Outlining the Role of M&As and Partnerships in the Era of Colocation “Davids” and “Goliaths”

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With so many players in the market, colocation providers naturally want to differentiate themselves. The main avenues for doing so are to get large enough to offer an array of services in lots of geographic locations, or to specialize in a particular vertical or niche service.

No matter which avenue you choose, mergers and acquisitions are likely to play a role, at least judging from the opinions offered by 30 executives from colocation companies representing 16 countries who participated in a roundtable discussion last November in Miami. They were gathered for a day-long discussion of industry trends at an event sponsored by Schneider Electric focusing on colocation “megatrends,” including the changing industry structure and the role of M&As.

Participants noted that colocation companies often have to position themselves as either a “David” or “Goliath.”  The Goliaths are larger companies, typically having grown by acquisition, while the “Davids” position themselves as niche providers, focusing on a particular vertical or offering more personalized, custom services.

The Goliaths routinely look to M&As to quickly expand their portfolios. In so doing, they offer clients consistency, with the ability to service locations in different parts of the world while offering a similar customer experience at each.

But there will always be a place for more specialized colo providers, whether it’s focusing on healthcare companies, financial services or the like. That’s especially true because buyers are getting smarter, asking better questions and gaining greater understanding of what different suppliers have to offer. So I suspect there will always be a need for colos that can “go deep” by providing expertise in various value-added services, vertical industries, accreditations in certain technologies or vendors.

What’s more, the largest players are focused mainly on the largest customers and markets, leaving lots of opportunity for the tier 2 or 3 markets and customers. There’s huge opportunity for colos to make good money there.

Another topic that came up in the roundtable was partnerships, which some participants noting that’s another way for colos to expand their geographic reach or range of services. That may be true in the short-term, as partnerships will certainly be a much quicker way to add to your services portfolio given the amount of time the typical merger or acquisition takes to consummate.

But from my experience, partnerships are difficult to maintain over time. At the beginning they may provide a viable route to fulfill a certain business requirement but it takes a concerted effort from both sides to make partnerships pay dividends over the long term. More often than not, they tend to peter out as markets evolve and the participants lose focus on the original intent. While it’s certainly not impossible to maintain partnerships, it requires active management from both sides; too often, that just doesn’t happen.

That’s my take, at least. I’d love to hear differing opinions in the comments below.

The discussion around M&As and industry structure was just one of seven “megatrends” that roundtable participants discussed, culled from an address at the event by Bob Gill, Research Director in Gartner’s Data Center Strategies Group.  We packaged up the best of the discussion into a free report, “Opportunities and threats for colocation providers around the globe.”  Download it now and I’ll bet you’ll read about some of the same issues your company is facing.


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