2011 Through The Eyes of A Sourcing Advisor

Sourcing Advisor 2011 was a very busy year for us at RampRate. I’ve spent nearly 20 years, on many sides, of the technology business and I enjoy reflecting across large swaths of time to see if there are patterns, lessons, and advice, so let’s see what we get from 2011.

Cloud Computing Won’t Whisk Us Away to Oz

In all my years of global technology, I’ve never seen anything with such marketing hype, vapor, and semantic nonsense as “the cloud.” I find it very simple to define and work with public or private shared hosting, but the industry at large seems to have an insatiable need to stamp “cloud” on everything from hardware to web based email services. The marketing noise does not translate into dollars however. The amount of total industry revenue for what I define as “cloud”, which consists solely of public access shared hosting with self managed provisioning and automated scaling, was somewhere around $750M in 2011. This is a good number, but as global technology markets go, not that impressive. It is lower than the total sales of a single company like Akamai or Equinix. The “analysts” predict a future market size as high as hundreds of billions of dollars. Are these the same ones that predicted this for the dot.coms in 1999? I remember you analysts! And although I use a public cloud platform every day, and I do find it compelling, I don’t see public cloud infrastructure, as is, becoming the type of global market devouring force that the analysts love to write about. Why? Because public access services will have a hard time keeping up in terms of performance, service levels, and customer service with dedicated private hardware, especially in a complex network environment. Shared computing has been around for decades- if it was going to be the mainstream leader, it would have been so back when SSH was still considered novel. I do feel that public cloud computing will grow as a market- just not eat the entire market. Colocation and managed hosting will be around for a long time to come. Lesson learned? Don’t believe the hype. Again.

New Jersey Is The Future

I love the sound of it. And I don’t mean that Chris Christie is guaranteed to win a national election. New Jersey is the future because, strangely enough, it has become one of the hottest datacenter markets in the world. I used to live in Santa Clara, California, the epicenter of the datacenter industry where the likes of Exodus (now CenturyLink) got their start. I moved to northern New Jersey a few years ago and the datacenter trend followed me. IO Datacenters  bought the New York Times printing factory with 100MW of power and is turning it into a location for their container based datacenters. Wipro  and HCL, two of the largest managed hosting and IT outsourcing providers, have established their major US bases here in central NJ. Telx  is building a huge datacenter and office building in Clifton, NJ. Digital Realty Trust is in Weehawken near the Lincoln Tunnel and just opened 10,000 square feet. And the list goes on. This means that IT jobs, leadership, international trade, R&D, and many other great economic indicators may well follow. NJ’s native son, Thomas Edison, would be proud. I just hope one of the datacenter companies hires Jersey Shore’s Snooki as a spokesperson like Godaddy uses racing pro Danica Patrick. Lesson learned? Where there are ports, international airports, lots of people, economic centers, and seismic stability, there will be datacenters. Follow the population density and international proximity. Not everyone will build datacenters in rural areas.

Content Delivery Networking, Again

I would be remiss if I didn’t reflect on my alma mater, the CDN industry. I was very proud to hear that Ronni Zehavi’s Cotendo, and its Speedera and Akamai expats, got swept up by Akamai just like my old company Speedera did in 2005. A few years back, Ronni Zehavi and I sat down in the Empire State Building’s Heartland Brewery for lunch. He asked me “How do I succeed in the CDN market?” “Focus on performance,” I replied. “But I have a great business model involving selling really cheap bandwidth,” he said, in that hardened determined Israeli way I have grown to know and love since my days at early Israeli startup VDOnet. “There is an infinite supply of bandwidth,” I said, repeating the same thing I have repeated since 1997, “and infinite supply means a continuous collapse in marginal cost and price. The secret is to sell services that enhance performance and reliability. These are products that will garner a premium, and by definition are I short supply, since if you can deliver performance, you are setting yourself apart from the market. This is what worked at Speedera and Netli, and will work for you.” Ronni listened (I’m sure to many who said the same thing as I did) and lo and behold, succeeded both in customer count and now exit strategy. Congrats Ronni, Michel, Walter, and all of your team… The CDN market continues to grow. All CDNs suppliers that deliver performance and customer service continue to grow. Without CDNs, the internet will shut down. The telcos and other “logical” players continue to attempt their single network strategies that haven’t yet competed on a successful scale with the pure play CDNs. History keeps repeating. Lesson learned? As my old boss Carlos de Andrade, legendary music producer and studio owner in Brazil once said, “I like to sell expensiveness.”

We Have Been Instructed Not To Negotiate With You

2012 will mark six years that I’ve been at RampRate Sourcing Advisors. If you search for “sourcing advisor” on Google, RampRate is the 5th link that comes up. This tells me we represent an abstract enough concept that, with no fancy search optimization, we wind up listed on the first page. For the curious, a Sourcing Advisor is an expert buyer that one hires to help negotiate, renegotiate, or secure a new contract. They exist for cars, real estate (buyers agents), and in our case, for IT infrastructure contracts. RampRate has been around for 11 years. We’ve seen the size, complexity, and scope of our projects grow every year, and we feel we’ve barely tapped the potential in the market because there is just so much of it. Markets are inefficient. Contracts are hard to deal with. Most companies won’t employ dedicated staff to occupy seats to negotiate contracts that only come up every few years- hence they call us. We analyze and advise on best practices for these contracts every day. However once in a while, we get a supplier who tries to make it hard for us (and therefore the supplier’s client who employs us). One would think that a supplier would be excited to work with a focused professional who knows exactly where pricing, terms, and service levels should be, and work with a team whose sole job is to help them get a contract closed rather than having to schedule time with a busy client. But every so often we see stalling tactics, crazy pricing, attempts to circumvent our process, and other odd behavior. Why do they do this? They know we know the contract’s outcome. They know we are hired by the client. Is it ego? Frustration with confronting market reality? Whatever the reason, it takes extra energy for us- our execs have to do more face to face meetings, our analyst and client teams have to put in more time, all to get the supplier back on track and get the contract closed. After all these years in the industry, one would think that all sides would know the game, get it done, and move on to the next opportunity. But even after all this time it doesn’t work that way.

Suppliers should be happy to work with sourcing advisors because we:

• Have incentives to close deals quickly
• Reduce closing time because we already have data on what is possible in terms of prices, SLAs, and terms
• Aren’t distracted by any internal projects like clients may be- we don’t have any fires to put out- we solely are focused on working with suppliers
• Have experience working on thousands of deals around the world so long sales cycles are not needed
• Are hired to represent the clients- which is a sure sign that the client is ready to make a decision
• Can help retain clients that may be leaving- we make sure that the contract that is signed won’t be a future risk of going bad and that the client will be happy
• Can bring new deals

We are far more efficient to work with than clients are. We don’t need to be wined, dined, or sold. We want to get the contract done so the supplier can move on to more sales. Work with us! Don’t try to go around us- we will help you get the deal closed! Lesson learned? People are still the essence of business. No amount of numbers, technology, or process can replace the effort required by a dedicated team to produce a result.

Sourcing Advisor: Wrap Up and Forecast

2011 wasn’t a radical year in RampRate’s part of the technology industry. The evolution of mobile devices is fast moving, but datacenters and giant server farms are monolithic slow moving organisms that have long lifespans. “The Cloud” has to live in a datacenter too- the more energy that goes into it, the more the datacenter contracts will have to happen, and this will continue to keep us busy helping suppliers and clients establish the best possible relationships. For 2012 I predict strong growth outside of the USA for the datacenter industry. There are billions of people coming online, not with 300baud modems like we had in 1982, but with high resolution smartphones that have broadband. These people will want data, media, and transactions- and lots of them, and serving them is harder outside of North America due to cost of capital, regulations, and business climates. I look forward to helping clients around the world build and serve a population that will hopefully have access to information, and to the rest of the world.