TO BUILD OR NOT TO BUILD Part I: Should service providers build or lease their datacenters?

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1 EXECUTIVE OVERVIEW TO BUILD OR NOT TO BUILD Part I: Should service providers build or lease their datacenters? DATACENTER DECEMBER 2013

2 REPORT SNAPSHOT TITLE To Build or Not to Build ANALYST Kelly Morgan, Research Manager Datacenters RELEASE DATE December 2013 LENGTH 34 pages ABOUT THIS REPORT How to obtain datacenter space is a key decision for hosting, cloud, colocation and other Internet infrastructure service providers. Several years ago, the choice for these providers was often to lease retail colocation space or to build it themselves. Now, with a wider variety of options available in most areas from greenfield builds to powered shells to wholesale to retail colocation we thought it would be helpful to look at some of the economics behind the various options, as well as additional factors that can drive the decision.

3 EXECUTIVE OVERVIEW COMPANIES INCLUDED IN THIS REPORT Avison Young CELESTE Compass Datacenters Digital Realty Trust DuPont Fabros Technology Equinix Facebook FireHost Hostway Interxion Microsoft Nexcess NTT/Dimension Data Rackspace Savvis Schneider Electric SoftLayer Tishman Construction ViaWest Web.com IO TO BUILD OR NOT TO BUILD

4 TABLE OF CONTENTS INTRODUCTION 1 KEY REPORT FINDINGS METHODOLOGY WHY FOCUS ON SERVICE PROVIDERS? 3 DATACENTERS = REVENUE SEEKING SPACE? SOONER OR LATER THE ANSWER IS YES 4 SERVICE PROVIDERS ARE GROWING FIGURE 1: Worldwide Hosting & Cloud Market Size, MANY DATACENTERS ARE INEFFICIENT OR OBSOLETE NETWORK ACCESS NEEDED PRESSURE TO BE IN MULTIPLE GEOGRAPHIES RESULT: OUTSOURCED SPACE IS IN DEMAND FACTORS AFFECTING THE BUILD OR LEASE DECISION 7 COMPETITIVE DYNAMICS SIZE OF DEPLOYMENT AND TYPE OF EQUIPMENT CHOICE AND QUALITY OF FACILITIES RISKS PRICE CAPITAL OTHER FACTORS FIGURE 2: Benefits of Leasing and Building COSTS AND THE FINANCIAL MODEL 14 FIGURE 3: Choices that Can Influence DC Build Cost FIGURE 4: Inputs to Total Cost of Ownership Model FIGURE 5: Total Cost of Ownership 15 years FIGURE 6: Total Cost of Ownership as Cost of Capital Changes

5 EXECUTIVE OVERVIEW FIGURE 7: Total Cost of Ownership as Build Cost Changes FIGURE 8: Build vs. Lease Options Cumulative Cash Outlay THINGS TO CONSIDER WHEN LEASING 20 CONCLUSION 22 MINI CASE STUDIES 23 EQUINIX FACEBOOK INTERNAP RACKSPACE SOFTLAYER APPENDIX 25 DATACENTER COST ELEMENTS FIGURE 9: Initial Capital Expenditure FIGURE 10: Operational Costs UPTIME INSTITUTE TIER DEFINITIONS TERMINOLOGY MULTI-TENANT DATACENTER TAXONOMY TO BUILD OR NOT TO BUILD

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