Financial management for data centre growth

Data growth has exploded in recent years; consumers are taking advantage of faster connections to stream high definition content, while businesses are realising the power of the information they’ve spent the last few decades gathering, using highly complex analytical tools to extract value. The speed, the variety and the sheer quantity of data generated has meant that the demand for data centre services has continued on a similarly upward trend.

At the same time, buyer behaviour is maturing in the market and as customer demands vary, so do data centre requirements. Historically, wholesale buyers have been locked into long term contracts with limited flexibility, with suppliers dictating terms. But now, buyers are more demanding and want an agreement that has the look and feel of a wholesale contract, whilst allowing them to scale storage capacity up and down to reflect peaks in usage.

Furthermore, businesses are looking at the complete package offered by data centre providers when making their choice of partner. They want flexible agreements, demand almost continual uptime and the ability to operate seamlessly across multiple locations. When this doesn’t happen and system outages for major providers occur, they make the national news and can have serious reputational consequences. With businesses delivering an increasing number of services online, their primary concern will be choosing a reliable data centre partner that can deliver a robust service and backup when needed.

With organisations using data centre facilities increasingly knowledgeable about which services they want to receive, service providers must now ask the question: is the business model they operate fit for current demand? While the market has matured in the last few years, with little M&A activity in the sector as the big players have sought to strengthen their position and focus on the services they deliver to existing clients, buyer power is on the up. As a result, suppliers should seriously consider whether the services they offer are flexible enough to enable them to meet and capitalise on changing business requirements.

For smaller companies and start-ups, this remains a difficult marketplace in which to compete. Even with an agile business model, there are high cost barriers to the market in the first place, primarily because of the capital requirement to build a data centre in the first place. In the UK, London has remained the main hub for data centres, and the highly connected nature of such a location means providers are still able to command premium prices. But with property prices and ground rents continually rising above inflation – nowhere more so than in London – and space filling up quickly, there is the potential for other locations to meet the increasing demand for more capacity at a more affordable price.

At present, for most people, IT still sits under their desk, but this is changing, particularly at the small to medium end of the market. As cloud technology evolves, more and more programmes will be stored centrally and accessed through tablets, phones and desktop interfaces, and this will increase data centre demand for everyone. But unlike the large corporates that will always maintain a high degree of control, smaller companies require considerably more hand-holding, and indeed flexibility in terms of the services a data centre provides.

This is why data centre suppliers looking to make strides in the marketplace should identify exactly what their focus is and what specialisms they should pursue in order to differentiate themselves in a maturing marketplace. For example, a potential opportunity for new players is where they are able to deliver more than just infrastructure and hosting; offering customers a more diverse managed service product. Meanwhile, it is no time for larger players in the market to rest on their laurels as new entrants who have been able to climb the barriers to entry are already providing competitive solutions and pricing alternatives.

Demand for data centres is being driven by the ever increasing rate at which we consume data; so ultimately, investment in the business to drive growth is about offering the right service, at the right price point to the right person. Technology will drive change in terms of how data centres are used, so when it comes to securing the financing necessary to support growth, the ability to demonstrate ambition and a clear strategy that identifies the resources and technology the company needs to successfully target a chosen market makes a real difference. This is one of the major considerations taken into account when determining what kind of finance package is appropriate for the business. Under the guidance and stewardship of an excellent financial director and strong accounting practices, an organisation should be able to demonstrate the differentiation between ordinary CAPEX to client specific growth CAPEX, because these will be funded very differently as will how the debt needs to be serviced.

http://www.barclayscorporate.com/sector-expertise/technology-media-telecoms.html

Barclays’ TMT team has serviced clients in the data centre market for more than 10 years and is the market leader for UK data centre finance.