| | October 20137CIOReviewsuch a competitive and lucrative business model? In its simplest form, wholesale data center companies are real estate companies. DRT and the large players focus on finding existing data center facilities they can buy and resell, or leaseback for a profit. Wholesale offers greater control and higher security than highly transient retail colocation space. Wholesale customers pay a premium over typical leases for general office space, but have much greater speed to market and are spared the capital investment required if they were to construct their own data center. But it is not a fit for everyone. The economics of wholesale space is usually more attractive to customers with larger IT infrastructure requirements (at least 20 racks) and the ability to provision their infrastructure.The large wholesale providers are nearly all publicly traded companies and tend to focus on six tier 1 markets known for having the highest concentration of data center facilities, power and core Internet availability ­ New York, Chicago, Northern Virginia, the San Francisco Bay area, Dallas, and Los Angeles. These wholesale leaders tend to stay in these large markets where they have an established presence and resources, and much of their strategy focuses on build or buy real estate transactions. And while they will invest in certain data center upgrades and renovations, their number one responsibility is to shareholder value. Any why should not it be? With their size and scale they are able to raise capital at six percent invest it at 12 percent and create shareholder value instantly. Taking on additional expense and resource allocation required to renovate a single facility that has little impact on the company's valuation usually does not make sense.It sounds simple, but wholesale data center transactions are not for the faint of heart. Barriers to entry are particularly high when you consider the substantial dollar capital investment and technical expertise required to build or buy a large data center facility. Very few investors are willing support speculative data center builds and they are wary to commit without large enterprise or government customers in place.Flexible Model for Evolving needsWith a business strategy focused on underserved areas of major markets comes added risk and opportunity. It is much more than a real estate model. There are limited data center assets to choose from compared to the larger markets and we recognized the need to invest in and upgrade most of them. This requires a high degree of financial and management acumen to make the right decisions on acquisitions. Kenneth R. Parentthe economics of wholesale space is more attractive to customers with larger It infrastructure requirements
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