Japan as a Market for Data Center Players

How about Japan as a market for data center players? I got firsthand information from a U.S.-based company that operates their data centers in Japan. Equinix is headquartered in Silicon Valley and has operations in Europe and Asia Pacific (APAC). I visited Akito Ohtsuki, a sales engineer at Equinix Tokyo. I know Bill Norton, who was one of the founders of Equinix, and I’ve visited their data centers in San Jose several times. So I was very much interested in how Equinix operates their data centers in Tokyo and in their perspectives on the Japanese market for data centers.

Akito Ohtsuki

Akito worked at a major Japanese bank and for U.S.-based communications companies before, and he is familiar with the way businesses are conducted in both countries. Because I have a similar background, we compared our notes and had a very interesting meeting. On top of that, when Equinix launched their data center in Tokyo, Bill was in town to work with Akito. Having a mutual friend made us feel closer.

I’ve often heard that data centers in Japan expanded significantly in 2008. But because of the economic slowdown in 2008, the market for data centers has not been too hot. Equinix’s second data center (which I visited) was ready for business in August 2007. At the beginning, demands were moderate, but they increased rapidly in 2008 and have continued to do so. And Equinix is working on a third data center now. What’s the difference here?

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The rest of this blog is a summary of my conversation with Akito. First, I will compare their data center with those I toured in San Jose, and then I will cover the data center market and their strong points.

Regarding the location, they are a 30-minute walk from the Shinagawa Station. The building that houses the data center has no visible board or sign to indicate that it’s a data center. If you do not know there is a data center in the building, you may pass it without knowing it. It looks exactly the same as those in Silicon Valley (windowless buildings). Other data centers I visited in Tokyo before have a large board showing there is a data center in the building.

Land in Tokyo is very expensive and limited in size. Data centers I toured in Silicon Valley are housed on a huge site and in a single-story building. The Equinix Tokyo data center is housed in a seven-story building. Before the meeting, I walked around the building but could not find a generator. The generator is housed on the first floor, inside the building, so as not to bother the surrounding apartment complexes. They are extremely careful not to disturb surrounding communities. The second  floor is used for power and mechanical equipment. The third to seventh floors are used for operating IT equipment. They use a raised floor for cooling rather than a slab floor, unlike data centers in the U.S., which have power, networking, and cool air coming from above. Other things are subtle but show good and neat Japanese ways. When we entered the data center floor, we changed our shoes to the ones for the floor and put antistatic covers on the shoes.

Let’s focus our attention on the market. What is the customer mix of Equinix in Tokyo? Initially, the name recognition was not high enough to attract Japanese customers. So the initial mix was somewhere around 60–70% of non-Japanese customers. But as it gained a good reputation, the mix may be 50–50 or more than 50% Japanese customers.

What are the most important factors for their customers? Akito listed three. The first one is the location. I’ve heard this before. Most Japanese customers prefer a data center within the Yamonote Line (the train looping downtown Tokyo and connecting major sections of Tokyo, like Otemachi, Shinzyuku, Sjibuya, Shinagawa, and Ikebukuro). It is preferable to have a data center within a 30-minutes reach. The first two Equinix data centers are close to the Shinagawa station (the third one, under construction, will be in the same proximity). Shinagawa has a lot of major company offices, like the NTT family.

The reason for this is that when you release a new version of software or install a new set of equipment at a data center, it usually takes anywhere between three to six months before everything settles down, so engineers are required to be at their racks all the time. It might be cheaper to have your data center outside Tokyo, like in Osaka (some 350 miles west). But if your company is Tokyo based, you would need to send a few engineers to Osaka. That would cost far more than the savings on the data center cost.

You may think power and networking are more expensive in metropolitan Tokyo than in the surrounding areas, like Yokohama. But strangely enough, it is quite the opposite.

The second strong point is as follows. Although other companies are trying to hire more bilingual engineers, Equinix is far ahead of the game by providing bilingual service to foreign customers. I had similar experiences before, when I helped MySQL and JBOSS enter the Japanese market. It is an absolute requirement for foreign companies entering the Japanese market.

The third point is carrier neutrality. This is the same as in the U.S. They have some carriers bringing undersea cables directly from the U.S. The carriers are ones like from Japan, the U.S., Hong Kong, Malaysia. Philippines, India, and Australia. This means if you put your servers at Equinix Tokyo, you could support the other parts of APAC without physically putting servers there.

What about the difference in the way business is conducted in Japan and the U.S.? U.S. companies tend to allocate a bare minimum number of very flexible people to make the project work. On the other hand, Japanese companies allocate more people in clearly defined roles.

I also asked whether energy consumption/usage makes a difference in their customers’ choice in data centers. Although some large companies may ask about energy efficiency, it is not a deciding factor. As for Japanese customers, their dominant factors for selection are the cost and modern high tech gadgets. Non-Japanese customers’ concerns are more about how well they can be supported at the engineering level.

Until about three years ago, the infrastructure for networking and other things was not well prepared in either Singapore or Hong Kong, so the only place to go to support APAC was Tokyo. Now that those issues are squared away, Tokyo suffers from the high cost of land, the high cost of power, and the lack of bilingual support. Recently, a large U.S.-based data center operator chose to enter APAC via Singapore rather than Tokyo. How can Japan counter that and bring in more business from outside?

Zen Kishimoto

About Zen Kishimoto

Seasoned research and technology executive with various functional expertise, including roles in analyst, writer, CTO, VP Engineering, general management, sales, and marketing in diverse high-tech and cleantech industry segments, including software, mobile embedded systems, Web technologies, and networking. Current focus and expertise are in the area of the IT application to energy, such as smart grid, green IT, building/data center energy efficiency, and cloud computing.

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