03-11-13 | Blog Post

Business Development: It’s a Good Time to Grow in the Michigan Data Center Industry

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It’s no secret that Michigan-based Online Tech is growing. We announced in September 2012 that the News-Press & Gazette Company invested $20 million to help us expand our secure and compliant hosting business into new markets.

Our task is to find the right places – secondary data center markets with the right mix of compliance-focused vertical markets is our niche – to expand the leading data center operating company in Michigan into the leading data center operating company in the Midwest.

Being part of a growing company within a growing industry is both exciting and challenging.

The number of data centers built around the world is expected to double by 2016. While that may seem like a staggering amount of growth, it may not match the rate of growth in the generation of data those centers are managing. The world is becoming more and more automated, and that impacts our industry in a positive way.

And the data center industry has proven to be somewhat recession-proof. People didn’t stop using technology during hard times. If anything, people were using it more and more to communicate, network and find jobs. Those in positions were researching how to do their job better. Owners were looking for ways to be more cost-effective. All of that impacts what we do. That’s why I feel very blessed we’re in this space.

When I think of the rapid growth of our industry, I can’t help but recall Oracle CEO Larry Ellison ranting about being “nothing new” and “idiocy” in 2009.

“Everyone looks around and is like, ‘Yah! Like everything is in the cloud,'” Ellison mocked. “My objection is its absurdity — its nonsense. … What are you talking about? It’s not water vapor. It’s a computer attached to a network!”

To be fair, he was right at the time. There wasn’t much new. But it wasn’t widely adopted. Now, we’re starting to see it much more widely adopted – including Oracle’s foray into a public cloud just two years later – and it’s not going away.

That’s part of the reason that, from a real estate perspective, data centers have grown into a new asset class of its own.  And a successful one, too.  Over the past 15 years, we’re the only asset class that has seen rents go up consecutively year over year. Multi-family housing can’t say that. Industrial can’t say that. Commercial or office can’t say that.

In 2012, the industry witnessed a large number of data center real estate acquisitions made by institutions, real estate investment trusts and private companies seeking to either increase their holdings or enter the marketplace.

Companies thinking about getting into this space now will face a challenge because of its high barriers to entry. Online Tech has been in this business for quite some time. We have established ourselves as the pre-dominant multi-tenant, colocation hosting and cloud services provider in Michigan. It took a lot of hard work and a lot of time to get to that point, but we’re there and we’re growing.  With our first facility, we learned all things mission critical. Once you’ve gone through that and proven you have the ability to maintain that type of infrastructure and core discipline, you work on replicating it. We have. And we replicated again, giving us 60,000 square feet of space in our three Michigan data centers.

That’s why the timing of the investment from the News-Press & Gazette Company aligned with us very well. It’s time to take it a step forward. Some companies of our size and level of success may be comfortable where they are and simply stick to their knitting. Our co-CEOs, Yan Ness and Mike Klein, have made the decision that with our core team and the thought leadership that we’ve put behind our compliance-based offerings, the time is right to expand into other markets in the Midwest.

Where are we headed? That’s my main focus right now. Stay tuned.

Michael Kowal is the Director of Business Development at Online Tech. He has an MBA in real estate investing and finance from DePaul University and more than 10 years of experience in the mission critical real estate and colocation industry, including various positions of leadership in technical sales and business development for companies like DuPont Fabros Technology and AT&T.

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