Economists like to study the telecommunications and Internet industries because they both nicely illustrate one of their pet theories. The theory, called the "network effect," holds that the addition of one more user to a communications ecosystem adds to the value that every other user assigns to the same ecosystem.
Think about it: One of the main reasons you reach for the telephone when you have a question is that you're quite sure that any person you might want to reach is also attached to the telephone network. The same thing now goes for e-mail -- you use it because so many other people use it, too.
Now some networking professionals are building Internet-oriented businesses based on higher-end attempts to harness the network effect and multiply the benefits for everyone involved. A prime example of this is Equinix, which builds and operates fortress-like "Internet Business Exchanges," or IBX centers, around the country.
Because Equinix interconnects local and backbone providers along with Web-hosting companies, the easy approach is to lump Equinix in with the growing category of neutral collocation providers. But Equinix officials blanch at this categorization, and haul out many examples of how their customers go well beyond collocation and actually rely on one another to boost the value of their own offerings.
Naturally, Equinix begins with the idea of offering ASPs, MSPs, content distribution providers and Web-centric enterprises multiple carriers for their basic connectivity and transport-diversity needs. A sophisticated overhead system of fiber, coax and copper connections running throughout Equinix's centers means customers "don't have to grope around in the dark to find each other," says Margie Backaus, Equinix's chief marketing officer.
For the network providers, this opens up private peering opportunities outside the jammed MAEs and NAPs, but that's just the start of the peering story at Equinix. Content distribution providers can also do internetworking arrangements among themselves. And even content providers themselves -- major portals, news and entertainment organizations, and others -- can do "content peering" at the Equinix IBXs.
One example of this is how Yahoo is using its participation in the Equinix ecosystem. In the Silicon Valley, Dallas and Washington area IBXs, Yahoo has established what it calls Yahoo Internet Exchange (YIX) points. The idea is to allow numerous ISPs to directly peer with the Yahoo Broadcast streaming-media service.
That's a particular benefit especially for Tier 2 ISPs, notes Jay Adelson, Equinix's co-founder and chief technology officer. Instead of paying for network transit to reach Yahoo Broadcast at a remote location, they can directly connect to Yahoo via a cross-connect -- or through Equinix's own recently installed Gigabit Ethernet in-building networks based on Foundry's BigIron 8000 switches.
Storage vendors, application providers and major e-business infrastructure players like IBM can all work deals analogous to this. Because many of these players have pre-existing partnerships and vendor preferences of their own, there's a benefit for Equinix, too -- when they sign up one customer, they tend to drag in two or three more. In a rather musical moment during my reecent visit to Equinix's Washington area center, Backaus told me that the essence of Equinix's marketing approach is to find "people who bring people who have relationships with people." (Gee, Margie, maybe you should replace Streisand on the concert trail now that she's finished.)
Of course there's good reason for Equinix to detail its marketing strategy. In my visit to the Washington center -- actually an expanding campus of deliberately nondescript, windowless buildings 35 miles west of town in Ashburn, Va. -- I didn't bring up money questions but they sure did. Equinix went public last August just as the blood was starting to cover the floor of the stock exchange. It has seven U.S. locations but could build more here and in Europe under a global agreement with construction giant Bechtel if the money were there.
Still, Adelson was anxious for me to know that three of the Equinix centers were now "EBITDA positive." That's Wall Street babble for making an operating profit even if corporate overhead throws the numbers into the red. But it's not just the moneymen -- prospective customers want to know this. "It's often one of the first questions they ask," Adelson says.
Well then, it's fair for me to mention that Equinix's stock is trading at around $3, down from a high of $16 after going IPO at $12. The company did close a new $150 million round of debt financing in January. In any case, we'll be keeping an eye on the money situation -- but also on the interesting deals that Equinix and its customers are working together to make the "network effect" work its way deeper into the Internet culture.
This story, "Equinix makes the Internet sing" was originally published by Network World.