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February 16, 2016updated 04 Sep 2016 10:12pm

IXcellerate CEO: The Russian data centre market is one everyone is afraid to walk into

CEO Q&A: Guy Willner talks about setting up a business in Russia, the Western and Eastern colo barriers and the broader data centre industry.

By Joao Lima

Data centres have usually been built in strong, established markets like the US or Europe leaving emerging markets like Russia, South East Asia and South America to catch up.

Yet, there are people in the industry trying to disrupt this trend and bet on these emerging markets.

Data centre veteran Guy Willner, who as IXcellerate CEO founded the Russian colo in 2010, said: "The global data centre industry and the global internet industry need to get together and create a sensible plan for funding emerging markets. The situation in current markets, be that South America, Africa or South East Asia, is that it is impossible to raise money.

"The internet industry is so unbalanced and so US/Western Europe focused it needs to be spread more across the world’s population."

CBR: How was the experience starting a collocation business in Russia?

GW: The interesting thing when I got to Russia was people that were saying I was white and I was clean. I never got involved in anything [illegal], never been inspected by the government. I thought that was a bit weird when I first got there. But actually, it is because there is a lot of corruption.

[As for the challenges] it is hard, but then again there are not that many businesses you can trust in the Russian data centre market. A lot of Western customers are looking for something they can trust and it is very difficult to find someone you can trust in that sort of market. Because they know me from previous companies, they do not mind working with us.

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By having a London base we can also interact with all the Western customers.

CBR: What is required when starting a business in such environment?

GW: The interesting about the whole thing around "balls of steel," is that we live under such amazing perceptions in Western Europe about what the rest of the world looks like.

We have governments that we deserve: if we have a crap government, it is our fault; if we have rubbish press that feeds us what we want, feeds us a bit of fear, makes us feel comfortable that we are living in our houses, that we have not gone abroad overseas, then that is fine.

Then you realise that in these countries you can actually do a lot of stuff, and a lot of people are quite normal and they do basic things in their lives that we also do.

CBR: What sort of infrastructure challenges did you face to build a data centre in Moscow?

GW: We had a warehouse on a parking lot, and that was it. There was no connectivity, nothing there, just a couple of phone lines.

We worked for two years to get the first two to three local fibre networks to connect to us in two different directions (from metropolitan fibre operators, running around the Moscow region).

Getting power in was [also] tricky, and it is expensive. It is about one to one and a half million dollars per 1MW in Moscow. Many Western companies said that it is too much. However, if you look at the UK for example, it is about half a million pounds for a megawatt. It is about perceptions.

CBR: To what extent did the Russian Data Law help your business?

GW: It really helped. Many Western companies are not taking it seriously. They think it is just a regional thing, and think "why are they trying to mess up our global plans?". A lot of people are still operating illegally.

We have clients coming to us strategically because of the Data Law. But then they get beyond the Data Law and see that Moscow is an interesting place, has a good technology hub, the biggest population in one country, Russia has the largest population [143.5 million as of 2013] in Europe, so the largest amount of internet users in the continent [73.8 million]. Then they think: "Maybe we should do something else, something more." That is helping us.

A lot of financial market players are also looking to move from the East, such as China. What they are typically doing at the moment is cross the Pacific Ocean to the US and then back into Europe. Land routes would be very effective, we are getting close to that.

CBR: Do you see, for example, a Western company coming to you and proposing to build a cable route from London to Beijing via Moscow?

GW: It will happen in the next four to five years. It is certainly on its way. The simple reason why is that if you look at the big internet players, who are perhaps not generating as much revenues as they used to, or that much growth as they used to, if you cannot tap into a new country or a new market every year, then where do you get your growth from?

The new markets are very tempting. For example, in Russia it does not matter what the sanctions are, as soon as companies are allowed to move in and out of Russia, they will do it, because then they can make some money with all the internet users there, and that is the only way you can growth.

CBR: How easy is it to work with government authorities?

GW: Not so bad. It is still difficult because there is still a bit of corruption, and again a lot of that corruption has been encouraged by the West, because Westerners would come in and they would not speak Russian.

The problem with Russia is that it still has a lot of Soviet bureaucracy, which does not really match the opinion of 150 million people. The West has brought in a lot of the corruption into Russia, and that does not help, it is not a long-term strategy.

CBR: And when do you think that could change?

GW: It might change immediately, it might change in six months. As soon as the sanctions come down, bang! Everyone will want to get there, because they need to.

If you look at an investment firm who has got $6 billion under management and has an obligation to have that invested in three years, they have time pressure to invest, they have to invest that money somewhere. If there is too much competition in Europe, they will want to go somewhere where there is less competition and more opportunities.

CBR: What is needed for this sort of business adventures then?

GW: It is a 50/50% thing. It is hard to do business in those countries, it is hard because you have to speak the language, you have to be humble and understand that if they have a massive bureaucracy, it is because they always had a massive bureaucracy, there is nothing you can do about it, so just work with it, join the queue or do not go there. That is 50%.

The other 50% is, if you are trying to raise money, as the perceptions in the West are built form the mainstream press, investors do not want to invest in emerging markets. You have to have balls of steel in terms of being patient in the country but also in dealing with the 15 private equity funds that talk to you for six weeks, get all the information out and then say they actually find it difficult to invest in that country.

CBR: Which other emerging market would you go for in today’s world?

GW: Probably Kenya, but it is a much smaller market. However, now you see – whereas five years ago nobody was doing emerging markets – Equinix in Brazil and you have the great big guys from Supernap opening in Thailand.

CBR: How do you see Switch’s Supernap approach to building mega-hosting hubs?

GW: If you give me half a million dollars, I can build you a lovely car. It costs you half a million dollars, but will be a great machine. The thing is, is that mainstream?

It is a bit like someone saying, "I am going to build an hotel chain, and they are all going to be the same thing, and I am going to charge $90 a night", that has to fit the world economy. The world economy in its metrics and economics says that in the Excel file that looks at how you get financial return on capital, that you cannot do that. It does not stack up, something is wrong. Unless you have a set of customers, that travel everywhere and pay three times the price,

I just do not get Supernap. I just do not understand how it adds up. In the US they get free money, because you can borrow $100 million at 1% interest, there are all the tax benefits in it. In Thailand, where interest rates are not that cheap and people are not going to pay the same price as in the US, they are going to say "who is this crazy American guy?, I do not know if I actually want to go into an American data centre". I am a bit worried about all that Supernap rollout.

CBR: What sort of expansion plans are you planning for IXcellerate?

GW: We are looking at Yekaterinburg, and some other places. We are looking East rather than West. If we were in a real economy, I would be talking about from $100 million to $300 million in investment, but as it is impossible to raise money in Russia, I am talking about $10 million to $30 million. I just cannot raise anymore.

The World Bank is not investing anymore, and others as well. [Building smaller sites] is frankly what kept us from being bankrupt. If we threw $100 million at one data centre, we would probably not be here.

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