The market for “interconnection services” is booming as various businesses are realizing the potential of “digital transformation”, “connected enterprises”, “hybrid hosting” and “edge computing”. So, what’s the best (network) interconnection strategy to ensure you can enable the technology for you and your customers, while still being responsive to changing market dynamics and user requirements?
In the context of this article I’ll define interconnection as “some kind of private connectivity between networks – avoiding the public internet”, where “networks” refer to enterprise networks, fixed and mobile Internet Service Providers, cloud providers (IaaS, Paas, SaaS, hyperscalers), (telecom) carriers and Internet backbones. So, this definition of interconnection includes cross connects (in a data center, campus or metro), exchanges (e.g. cloud exchanges, internet exchanges, dedicated exchanges for specific markets like mobile carriers or financial industries) and private networks (e.g. Ethernet or IP VPNs, private lines, waves, dark fiber).
Traditionally cross connects in a data center were provided by data center providers, exchanges were operated by internet exchanges (e.g. AMS-IX) and private networks (or anything “outside the data center”) were offered by carriers and network services providers.
The pricing and market forces for these services has previously been significantly different. While the market for colocation in data centers was competitive in most cases, the pricing for cross connects in a data center was based on the monopoly position of the data center provider (especially in the US and APAC resulting in outrageous fees which were not related in any way to the underlying cost price). Internet exchange services were typically offered on a cost-basis by member based not-for-profit organizations with typically some level of competition due to the presence of multiple exchanges in a metro (except in the US, where the data center providers took the lead). The market for private network services was and still is extremely competitive, with carriers and network services providers battling to recover their investments through a combination of aggressive pricing, automation and value-added services.
Enter the data center providers
In the last few years however, we see some data center providers aggressively moving into the interconnection services market – launching internet and cloud exchanges and connecting their data centers around the globe to offer a one stop shop for both colocation and interconnection. Other data center providers take a much more open and collaborative approach: they work closely together with internet exchanges and network services providers and offer a rich and neutral ecosystem of interconnection partners in their facilities – at a cost level that truly facilitates such interconnection.
Don’t put all your eggs in one basket
While a one stop shop for both colocation and interconnection services sounds like a great idea, one should avoid putting those two eggs in one basket. It is imperative to stay agile and to avoid having all your (or your customers’) physical IT infrastructure (e.g. servers) and your interconnection with your business partners in one place. The promise of a hybrid IT infrastructure, i.e. to dynamically move applications, data and workloads to the infrastructure that provides the best price/performance, should not be compromised by being locked in. So, whether you are a Managed Services Provider serving enterprises or you design and run your own IT infrastructure, one should stay flexible in methods of interconnection and keep the options open to use multiple exchanges or network services providers.
At Leaseweb, we take the same approach for our own cloud hosting infrastructure. We optimize our network performance by being “well connected to the internet” in combination with “private networking where predictable performance is a must”. This translates into using a rich mix of IP Transit providers and private and public peerings – in combination with private network services from a broad set of carriers. So, when we select data centers to deploy Leaseweb hosting infrastructure into new territories, we carefully look at the presence of carriers, other cloud hosting providers, internet exchanges and the cost of connecting to those (typically the cost of cross connects in the data center). And when we have the choice of an internet exchange which is operated by a data center or an internet exchange operated by a neutral party – we’ll always go for the latter.
We like our eggs scrambled, but not all broken at the same time when something goes wrong. And so should you!