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20081225 Thursday December 25, 2008

Downturn, what downturn?

Just the other day, Data Center Knowledge asked Are Colocation Prices Heading Higher? My immediate reaction was, that's a stupid question: last time VC funding went into hibernation, data center space was suddenly cheap and abundant. The article suggested that companies operating their own data centers will run to the colos as a cost cutting measure. Maybe, but I'm not so sure. Data center migrations can be expensive, risky operations. Methinks that the F500's inclined to undertake a migration would have done so already. The article cited a report emphasizing a shift from capital expenses to operating expenses.

Tier 1 says demand for data center space grew 14 percent over the past 12 months, while supply grew by just 6 percent, "exacerbating an already lopsided supply/demand curve."
However, Tier 1 attributed the demand, "especially, (to) the primacy of the Internet as a vehicle for service and application delivery." With the litany of Techcrunch deadpool reports, I'm finding it difficult to believe that the data center space supply/demand will continue skewing.

Sure, it's not all bad news. Fred Wilson reports that Union Square Ventures will be Investing In Thick and Thin. Acknowledging that, "it is easier to invest in thin times. The difficult business climate starts to separate the wheat from the chaff and the strong companies are revealed." Wilson goes on to say

I don't feel that its possible, or wise, or prudent to attempt to time these (venture investment) cycles.
Our approach is to manage a modest amount of capital (in our case less than $300 million across two active funds) and deploy it at roughly $40 million per year, year in and year out no matter what part of the cycle we are in.
That way we'll be putting out money at the top of the market but also at the bottom of the market and also on the way up and the way down. The valuations we pay will average themselves out and this averaging allows us to invest in the underlying value creation process and not in the market per se.
Yes, the economy is gyrating in pain, but the four horsemen aren't galloping nearby. So take a pill, catch your breath and deal with it: the sun will come out, just don't bother trying to time it too carefully.

Now, there's no shortage of reasons for gloom and doom: mega-ponzi schemes collapsing, banks and real estate combusting, the big 3 in various states of failure, yet BMW North America will raise list prices 0.7%. Before the complete credit breakdown, real estate volume was actually rising in a lot of places (ergo: prices were aligning supply and demand). I was at a William-Sonoma store in Albuquerque the other day, the place was mobbed. My point is that while the economy is retrenching (or the country is rebooting), the detritus will be separated (Wilson's wheat from chaff) and data center space should be cheap and abundant. Everything seems fine to me. At least until the next bubble.

For those of you observing that sort of thing, Merry Christmas!


( Dec 25 2008, 01:20:14 PM PST ) Permalink