud and networking is the growth of the Internet of Things (IoT). Equinix is providing colo facilities to General Electric (NYSE:GE), a leader in the trend with its Predix service, a SaaS service GE is offering to other industrial companies to process sensor data generated by the growing number of sensors getting fitted to a growing number of components inside industrial equipment and elsewhere. For example, says Poole, a jet airplane generates 1 Terabyte of data on a single flight. Today, GE uses its own data centers at Equinix, and resources at AWS. It plans to extend into other public cloud providers too, so as not to be too dependent on AWS. "IoT needs vast quantities of data, and the flow of that data is up. That's not what the Internet was designed for," Poole says. "It was never designed to do giant file transfers." Modifying networks and cloud architectures to accommodate the two-way flow of IoT traffic presents another big opportunity for Equinix and for Ethernet traffic. Poole provides an example of a tractor that is being upgraded to use IoT capability—it's being fitted with 2300 sensors on each tractor. That will generate a vast quantity of data that will need to be uploaded frequently to provide optimal monitoring and oversight of the industrial equipment. "IoT implies massive scale, and that is only attainable with a lot of network, a lot of compute, and a lot of storage," Poole says.
The result of these changes in network and cloud is that for the last two quarters, the enterprise sector has been Equinix's most active vertical in terms of new customers signed. "This is the first time in 18 years in business that enterprise has become our number one vertical," Poole says.
Another significant change in Equinix's business is international growth. In December, the company acquired Japanese data center operator Bit-Isle for $280 million, bringing six data centers. A month later, Equinix acquired European data center operator Telecity for $3.8 billion, bringing 40 data centers, and taking Equinix's total footprint up to 145 data centers in 40 metro areas. "Asia and Europe tend to grow faster than the U.S.," says Poole. In addition, Telecity brings facilities in some of the second-tier European cities like Warsaw (Poland), Sofia (Bulgaria), Stockholm (Sweden), and Istanbul (Turkey). It also brings additional facilities in London and Frankfurt, two cities that are at the leading edge of cloud deployment in Europe. "Data sovereignty helps us," says Poole. He adds that while a lawsuit against Facebook filed by an Austrian citizen was the public trigger for the European Union to beef up its data sovereignty rules, an important behind-the-scenes driver for the new rules was the desire of national governments in the larger European countries to keep IT operations inside their own borders. Amsterdam and Ireland have been successful in attracting data center facilities in recent years, including from American cloud operators. Now, governments in large European economies like Germany and Italy are striking back, using data sovereignty to encourage data center construction in their countries. Equinix played that trend by acquiring Telecity. Where a facility in Britain or Germany owned by British Telecom or Deutsche Telekom tends to favor services from that telecom provider, Equinix is independent and always offers a large choice of networking providers.
"We're a neutral provider," Poole says. "If you're in an Equinix IBX, you can choose from hundreds of telecom providers. Enterprises like that. And multinational corporations like doing business with us, because they probably already are doing business with us in the U.S."
