What happens in Vegas, stays in Vegas unless it happens to be the germ of a good idea. S. Chris Palermo, president of agency Global Communication Networks Inc., met with Michael Murphy, president of like-minded agency NEF Inc., Framingham, Mass., during the Channel Partners Conference & Expo, held in March at the Rio All-Suite Hotel and Casino. Both agencies have been seeing a marked increase in the amount of colocation they have been selling in the past few years and each has found wide variances in the terms and conditions from the providers. They decided it might make sense to form an alliance to share information about providers and work toward improving agency agreements with them.
That initial conversation was widened to include Aaron Loehr, president and CEO of Bandwidth Advisors Inc., a Seattle-based company that does 65 percent of its business in colocation; the rest is high-capacity circuits. By comparison, GCN does 30 percent and NEF does about 20 percent in colo. All expect those ratios to increase this year.
The three make up a “Colocation Consortium,” which presently is an informal information-sharing group, but is expected to become an incorporated entity with a charter and dues. It also might expand to include one or two other compatible agents with a similarly concerted focus on selling colocation.
Murphy said the goal of the group is “to share ideas and experiences that we have had independently and get together a collective knowledge base on things that seem to work well in the industry and things that don’t seem to work all that well for us as agents. And, then maybe to effectively look at those components and say, how do we use this group and our experience to leverage better relationships and to get better agreements.”
“Unlike all the telco circuits that are constantly going down in price, colocation is actually going up in price. If you do it right, it’s a more stable revenue stream,” Loehr said.
“Doing in right” means contractual protections. Palermo noted colo agency agreements today are anything but consistent, ranging from
one-time referral commissions to monthly residuals, and some have evergreen clauses while others do not.
And, while agents typically have some leverage to move customers to which they have sold circuits should a carrier cancel their commissions, Loehr said with colocation this isn’t the case. “With colocation, it’s so sticky and hard for the client to move,” he said, noting this puts agents at the mercy of the providers that might decide to cut commissions when their properties are full. For this reason, he said, it’s critical that agents “stay involved contractually and actually.”
Murphy, offering another example, said consolidation among colo providers also put revenue streams at risk. “At some point larger players will start to buy smaller players and that may leave you exposed,” if the smaller supplier had an agent-friendly agreement and the larger one doesn’t support the channel. Making sure the contract is written with that in mind is critical to sustaining revenue, he said.
Palermo said he expects the efforts of the combined companies to have some success based on the volume of business they represent. Unlike agents that request quotes for five racks never to be heard from again, he said the consortium members sell thousands of racks a year. Colo providers, he said, would want to figure out how to put that sales machinery to work for them.
According to Palermo, there are more than 200 colo agreements between the three members of the consortium. As the alliance matures and becomes a legal entity, he said he expects that it will hold its own agreements. Meanwhile, the three members are sharing information about the desirable terms and conditions. Loehr has been working with an attorney to put legal language around these items and plans to contribute that information to the collaboration.
Already, the consortium members are planning to ride each other’s contracts for facilities where they don’t yet have their own agreements. Some of the reciprocal agreements facilitating such cooperation already were in place between GCN and the other two members prior to three-way talks.
Meanwhile, the group will be sharing information about the locations where they have done business and leveraging those relationships among the members. Loehr’s company has expertise in the U.S. Pacific Northwest and Europe; Murphy’s has expertise in New England and other parts of the United States, and Palermo’s is strong in the Asia-Pacific region, South America and Europe.
In addition, the consortium will be able to share best practices regarding end-user contracts and services as well as agency agreements with the colo providers around the world.