How and Why to Picking the Ideal Data Center
Hi. Max Clark. This is, 20 minutes max. I'm gonna try to do this in 20 minutes today. I'm also gonna try something a little new, something I haven't done before.
Speaker 1:And, I'm gonna talk about how I pick data centers. So a little bit about me first, why you should listen to me. I have been, collocating and building out data centers for over 25 years now. This is everything from on premise, you know, your little server rack in a room to render farms to custom data center deployments in hospitals. When I say custom data center deployments, I mean, like, you know, helping people get generators and UPSs and the full full net plant put in, you know, race floor, everything.
Speaker 1:The ghetto colos, you know, these are just the random one off locations with with no real business actually hosting equipment. We've seen plenty of those in the day and all the way up to your, you know, premier top tier facilities. I've, personally a previous business. We scaled to multiple megawatts of data center floor space. I found out that I was the 4th largest, data center operator in 1 Wilshire when the building was sold.
Speaker 1:It's a fun story. Number 3 was Google. And, they you know, we help clients with data center selection and deployments basically in every every major continent. When I say major, every continent. So we do North America, south America, a lot of Asia.
Speaker 1:So Singapore is now very popular, used to be Hong Kong, but little geopolitics there going on Japan, of course, Europe, Africa, south Africa, has been a thing. I'm expecting that to grow, India, etcetera. So we're gonna talk a little about, you know, how how and why you pick a data center and, you know, what's the actual, like, what people actually seem to care about a lot. So and, of course, some, some contrarian advice here. Really, this boils down to 3 things.
Speaker 1:You're probably already guessing what this is but those three things are how much does it cost, where is it, and, who's there? Okay. So, you know, I don't like leading into these things with price ever but let's be real. Everything always at some point when you're in a selection process comes down to, to price. And so we we try to help, counsel people and also make evaluations and determinations into what I call acceptable premiums.
Speaker 1:So in some cases, you'll see things where, you might have 2 providers, 2 suppliers, and I don't say they're equal enough but they're similar enough and there is but one is much better. Well, that doesn't similar enough anymore. I'm gonna contribute my contradict myself already. But, you know, maybe you have a wide gap in terms of service delivery of functions. You know, what is that premium that you're paying between the 2 or the perception of of the value that receiving and and, you know, what what does that value gap versus expense need to really be?
Speaker 1:So where is it? This is a huge one for, a lot of clients and when they're selecting data centers, I'll talk about this more with some examples and who's there. And so let's get into it. Okay. So the first one, where?
Speaker 1:So this is a data center map exported from our system here of, the Los Angeles Metro. This ring is 200 miles. 2 things I wanna point out here with the LA market specifically is you can see here in the, northeast. We've got Las Vegas. And then over to the east, we've got Phoenix.
Speaker 1:And so Las Vegas and Phoenix have become very popular markets for, Doctor facilities or or alternate facilities out of the LA metro. And this could be good for you, and it could be bad for you. And and and we'll talk about this a little bit more in a moment. But, anyway, so we can see here in this map, based on the filter selection. We've got this cluster here in Los Angeles.
Speaker 1:We've got this cluster in Orange County. We've got this cluster in San Diego. And so as we zoom into this thing, you can get a little more fidelity of what that actually means in terms of facility count and approximately where they are. But I'm gonna zoom all the way in here to my, like, favorite representation of this. We look at this Los Angeles metro specifically and and what really become, you know, the major data center players here in this market.
Speaker 1:Right? So downtown Los Angeles is, downtown Los Angeles is really where it's at, and you can see this cluster is 13 of of really what you consider downtown LA. And this this 3 this 3 is thanks to CoreSite when they purchased 900 North Alameda and then, turned that into a a real data center operation downtown. And then we've got, down here around El Segundo. And El Segundo, exodus actually started El Segundo off, back in the late nineties, 200 North Nash, and this is where, dominantly you see Equinix facilities down in El Segundo.
Speaker 1:Now why Los Angeles versus El Segundo? And by the way, there's there's other facilities in here. We've got facilities in Hawthorne. You know, there are there are there are more data centers as map. Right?
Speaker 1:Wilshire Boulevard, a little bit north of 10 freeway. There's some some private on prem build outs, in different buildings that have come up that, you know, some people like to use for different reasons. We talk about this in terms of geography first. You know if you're a Los Angeles based business and you're looking for a data center you know and you're looking for something close because you're building it out yourself you know where this facility actually is is gonna be a pretty big and you know really important to you when I you know going back 25 years I was living in Santa Monica and the only real data center operations were in Irvine if you were a tech company in the late 90s early 2000s and you needed a data center and chances are that data center the closest one to you was you know was pretty far it was down here on this Irvine. We reached this little 6 down here with 405 and 73 kind of fork.
Speaker 1:That's where all the dance interaction was. And, you know, Santa Monica to Irvine can be anywhere between 45 minutes and 2 hours in the on on the car, depending on traffic. Fortunately, back then, there wasn't as much traffic from when I had to go visit these things. It is a pretty big consideration. You know?
Speaker 1:I mean, just Los Angeles specific. I mean, if you're a Pasadena based company, if you're out in the valley somewhere, San Fernando Valley, if you're in Calabas, a 1,000 Oaks, probably don't want to talk about facilities in Irvine so much. You know, a big concern that comes in and people people really, you know, focus on is drive time at staff. 1st data center, it's usually gonna be your staff from your office driving to that facility. As you get into bigger and bigger data centers, the economics of the location of the data center versus the g the distance to your office really come into play and you're usually staffing out, people and technicians to be physically present at that data center.
Speaker 1:So rules of thumb, you know, probably, under a half a megawatt, 500 kilowatt of power, really under 250 kilowatt of power. You know, the the physical proximity to your office and your primary operations is gonna be more important to you than differentials in, you know, cost of floor space or cost of electricity. Once you cross over, you know, 500 kilowatt, you get into, you know, megawatt plus deployments. You know, the price differential of a facility selection is gonna make more difference to you than, you know, the inconvenience of having to hire, you know, people for there. So in the, LA to Vegas, you know, location.
Speaker 1:Like, you're not driving staff from LA to Vegas. You could do it if you're doing a big build out, but they're gonna fly. You're gonna put people on an airplane to fly from LA to Vegas. But, really, if you're putting a big deployment and a big big build out in Vegas, you're hiring in Vegas. You know, that's that's a simple just way of of thinking about that and and looking at that.
Speaker 1:Anyways okay. So I'm just gonna point some things out here just just on this map here. You can see this little blue dot here at Burbank. We've got El Segundo. We've got Irvine, and we've got downtown Los Angeles.
Speaker 1:So just just kinda make note of that and we'll come back to that in a little bit. Another thing about where, you know, and this is this is pretty important. And people don't think about until sometimes it's too late is the impact of taxes and taxation on your facilities. For instance, why why do you see a lot of facilities down here in El Segundo versus Los Angeles? Well, how El Segundo taxes businesses is very different from how LA City taxes businesses.
Speaker 1:This is, you know, of course, huge in different markets. New York, New Jersey, Chicago you know our friends in Chicago were one of the first, municipalities to really create this idea of unpossessed unpossessed property taxation but where you physically put equipment that runs your your your business especially if you're if you're financing or leasing that equipment in any way and you have a UCC filed against you, that's gonna pop up and the taxing authority is going to see you there. And that may be good or that may be bad. Now in the case of LA, it might be advantageous for you to, have a collocation facility in El Segundo and use that as your point of transaction, alter how your business taxes are paid and calculated with your LA office operations. So, you know, you can apportion your revenue and we did this and this is something I learned a long long time ago but, and for instance that that business was based in Maria del Rey in Los Angeles City in Maria del Rey but the data service in El Segundo so we took an operation that was generating you know multiple 1,000,000 of dollars a year in revenue and instead of paying, you know, Los Angeles City a lot of municipal tax, completely different calculation for El Segundo.
Speaker 1:It saved the company 1,000,000 and 1,000,000 of dollars a year. So understand kind of taxing rules of where you're getting yourself into and whether or not that's gonna either open you up to a nexus. You know, it's gonna it's gonna get really expensive for you from a tax standpoint or if you're gonna be able to leverage that asset to reduce your tax burden. Not a lot of people talk about for some reason, but, also, of course, like sales tax. When you purchase equipment, you pay sales tax on it.
Speaker 1:You paying 11% in sales tax? Are you gonna pay 6% in sales tax? You know, that factors into these sorts of things. Next thing. Let's talk about fiber.
Speaker 1:I'm talking about, you know, this is the the arteries and the veins that connect the world together and the Internet together and why this actually is important. So this is Zayo's public network map. Let me go to their website and download this and there's nothing too weird here. The point that I wanna make here and and point and and give is now these cities have way more density of interconnection. This used to not be the case, you know, to go back 20 years.
Speaker 1:We've got a lot more fiber built here, but this is talking about, you know, building out and what you actually need in terms of redundancy for facilities. Everything kind of becomes these like little loops, these circles. So LA, Vegas, Salt Lake City, Boise. Think of that as kind of like a little loop and a lot of fiber runs that way. You know, we've got the Salt Lake, Vegas, Phoenix, Tucson, Albuquerque, Denver.
Speaker 1:Right? Like these little kind of like intersecting circles. From a network diversity conversation and this this drives a lot of this desire to get into oh, we need to co locate. We need to move really far out with a data center because we need to have network redundancy. Well, if you think about it from Los Angeles, just going from Los Angeles to Irvine opens up the second, you know, path for you out to Phoenix and maybe that's far enough distance.
Speaker 1:So, oh, by the way, you know, the network is routing you to Phoenix anyways from Los Angeles, you're going through Irvine anyway. So, like, LA, Irvine, Phoenix or LA, Phoenix LA, Irvine, San Diego, Phoenix. Sometimes you can be still pretty close and have, effective Doctor based on the kind of scenario that you're trying to protect against with your Doctor. So, fiber breaks, fiber outages, and and the next thing we'll talk about usually drive that conversation. You know, of course, LA, it's always about that mythical 10.0 earthquake, which I hope to never experience in my lifetime because the scenarios for that are really really terrible.
Speaker 1:Point here is is you know Los Angeles to Vegas, Los Angeles to Irvine, Los Angeles to San Diego, Los Angeles to Phoenix, you know, the reason why Vegas and Phoenix become so popular is you know you get this access now to network traffic that was that was routing a different direction. Fun little quirk about 2 decades ago, a bridge went out in a rainstorm in, Northern California connecting Los Angeles to San Francisco. And, you know, there was a period of time for a few hours where traffic between LA and San Francisco was actually routing across the Pacific. So we were seeing things go to Asia and and then come back to Northern California, because of that fiber route wasn't there and the way the, MPLS networks were calculating cost, it wasn't routing in when the Salt Lake City. You see that kind of stuff?
Speaker 1:Not so much anymore, but you still see that. Anyway, so okay. This is this is Zeo's. I'm gonna show you, Lumen Lumen zoomed in a little bit the way their map actually generates. We lose some real estate, but, you know, same kind of thing.
Speaker 1:This is actually showing, you know, fiber assets within Lumen's network, you know, Los Angeles to Vegas, Los Angeles to Irvine, of course, San Diego. These routes that go to Phoenix from both directions. You know? Yep. There's a lot of fiber that runs through Palm Springs.
Speaker 1:It goes out to Phoenix. You know, fiber that follows. What are these lines and why do they follow? They follow freeways and railroads. I mean, there's not really a lot of sophistication in why this route was chosen.
Speaker 1:It's a freeway or it's a railroad because you need a right of way. Going back up here and talking about where are you gonna put your second facility again you know you can kind of see this barstow route coming up here to Las Vegas looks familiar from Lumens, Lumens map I'm sure but if you're in Los Angeles you have a private facility you start talking about where do you wanna put a second facility you got lots of choices okay last thing I wanna talk about not the last thing I wanna talk about this is the second last thing I wanna talk about electricity electricity impacts you in 2 ways it's the primary driving factor in data center cost so how much is electricity how much is a land what does it cost to build you know major factor in data centers a lot of centers are in the market today. We're built a long time ago. So they're not really factoring in what was their land acquisition cost anymore in terms of the cost of facility. It's, you know, taxation is is, you know, drives a lot of the cost in the, you know, the expense of the data center.
Speaker 1:There's a reason why you don't see new data center construction happening in Los Angeles. You know? There's a reason why Hillsborough is more popular than Portland, for instance. There's a reason why Ashburn, Virginia happened. You know?
Speaker 1:It's it's a you know? In those cases, it's a it's a land play. How much does the land cost and how much does the electricity cost in order you know, power the facility? So there's two points with electricity. The first one is is how much what's your what's your effective rate per kilowatt hour, and that's influenced based on what the generation is.
Speaker 1:So is it hydro? Is it, coal? Is it nuclear? You know, that that impacts what's the kill, cost per kilowatt hour? You know, impacts, you know data center has to run air conditioning.
Speaker 1:Right? So that factors into how much you pay for that data center space. Whether you're on a breaker k w or a critical kw in a metered power in a data center, you know, what the rate per kilowatt hour of that data center is really important to you in terms of the cost. Now small pops, if you're building out again sub 250 kilowatt, you know, the cost differential between, you know, 9¢ 13¢ a kilowatt hour is gonna, you know, it it's gonna show up on that spreadsheet but it's not gonna be so outsized that other things aren't gonna influence the decision more. This is from California's PUC website and you're gonna see this in other markets as well.
Speaker 1:And it's important to understand and look at. But Los Angeles is very fun to look at this thing because we talk about power as a factor in driving Doctor decisions. You know, what happens if there's a grid failure? We need to be in Vegas so that way we've got alternate network and we've got alternate, you know, power or we need to be in Phoenix because we have to have alternate network and alternate power. Looking at this map and I pointed out a couple of those dots, we see LED DWP.
Speaker 1:So all of Los Angeles is this LED DWP, this orange kind of shaded in area. I noticed there's like some cutouts here. Those cutouts are important to look at. Right? So, first cutout, all the downtown Los Angeles facilities, of course, LEDWP.
Speaker 1:Look at this little island here. That's Burbank. It's Burbank Water and Power. So that facility in Burbank, it's got its a different power generator. It's a got a different it's got its own it's got its own power system.
Speaker 1:It's not LEDWP. All those El Segundo facilities, guess what? They're not LEDWP in Southern California Edison. Blue like light shaded blue is all s c e. You know, same thing in Orange County.
Speaker 1:You see City of Anaheim. So there's facilities in Anaheim, Santa Ana, different power, Orange County, Irvine, again, SoCal Edison, and then you come down to San Diego and San Diego Gas and Electric. If your dominant desire is to have redundant power and redundant providers and and utilities for power and you're in Los Angeles, you can go to El Segundo or Irvine and have a a reasonable expectation for redundancy. DWP, LEDWP, and SCE are interconnected with each other, and you can talk about what what sort of, like, cascading event could really happen. But in terms of, like, oh, I wanna make sure that if l a d d b p, you know, blows up some sub substations or whatever because a car runs into it, which is that we have a redundant facility.
Speaker 1:And so in those cases, you know, you can have 22 facilities pretty close to each other. I mean, the distance between downtown Los Angeles and El Segundo is is not terribly far. Mileage isn't terribly far, but if you've driven it, time of day factors into your time of transport. You know, reasonably reasonable redundancy and between these two power companies and, you know, you can have it in the same city. You don't have to go to Vegas in order to get that kind of redundancy.
Speaker 1:Let's talk about I'm gonna talk about networks for a little bit. Again, this is a big factor of what you're doing with your data center. You know, are you looking for really dense interconnection with different network providers? You know, that's gonna make a big factor also in terms of the more networks that are in a facility, the cheaper the more competition there is for acquiring customers at those facilities. You have different, economic dynamics that happen those in those buildings.
Speaker 1:And this is the LA one facility aka the 1 Wilshire building. This is peering DB. Peering DB is a a public database of people networks and add themselves to in order to, you know, look and find interconnection points and, you know, talk about their stuff. But so here, CoreSite, 305 networks. It's actually much more than that when you look at the entire CoreSite ecosystem in Los Angeles.
Speaker 1:It's over 400 networks, and they're inter the buildings are interconnected with each other, you know, f y I. But so 305 networks here in this building. Let's go across the street. 600 West 7th Street. Digital Realty.
Speaker 1:38 networks. That may or may not be a big issue for you. And this is something that we look at and we evaluate and we talk about with our clients before we we get into and we get too deep into these facilities. Now could you get a better deal at one building versus another? I mean, of course.
Speaker 1:Right? And this is where we start talking about, you know, the differences between buildings. Are you driving a a cost value play first, but does that get countered with if there was a network that you needed and you were at Digital Realty at 600 West 7th and that building was across the street at 1 Wilshire that network, the cost of taking a metro connection so the cross connect to the facilities on both sides, the metro connection, whatever is actually going on in the street to connect those two facilities. If you do have a lot, very quickly can eradicate any sort of cost advantage that you would have had over at 600 versus, you know, just collocating in the other building in the first place. So let's just keep going to the LA.
Speaker 1:So here's here's Equinix. This is the LA 3 LA 4 sites. There's actually a cluster of Equinix facilities down in El Segundo. You know, similar story. 38 networks registered at, you know, these at this at complex.
Speaker 1:Might be an issue for you, might not be an issue. Just something to be aware of. Now I kinda picked on DRT and Equinix a little bit in Los Angeles, but let me show you some comparisons with this. So this is Digital Realty at the 56 Marietta in terms of, like, your your super connector, you know, buildings and markets. 1 Wilshire building in SoCal, 56 Marietta is the equivalent of that Atlanta for the southwest southeastern region of the United States.
Speaker 1:So if if you need colo in Atlanta, the prime facility here is Digital Realty. So I I pull that one out just to make that point. And, of course, here's, Equinix's campus in Ashburn. You can see 430 networks. So, you know, there is, you know, understanding which markets, why, what market, what are you trying to achieve with that market are all very important.
Speaker 1:Where are you located? You know, what are you trying to achieve with it? Who you gonna need to interconnect with it? Doctor is a fun conversation for me to get into. The other part of Doctor and and I'll make another video about this one and get into this much more detail.
Speaker 1:But if you're gonna go through the expense of putting a Doctor facility in a number of market, I would argue putting that other Doctor facility only 3 or 400 miles away from you is is probably not the best idea because you're not gonna be able to lever that facility as much as you you could if if it was in a completely different region. West coast to central, west to east coast, these sorts of things give you other opportunities to do things that you wouldn't be able to do if they were on top of each other. And if you're okay with them being on top of each other with LA and Vegas, then maybe just downtown in El Segundo gives you enough for downtown at Irvine or maybe even downtown. Downtown San Diego is is kind of unusual but you know LA to Irvine for sure you know is is a very reasonable strategy I'm Max Clark that was more than 20 minutes but hopefully this helps you
