Many customers have asked me this particular question: “Why are those data center cross connects so expensive and can you do something about it”? And also…. “It is just a fiber that costs almost nothing”. But if cross connects are that essential and customers depend on them, then why are data centers charging such high monthly rates? And what can you do about it as a customer?
After reading this 5 minute article, you will understand why the high monthly rates for cross connects can be justified. And I will share 3 personal arguments, why these expensive cross connects are actually worth the money. And why it is acceptable for highly connected premium data centers, to charge premium rates for cross connects.
Last but not least, I will share with you a couple of personal tips. 3 tips on how you can lower your costs for cross connects, when (re)negotiating your contract with the data center provider.
A cross connect is a fiber or copper connection, between a customer’s rack, network equipment and another party. Customers often use cross connects, to connect to a carrier or internet service provider: which is used for connectivity services.
In highly connected U.S. based colocation data centers in New York or Miami, it is not uncommon for customers to pay 300 US Dollar per month or more per cross connect! In Amsterdam and Frankfurt, the cross connect price is still around 100 US Dollar per month. But it has also steadily increased in the last couple of years.
So why do data centers charge hundreds of dollars every single month? Just for a piece of infrastructure and cable that costs only a small fraction of the costs to install?
Reason 1: Building a rich diverse community is expensive and takes a lot of time.
Highly connected data centers have spent many years, building the rich communities of interest that they can offer today.
Communities… that allow customers to transact, earn money, monetize their cloud platform and make it available to other customers.
The data centers had to make significant investments, to attract those special communities of interest. Often this meant participating in co-investments with the carriers. For example digging dedicated fiber routes and bring them to the data centers. Or the data centers had to sponsor colocation deals for rack space and power and not make any profit at all.
The data center provider did this to try to convince carriers, to build a network point of presence in their facilities. They knew this would ultimately increase the value of their facilities.
In a very crowded and competitive data center markets such as Frankfurt or Amsterdam, the highly connected data centers are differentiating based on the value of their communities of interest. And connecting to these communities should, logically come at a higher price.
Especially compared to a data center, that cannot offer the same valuable communities. Such data centers, often on the edge of important connectivity hubs or further away from the business centers, will compete on price and less on value.
Customers should ask themselves, if such highly connected data centers are actually the right facility for their colocation platform? There may be cheaper alternatives out there, also with great data center uptime and infrastructure. And decent connections to a good, overall mix of connectivity providers.
But if a customer strongly depends on the availability of a large mix of connectivity providers. And the customer needs to be colocated as close as possible to the core networks. Then that customer should be prepared to pay a high premium for cross connects.
Because by colocating in premium connected data centers, the customer will always achieve peace of mind now and in the future. Peace of mind… that no matter how their connectivity or cloud strategy will change over time, they are always located in the right strategic future-proof location.
Many difficult technical and commercial challenges can now be prevented.
Reason 2: Building a premium meet-me-room and cross-connect infrastructure is expensive.
Have you ever visited a meet-me-room of a random data center? And then compared it to the meet-me-room of Interxion, Equinix or Digital Realty?
Chances are, that you will notice the differences immediately. Whether you are an expert in data centers, or you visit a data center for the very first time!
A meet-me-room is one of the most important areas in any data center. And therefor should not only be very restricted in terms of access. But it should also look and feel, like the very best room in the entire facility.
Installing fiber ducts, running fully diverse overhead protected fiber trays and managing a highly efficient pre-cabled cross connect infrastructure is very expensive. And very time consuming.
Ask yourself the question: what would be the impact on my business, if my cross connects are poorly connected or afterwards not well maintained? How much money will that cost me? Or what damage this could cause to my online business and brand reputation?
Cross Connect are literally… the life arteries and enablers of a data center!
It makes sense in my opinion, for highly connected data centers to charge accordingly. As it took them a lot of time, to get to where they are today. And it will take much more time and substantial investments to stay there at the top.
Reason 3: Maintaining a premium data center is very expensive.
There are so many new data centers appearing every day. I actually believe, that you and I could build a brand new, large and beautiful state-of-the-art data center…. Starting Tomorrow!
All it takes is some millions of funding and a detailed plan. We will hire an external expert company together, that will build us the data center of our dreams. All in little over a year and it will be ready for business.
Sounds too good…?
But did you ever read in the data center provider’s annual reports, how much money they are actually spending on the preventive maintenance and testing of their facilities?
Investments…To ensure that their customers, will never experience any downtime. And that highest service levels are always guaranteed?
This is an extremely expensive business. The real spending starts from the moment a data center goes live. And a very large portion of that spending, should be invested in maintaining the key infrastructure of the facilities.
Preventive maintenance and an obsession with total quality are the key here…
With increased competition on price and ever decreasing space and power rates, data centers need to make a lot of money to keep their facilities well maintained. And as profit margins on cross connects are quite high. Data centers use these profits from the cross connects, to invest in their facilities and maintain them very well.
Negotiation tips to deal with expensive cross connects
I hope that these 3 arguments can help you to understand the reasons, behind the high monthly cross connect fees. But if you are a heavy cross connect user. And those high fees are putting a lot of pressure on your own profit margins… then what can you do about it?
I have put together some personal tips, that you can consider using the next time, when you will negotiate a new contract or renewal with the data center provider:
1) Commit to a large amount of cross connects for the entire duration of the contract. And negotiate a better rate for the entire bundle of cross connects all together.
2) Negotiate direct fiber throughput bypassing a meet-me-room. This could in very rare cases be considered by the data center provider. It may work and only be applicable, for highly strategic and magnetic connectivity or content providers. Providers, that will draw in other customers that will need to order cross connects the default way via the meet me room.
3) Select the right data center with a lot of in-house carriers. That way, you will not need the more expensive extended campus or metro cross connects. To pick up other carriers in neighboring data centers. And often, these will be the older facilities with less high density power capabilities, compared as the brand new facilities. You may actually be able to get a better rate for space and power in these older facilities. As it may become more difficult for the data center provider to re-sell low density churned space and power. The right deal here will ultimately help you to compensate for the higher prices of the cross connects.
I hope that you enjoyed this article and that is was useful. Hopefully it gave you some new insights and justification, for higher cross connect fees.
You will notice when you start navigating through the data center competitive landscape, that data centers with less attractive communities of interest will compete strong on price.
But sometimes, it is the smarter decision to accept and pay the higher cross connect price now. Instead of having to invest in a very expensive and complicated technical migration, to another facility later on.
If you know someone, that could be interested in this article, then please forward it and share it on social media. And do let me know your thoughts and opinions and your tips.
I will be looking forward to hearing from you. Thank you!
Do you need help renegotiating your data center and global connectivity contracts? Or do you need support in choosing the right strategic providers? Please contact me and let’s discuss how I can help you too.