Interconnection facility provider Telx has acquired the Meet-Me Room (MMR) assets of NYC Connect. The facility in question, a 20k net sq ft datacenter in New York City's 111 8th Avenue carrier hotel, is the nexus for Internet connectivity in the northeast US. NYC Connect is owned by Taconic Capital Partners, the landlords for the 111 8th Avenue building.

T1R thinks that this is an outstanding addition to Telx's portfolio. Telx already owns the de facto MMR in the other major New York City facility, 60 Hudson Street. This acquisition gives Telx a lock on interconnection within the city—only Equinix's northern New Jersey facilities across the Hudson River offer an alternative.

While real estate is nice to acquire—and interconnection customers more so—one key aspect of this acquisition is people. Many NYC colocation buyers are notoriously tough to please, and NYC Connect has always done an excellent job of keeping those folks happy. Telx plans to retain much of the NYC Connect team, with COO Tesh Durvasula mentioned by name. Durvasula (known to most in the industry as, simply, "Tesh") is well regarded in the colocation and interconnection communities, and T1R sees him as a key member of the Telx team going forward.

Will the NYC Connect interconnection model change?

T1R readers might assume that Telx will impose their MMR billing model on the NYC Connect facility, replacing the existing cross-connect billing model. At this time, it looks like Telx is taking a very cautious approach to this, and will be moving slowly, if at all. Telx has gotten some very negative reactions from tenants in the ex-Digital Realty MMRs it has taken over, so look for far more deliberation on the billing model for this acquisition.

What happened to the rest of NYC Connect?

Sharp-eyed T1R readers will note that the NYC Connect facility in 111 8th is actually 48k sq ft. What happened to the rest of NYC Connect? T1R has learned that the remainder of the NYC Connect facility has also been acquired, and not by Telx. This third party to the transaction has not been disclosed (and Telx didn't provide any hints), but T1R has some guesses on who might be interested in partnering with Telx to acquire data center space in a key carrier hotel. T1R hopes to confirm their identity within the next few days, unless an 8-K filing beats us to the punch.

Peering Impact - Yep, it's Big

The Internet interconnection situation in New York City is complex. Equinix, which owns the peering market in many US cities has stayed in the Northern New Jersey market, which has kept it out much of the international interconnection business. Switch and Data, on the other hand, has been in 111 8th Avenue for some years, but has never managed to gain a solid foothold on the peering front, despite somewhat of an effort a few years ago. Telx, NYC Connect, and Telehouse have also tried to corner the market in New York, as have several public exchanges like NYIIX (owned by Telehouse) and BigApe. None of these approaches have been roaring successes.

What's different now? Telx now controls MMRs in both major NYC carrier hotels. Switch and Data has, seemingly, backed off. Equinix's foothold in New York City is an Equinix Exchange node, located in….NYC Connect. T1R is guessing that particular arrangement is not long for this world, although T1R doesn’t know which side will pull the plug.

Prior to this acquisition, T1R was ambivalent about Telx perusing an aggressive public peering approach to interconnection - too many of its sites either already had an active peering switch (ATLIX, SIX), or didn't have enough density to make the economics work. The only possible exception was 120 East Van Buren in Phoenix, an area that T1R feels has needed a public peering fabric for some time, and where support could be garnered from Limelight and Cox. The acquisition of the NYC Connect facility now offers Telx a chance to install a distributed public peering exchange that spans 111 8th Ave and 60 Hudson, a compelling proposition.

The key challenge for Telx getting into public peering will be expertise - this is not something for your IT guy to tinker around with, and the folks who know how to make this work are engaged, for the most part, with Telx's competitors. That being said, the existing NYC public peering solutions have never impressed T1R. Telx's latest acquisition certainly signals a new day for peering in the big apple.

Open Questions?

What about the ex-Abovenet leased colocation facilities in 111 8th Avenue, now leased by Digital Realty Trust? Considering the wide partnership between the two firms, might Telx take over management, or at least provide technician services? That seems likely as the relationship evolves. That being said, T1R earlier guess that Telx would sell its 56 Marietta facility to Digital Realty does not look likely at this time.

T1R recently spoke with Easyspace, the mass-market hosting division of Iomart Group plc [SEA: IOM], about their datacenter footprint. Easyspace butted heads against colocation sites in the UK and decided that they could do better by expanding into their own facilities.

The bigger picture here is that if an Interxion, Telehouse or IXEurope cannot satisfy a customer's needs, they will be forced to find a competitor or, in Easyspace's case, design and build their own datacenter.

The datacenter business is growing outside the traditional major cities and hopefully the demand can keep up with construction. Recent and ongoing threats to London's datacenters from Al Qaeda is another reason to take a second look at Easyspace and others who build outside the major Internet hubs.

The UK datacenters are: Glasgow 8,500 sq ft, Leicester 6,500 sq ft, London 15,000 sq ft, Nottingham 4,000 sq ft and Leeds, currently under construction.

Equinix appoints Stephen Smith as CEO, Peter van Camp as Executive Chairman

Equinix has announced that Stephen Smith, most recently Senior VP of HP Services, has been appointed Chief Executive Office. Peter van Camp, Equinix's outgoing CEO, will now be their Executive Chairman. Smith has an interesting history. Before HP, he headed up the Professional Services arm of Lucent, and before then had a long career with EDS and the US Army. Smith, a West Point grad, could be just what Equinix needs—a disciplined voice from the top to help guide Equinix through a period of sustained growth.

Peter van Camp won't be leaving any time soon, though; he will reportedly be spending 50% of his time on Equinix.

Will this change Equinix's strategy?

The pick of an HP executive might seem to indicate a stronger move into IT services. T1R, however, doubts that Equinix will be making a move into managed services or IT outsourcing. That being said, Equinix has certainly been eying enterprises as anchor customers in their expansion sites. Smith's background with HP could certainly give Equinix some much needed entre into the enterprise market.

Microsoft reports that its 470,000 sq ft Quincy, Washington facility is set to open March 27th. This site, sitting on a 75 acre area, could eventually house 1.4 million sq feet of colocation. This facility, the first of six potential buildings, will employ approximately 75 people. There is also the potential for two similar sized builds in the San Antonio, Texas area.

The "big box" (250k sq ft +) datacenters that Microsoft and others have announced are starting to move from planning to operational status. T1R hopes that other public companies would be as open as Microsoft in releasing at least cursory information about the size, staffing, and status of their "big boxes" and that they would truthfully explain how the installations will affect the economies of the areas in which they will be located.

In a full deployment, the Quincy and San Antonio sites would use nearly 3 million sq ft of space. There are several other Big Box datacenter facilities Microsoft and other players have planned throughout the USA and Europe.

Culpepper, Virginia, is the home of the recently re-zoned 30-acre site of Terremark’s newest planned datacenter. This site received further approval from the local city council to install nine 80 ft satellite antennas. The design of these satellite antennas is similar to those mounted on the roof of Terremark's well- known Miami site (NOTA). Datacenter construction should commence in Q207 for Q208 completion.

Although Culpepper is slightly off the map, it is along the fiber paths of several large carriers. Initially, this site should be attractive to the US Government and enterprises. If Terremark is successful in filling up its first datacenter cell in Culpeper, it is in the position to build an additional 154,000 sq ft of colocation space.

T1R had the opportunity to visit with OpSource CEO Treb Ryan at the company's second annual SaaS Summit held immediately after the T1R SaaS Evolution Summit last week. OpSource made some significant news last week with the announcement of Optimal On-Demand 2.0, which broadens the company's capabilities in providing the infrastructure stack for SaaS companies. The new capabilities are based on the Optimal Service Bus (OSB) and are designed to deliver three sets of functionality. The OSB is essentially a link into the customer's application and provides the data required to deliver the following insight:

First, with Optimal Insight (think analytics), customers obtain a bird’s eye view into their application with a plethora of data—including user additions and customer churn and sign-on rates—plus they get a technical view into the application that provides data on bandwidth and performance thresholds. Think of a dashboard for your application—that is what OpSource is providing. It is based on Visual Mining, which is also a provider of dashboard technology for Salesforce.com.

Second, coming in April, OpSource will provide billing capability with Media, PA-based Aria Systems, one of the company's strategic partners on the OSB roll-out. Billing is obviously critical to any business and with its billing capability, OpSource will be able to offer end-to-end payment and collections capability, and also include various discounting and promotional offers. Aria provides billing systems to a number of OpSource customers and is making hay in the SaaS world with the value proposition of its outsourced billing offering: it’s just one less thing to think about. T1R will have more on Aria in forthcoming write-ups.

Last, but not least, OSB will provide reporting and analytics on the health of customer relationships, with functionality for customer satisfaction surveys, where customers can provide instant feedback and adjust offerings and products accordingly.

This just shows how iterative Internet-based businesses are; Ryan admitted the point in his address at the opening of the conference. Optimal On-Demand 1.0 was supposed to be the do-all and end-all for SaaS companies, but it is clear that the evolution doesn't cease. It's also interesting that OpSource is reaching out to partners to provide the necessary functionality, instead of relying on a more expensive DIY approach. It's all about focusing on your core, and this enhancement from OpSource fits the bill.

One other comment from the Summit: a host of OpSource partners participated to make the event a success, and while some names have been seen at other OpSource events, such as Business Objects, Progress Software, WebEx, Wrapped Apps and Equinix, one company we have not seen before piqued our interest. Savvis was a gold sponsor of the event and information was a bit hard to get on why the company would be participating with a competitor. Obviously, Savvis is not a competitor and may even be a partner. T1R can only speculate that there is some sort of agreement between companies—we will keep poking on both sides for more details. At this point, we are not aware of an announced formal partnership between companies, but stay tuned.

The latest version of eBay’s [EBAY] ProStores features a number of new improvements; the most notable offers the ability to reconstruct the design interface to make it easier for quick and easy design of an e-commerce website. T1R viewed a pre-release demo of the changes with ProStores and, as always, ProStores continues to improve on what is a top-notch product. The work environment is now more customizable; advanced features, such as tools that allow the construction of customer profiles, have been moved over to the cheaper plans that are available.

T1R reiterates its view that hosters would be wise to partner with ProStores. The platform is undeniably superb and the integration with eBay’s ecosystem enables hosters to provide an additional way to help their customers succeed. Our message: don’t leave your customers alone to fend for themselves, but help them succeed by giving them ways to connect to lucrative commercial ecosystems. Do this through a combination of technology and advisory services. Providing technology and infrastructure does not complete the job.

Hosters should note that ProStores is also competing with them by offering ProStores hosting plans on a retail level. ProStores is strongly focused on the reseller channel, and management indicated to us that most of its retail customers still come from its eBay Store customer base– those that sell on eBay but want an easy way to essentially duplicate their eBay store as an outward facing website. These customers can then sell outside the eBay ecosystem (though without being able to offer auctions). Management indicated to T1R that they have no immediate plans to change this focus and that they want its channel partners to succeed. We expect adoption of the ProStores to accelerate faster than that of main rival Miva [MIVA], with conversions coming as no surprise.

Hostworks [ASX: HWG] has added its first New Zealand-based customer to its client roster. The latest contract win is an online classified advertising service – think Craigslist, but more graphical with a Web 2.0-ish feel.

The three-year contract is being disclosed at $800k (figures converted to US dollars from Australian dollars). Hostworks does large-scale managed hosting for a base of customers now numbering over 60. Its client list includes a number of highly-trafficked portal sites. Hostworks has forged ahead as the leading managed hoster in Australia and this will be the first of more deals that reach into neighboring markets. Hostworks closed 2006 with $16.1mn in revenues. T1R projects 2007 revenue sat $19.1mn. In its annual report, the company did state that it will continue to seek acquisitions, though, as is the case in smaller markets, there is a definite short supply of viable candidates.

Hosting automation software provider SWsoft’s latest two customers are hosting providers Applied Innovations and LayerShift, formerly TransNexis. Applied Innovations is deploying Virtuozzo for its Windows-based virtual private server offering. LayerShift will be using the full range of SWsoft solutions. It is using the Plesk server control panel, Virtuzzo for its VPS offerings and HSPcomplete to manage its entire hosting infrastructure.

SWsoft continues to reel in hosting customer wins, with recent successes among international hosters looking to use Virtuozzo for their VPS offerings. VPS is a solid (and cheaper) alternative to a dedicated box and we believe it will continue its slow grab of low-end dedicated market share, giving Virtuozzo a steady revenue stream. It is early, but it will be interesting to see if hosting delivered off of clustered hosting platforms will begin to affect VPS market share as customers contemplate the benefits of this environment versus the control they would have to sacrifice by leaving a VPS solution. This development would be of some potential concern to SWsoft.

Applied Innovations is a Windows-based, shared, VPS and dedicated hosting provider founded in 1999 and based in Boca Raton, Florida. Jess Coburn is the CEO.

LayerShift, founded in 2001, is headquartered in Manchester, England, with facilities in both the US and England. It is a full-range provider of hosting services for both the Windows and Linux platforms. Andrew Cranson is the CEO of Layershift.

ServerBeach, a dedicated hosting division of Peer1 Network [TSX: PIX – managed hosting and colocation provider], has added screen sharing service provider LiveLook to its client list. This, however, is not your typical hosting customer win.

ServerBeach will also be deploying LiveLook’s technology for its customer support systems. LiveLook provides an instant visual link between the customer and support agent. There is no software to download. Customers, for example, just click a link on the ServerBeach website indicating they want to share their screen with ServerBeach, and the agents can instantly see it. Rather than spending time describing things over the phone or chat, support agents can see what’s going on and leverage the technology to walk customers through needed tasks. ServerBeach VP Robert Miggins, not surprisingly, has reported enhanced satisfaction from customers.

Peer1 has turned a hosting customer into a nice little partnership that brings value to its operations. It is a reminder that partnerships, technology and ideas can be garnered from the long list of vendors that hosters have on their client rosters. Our key takeaway here is that hosters should get to know their customers better. There are potential partners or connections that can be made right inside a hoster’s doors.

Last week T1R discussed our expectation of continued strength within the consulting market in 2007. Further evidence comes in the form of Accenture’s [ACN] announcement of aggressive hiring plans over the next three years.

In order to meet forecasted demand, the company expects to nearly double the number of management consultants globally by 2010, from its existing base of approximately 13,000 management consultants. Accenture plans to add more in the US, the UK, Germany, India, China and Brazil. The company continues to see strong demand, especially in ERP, global supply chain, CRM, and post-merger integration.

T1R also continues to see companies not known primarily for enhancing consulting capabilities. Some are building capabilities only as a means to pull though other business, viewing consulting essentially as a complementary line of business. Other companies are building consulting capabilities as part of a larger initiative to shift the mix of business towards higher-value services.

Whatever the reason, the widespread move up the services value chain is an indication that demand is strong. Last week Hitachi Ltd. [HIT], as part of an expansion effort within Hitachi Consulting, opened a new office in Germany. The new German office is part of the company’s initiative to bring its European consulting practice up to speed with existing consulting capabilities in Asia and North America; the company opened offices in the UK, Spain, and Portugal last year.

Sprint [S] has started offering an unlimited usage plan in the San Francisco area for $120. The move seems inevitable as saturation makes growth dependent on stealing customers from other carriers. Sprint's relatively desperate situation leads them to pull the trigger first, but it will be difficult for the other carriers to resist following Sprint's lead.

The unlimited option seems long overdue; ten years have elapsed since AT&T's OneRate minutes bundle changed the course of the industry. The deals may not hurt revenues in the short-term; customers tend to favor unlimited options, even if they might save money paying by the minute. In any case, carriers will monitor usage and cut off the heaviest users as they do with unlimited data offers. Competition between unlimited usage plans may prove problematic long-term as customers find it easier to compare offers. Preventing unlimited usage plans gives Verizon another reason to acquire Sprint.

Cisco's [CSCO] acquisition of WebEx suggests Cisco was worried about the Microsoft-Nortel alliance. If Cisco can justify buying WebEx for $3.2bn, maybe Microsoft should think about acquiring Nortel (EV - $13.5bn).

The emergence of communications as an Internet application seems destined to re-order the existing infotech value chain. All of the big players view communications (aka collaboration) as the biggest growth opportunity on the landscape. The big infotech brands—Cisco, Microsoft, eBay, Apple, Google, Yahoo, MySpace—all hope to leverage their respective strengths into dominance of the communication future. Cisco seeks to climb the services value chain from its strength in network infrastructure. Microsoft views the communication future as an extension of the Windows and MS Office franchises. Google and Apple view the mobile communications experience as the key prize. The winners and losers remain unknown, but it seems unlikely the communication future will fit nicely into any of the existing categories. The various wannabe's might be better off taking a fresh look at the communications opportunity rather than getting too myopic about leveraging an existing strength. This advice also applies to the telco's as the communication future may not evolve directly from the communication present.