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HOLISTIC BRANDING AS B2B MARKETING STRATEGIC ADVANTAGE: THE CASE OF THE DATA CENTERS BUSINESS IN CHINA-pvenegas@mib.edu , percy.venegas@gmail.com September, 2007 " id="pdf-obj-0-2" src="pdf-obj-0-2.jpg">

HOLISTIC BRANDING AS B2B MARKETING STRATEGIC ADVANTAGE: THE CASE OF THE DATA CENTERS BUSINESS IN CHINA

MIB SCHOOL OF MANAGEMENT, ITALY MIT SLOAN-LINGNAN COLLEGE SUN YAT-SEN UNIVERSITY, CHINA MBA in International Business, Dissertation Thesis Percy Venegas -pvenegas@mib.edu, percy.venegas@gmail.com September, 2007

EXECUTIVE SUMMARY .......................................................................... 4 INTRODUCTION ...................................................................................... 5 1. CURRENT ENVIRONMENT ................................................................. 6 1.1. What is a

EXECUTIVE SUMMARY ..........................................................................4 INTRODUCTION ......................................................................................5

  • 1. CURRENT ENVIRONMENT .................................................................6

    • 1.1. What is a Data Center, anyways? ..................................................6

    • 1.2. Global industry trends: China market set to grow ..........................7

  • 2. INDUSTRY PROFILE ...........................................................................9

    • 2.1 HOW THE INDUSTRY OPERATES ................................................9

      • 2.1.1 Fundamentals: from infrastructure to operations .....................9

      • 2.1.2 China's Competitive Landscape .............................................10

  • Regulatory Environment: The WTO effect ...................................10 Joint Ventures and Alliances as Entry Strategy ............................11

    • 2.2 KEY INDUSTRY TRENDS, RATIOS AND STATISTICS ...............12

      • 2.2.1 The Supply Demand Gap .......................................................12

    Trends on Data Center Total Revenue (millions USD) .................13

    Pricing ..........................................................................................13

    • 2.3 HOW TO ANALYZE A DATA WAREHOUSING COMPANY ...........14

      • 2.3.1 Key Market Variables ..............................................................14

      • 2.3.2 Valuation .................................................................................14

    • 3. THE MARKETING SIDE .....................................................................16

      • 3.1 From the Utility side to the Identity side ........................................16

      • 3.2 STRATEGIC ANALYSIS ................................................................17

        • 3.2.1 Key Market Segments ............................................................17

    Managed services ........................................................................17 Co-location services ....................................................................18 Application Service Provision .......................................................18 3.2.2. Targeting: Players and their models ......................................19 Acer CyberCenter Services, Inc, Taiwan ......................................19 Diyixian.com Ltd, Hong Kong .......................................................20

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    Holistic Branding as B2B Marketing Strategic Advantage: The Case of the Data Centers

    CCC Network Systems, UK .........................................................20 Exodus Communications, US ......................................................20 F5 Networks, US ..........................................................................21 HKNet Co Ltd, Hong Kong ...........................................................21 iAsiaWorks, US ............................................................................21 iLink.net Ltd, Hong Kong ..............................................................21 Level (3) Communications, US ....................................................22 PSINet Inc, US .............................................................................22

    PCCW Powerbase Data Centre Services, Hong Kong ................22

    • 3.2.3 The holistic approach ..............................................................23

    • 3.2.4 Brand development .................................................................24

    The Adoption Cycle ......................................................................25 Client Motivational, Involvement and Behavior ............................26 Communications ..........................................................................30 Cultural influences .......................................................................30 Relationship Management and returns ........................................31

    The Green Data Center, leveraging in Sustainability ....................33

    • 3.2.5 Market penetration Tactics by Segment ..................................33

    FINAL REMARKS ...................................................................................36 Appendix .................................................................................................37 Partial transcript of IDC interview ........................................................37 Glosary ................................................................................................38 Bibliografy ............................................................................................43

    EXECUTIVE SUMMARY

    EXECUTIVE SUMMARY The growth of the financial sector in mainland China is opening new opportunities to

    The growth of the financial sector in mainland China is opening new opportunities to all kind of data center vendors, from the capital intensive bandwith and floor space providers to more talented intensive application services providers. With revenues growth over 16% since last year and with consolidating and mature markets at home, foreign players seek to take advantage of the momentum in mainland.

    Some important findings of the research include:

    The middle market chooses local players for warehousing, the top end is brand sensitive in terms of data warehousing and will prefer outsourcing to multinationals, which relying heavily in their economies of scale, brands and expertise.

    Holistic brand positioning can effectively explain the success of the foreing data warehousing providers in China.

    The branding dimensions related to customer relationship management, specially in regards of the effect of reputation and social relationships create positive returns.

    Local data center vendors leverage their cultural knowledge and talent pool to cater the middle market, complementing the products and services of the big players. This includes partnerships of the form big/big or big/medium size player.

    Keywords:

    Holistic

    branding,

    Emerging

    markets,

    Market

    entry,

    Multinational

    firms,

    B2B

    China,

    Data

    Centers

    China,

    Social

    Relationship

    Management

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    Holistic Branding as B2B Marketing Strategic Advantage: The Case of the Data Centers

    INTRODUCTION

    INTRODUCTION Telcos were the first players to operate data centers before other companies entered the supply

    Telcos were the first players to operate data centers before other companies entered the supply side. Financial institutions (among them banks and insurance companies) also operate their internal data centers to store and manage records. In banks those tasks were initially supported by mainframe computers, but when the use of desktops and servers became ubiquitous the need for central processing became less important. Nowadays many different kind of companies are in data center business, from property companies to bandwidth an application services providers. However, the extend of the business went beyond data warehousing and covered communication needs when Internet entered the game.

    A strong boom in the Asia Pacific growth in e-business, e-commerce, and the projections of the future are optimistic. The reason can be found in the explosive growth of the main business customer, financial institutions: in 2008 the Chinese banking industry is forecasted to reach a value of $6,102.6 billion, an increase of 83.0% since 2003 1 . In the case of Insurance Companies in 2010, the market is forecast to have a value of $101.2 billion, an increase of 68.4% since 2005 2 .

    The purpose of this paper is to provide empirical evidence about the effect of holistic brand positioning in the success of the foreign data warehousing providers in China. Particularly, the dimensions of interest are those related to customer relationship management. The value added by this work is the improved understanding of the importance of social relationships in the high end segment of a technology intensive market, both in terms of B2B marketing strategy and measurable results. The methodological approach is an extensive literature review, teleconferences attendance and interviews organized by the author both in mainland China and abroad.

    1 Banks Industry Profile: China. Datamonitor. November 2004.

    2 Insurance Industry Profile: China. Datamonitor. October 2006.

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    Holistic Branding as B2B Marketing Strategic Advantage: The Case of the Data Centers

    1. CURRENT ENVIRONMENT

    1.1. WHAT IS A DATA CENTER, ANYWAYS?

    1. CURRENT ENVIRONMENT 1.1. W HAT IS A D ATA C ENTER , ANYWAYS ? Telecommunication

    Telecommunication companies were the first players to operate data centres before other companies entered the supply side. Financial institutions (among them banks and insurance companies) also operate their internal data centres to meet their internal operation requirements to store and manage records. In banks those tasks were initially supported by mainframe computers, but when the use of desktops and servers became ubiquitous the need for central processing became less important. However, the extend of the business went beyond data warehousing and covered communication needs when Internet entered the game back in the 90’s. Complexity also increased while mergers and adquisitions reshape the environment and increased the scale of this businesses.

    As Honk Kong Business magazine explains in a special report on Data Centers “using servers small companies with a staff of, say, 10, are able to pull in multiple PCs and route data through the Internet on a dedicated line. The problem with tackling computing power, managing the technology, coping with the communication and maintaining the hardware grows as the company size grows; but, it becomes strenuous once online commerce and area wide network communication is introduced into a company's operations. Large corporations, and banks are typical with teams of IT staff, seem able to cope only because they possess problems that are entirely different and not always apparent. Take, therefore, the dual challenge of computing and communications at one company and multiply that a million times. Aggregating the tasks at all of these companies in one roof or more yields the Internet data centres. It has becomes a business niche, specialized and technical, with lots of racks and servers. The proliferation of dotcoms supported the growth of IDCs during the second half of the 1990s, but companies with lots of communication and computing needs have come into the market as well”.

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    Holistic Branding as B2B Marketing Strategic Advantage: The Case of the Data Centers

    Figure 1.1. Datacenter topology. Courtesy of Forrester Research. A tipical configuration for todays’ data centers is

    Figure 1.1. Datacenter topology. Courtesy of Forrester Research.

    A tipical configuration for todays’ data centers is shown in Figure 1.1. Servers for applications and storage, as well as client computers are clearly separated. Among the various links that connect the infrastructure we can find local area internet connetions and wide area (tipically Internet or dedicated leased lines) with several levels of security. Other appliances are part of the array, to support such functions as security, onsite backup and redundancy, and others.

    1.2. GLOBAL INDUSTRY TRENDS: CHINA MARKET SET TO GROW

    The market for outsourced Web services is growing rapidly as small- and medium-sized businesses seek to migrate from traditional hosting options— such as co-location—to newer, service-focused hosting methods. As a probe of the accelerated global demand, Forrester Research reports market growth from $152 million at the end of 1998 to more than $5.3 billion by 2003. Together, these factors have led to the emergence of a new type of business provider in the Internet marketplace. These service providers have moved beyond traditional Web hosting and access to more diversified, complex Web-based business services. One such example is the Application Service Provider or ASP. ASPs are companies that provide services to deploy, host, manage and rent access to an application from a centrally-managed facility.

    But which are the drivers for businesses such as ASPs to grow, thus increasing the demand for data warehousing? Companies are increasingly outsourcing their business intelligence, customer relationship management and enterprise resource management applications. As an example, a recent IDC study provides an overview of the market dynamics and development trends in China's business intelligence market for the 2006–2011 period. This study covers the competitive positioning of the leading vendors, software revenue breakdown by vertical industry and geographic area, as well as a future outlook on the BI market. "The China BI market is expected to continue to increase at a compound annual growth rate (CAGR) of 22.1% over the next five years. Driven by the need to empower all stakeholders with the right information at the right time using the right tools, the market remains a top priority for IT investment," says Felix Liu, senior analyst, Software and Services Group, IDC China.

    2. INDUSTRY PROFILE

    2. INDUSTRY PROFILE 2.1 HOW THE INDUSTRY OPERATES 2.1.1 F UNDAMENTALS : FROM INFRASTRUCTURE TO OPERATIONS

    2.1 HOW THE INDUSTRY OPERATES

    2.1.1 FUNDAMENTALS: FROM INFRASTRUCTURE TO OPERATIONS

    Back in 2001 a roundtable of experts met in Honk Kong to try to define the industry of Internet Data Centers 3 . An overview with the thoughts of the panelists is presented as follows, while a complete sinopsis of their companies is included later in chapter 3:

    Richard Cooke of CCC Network Systems explains that data centers had existed before the Internet became a tool of commerce and popular usage., yet was driven by the commercialization of the Internet. Aldous Wong from iAsiaWorks noted that there was evidence of a strong boom in the Asia Pacific growth regarding e-business, e-commerce, and the projections of the future are optimistic. Lap Man from Diyixian explained that different companies have different views of a data centre business, according to him space is part of the criteria and that is why many property companies jumped into the market, while telecommunication carriers are there because of the bandwidth, and finally companies as his are in the game thanks to the opportunities in the information technology part of the business.

    As for a definition of the customer of the data center, it can be anyone from a Small Medium Size Enterprise with little value added, such those in Taiwan where customer turnover is high and price is an issue, to big scale firms where little education is needed to foster demand as they are aware of how critical are they IT operations. Figure 2.1 shows all the steps in the value chain of data center business, including the associated products and services in each stage.

    3 Hong Kong Business Magazine. Racks&&&the&telecom&revolution. Hong Kong: Mar 2001. Vol. 18, Iss. 225; pg. I2, 3 pgs

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    Holistic Branding as B2B Marketing Strategic Advantage: The Case of the Data Centers

    Figure 2.1. Internet data center organization, as shown in Intel’s Planning and Building a Data Center.

    Figure 2.1. Internet data center organization, as shown in Intel’s Planning and Building a Data Center.

    2.1.2 CHINA'S COMPETITIVE LANDSCAPE

    Regulatory Environment: The WTO effect

    According to Gartner, The World Trade Organization agreement has opened China's telecommunications services market to foreign investment, but opportunities remain limited by market maturity, price competition and ongoing restrictions. IT enterprises have looked beyond basic telecom services (which usually are highly regulated) to find new business opportunities, among them the data warehousing, network management and application provision.& The combinations of the positive momentum for the economy and the effect of market oriented reforms, have fostered the demand of technology services among both new businesses and the State sector.

    As reported in the latest World Economic Forum’s Global Competitiveness Report, “China has indeed been relatively successful in importing and absorbing new technology from abroad. On the technology transfer index it ranks 23rd among the 51 countries that are classified as non- core innovators. Opening up the markets more in the wake of China’s accession to the WTO will play an important role in moving up the ladder. Summit 2002 generally agreed, the further liberalization of market access needs to be accompanied by market-oriented reforms in a wide range of other areas, not least regarding the quality of public institutions”. 4

    Gao

    Shiji,

    Director

    of

    the

    Institute

    for

    Economic

    System

    and

    Management says that Chinese Government has recognized ICT as a major

    4 World Economic Forum In cooperation with the China Enterprise Confederation. China Business Summit 2002 Report.

    driver of China’s global competitiveness, as demonstrated by the heavy

    investment

    in

    telecommunications

    infrastructure

    and

    telecommunications

    deregulation.

    Joint Ventures and Alliances as Entry Strategy

    In

    2000

    was reported the

    first alliance in

    the

    data center industry in

    mainland China between NTT Communications (Japan) and China Telecom (China's former incumbent carrier), which analyst believed to be beneficial for both parties, by helping to extend their global coverage, while showing the response of China to the globalization of the telecommunications industry.

    “This alliance will greatly improve NTT's and China Telecom's positions at home and abroad in areas ranging from network infrastructure and available bandwidth to services such as high-speed Internet access, more conventional voice and leased lines. For both carriers, their monopoly positions in their respective domestic markets have been ended by government regulators that

    want to create more competition at home and to push the carriers into the

    intensely competitive global market

    China

    Telecom must arm itself against

    ... domestic competitors (e.g., China Mobile, China Unicom, CNCnet) after the recent deregulation of access to China Telecom's domestic network China ... Telecom is also searching aggressively for foreign partners since it aims to enter the global market (and) amass capital of several billion dollars through an overseas share listing”. 5

    Six years later, in June of 2007 NTT announced the opening of the first premium data center in China and the August opening of the eighth office for enhanced agility in Northern China. "We have extensive experience in data center business with approximately 100 data centers worldwide, including premium data centers in Japan, the U.S. and Europe," said Naoki Kajita, Director of the Project China, Global Business Division. "In China, the demand for data centers to support mission-critical systems has become quite strong among Japanese and other multinational corporations, most notably in the financial services sector. Our expertise in quality data center operation and customer support will surely make our facility a premier choice for them." 6

    5 Johnson, Geoff; Liu, Louisa. NTT and China Telecom Team Up to Meet the Same Competitive Situation. 15 November 2000.

    6 NTT Communications. Press Release: NTT Com to Open Shanghai East Data Center and Tianjin Office. June 14, 2007

    So far it seens that the Chinese government has chosen to keep the entry barriers high, but still foreign players that entered in some kind of alliance model have had room for growth, as seen in this case.

    2.2 KEY INDUSTRY TRENDS, RATIOS AND STATISTICS

    2.2.1 THE SUPPLY DEMAND GAP

    The data center market has been historically constrained at the supply side; companies such as giant Level3 had 66 by the first quarter of 2001 with over 6.5 million square feet - by far the largest data centre provider in terms of space 7 . In the particular case of the US, they reportedly said that racks and private rooms were leased as soon as those were available. Even forecasting for two to three years, supply will not catch up with demand for a number of reasons going from the access to capital, accumulated demand or simply inertia of the market. In their view, It takes a long cycle and sometimes hundreds of millions of dollars to build a facility. That includes permits, the construction cycles, the power and general constraints in the economy. Revenues and pricing in the global industry as shown in Figures 2.2 and 2.3.

    However, the situation in Asia (excluding mainland China) is different, as the market is already facing a major consolidation due to oversupply in data center facilities, pushing players to review their strategies to survive. 8 Since 2004 Korea and Japan have represented the largest markets, while Singapore and Hong Kong experienced the fastest growth, with revenue CAGRs of 126 percent and 101 percent, respectively. 9

    Facing this situation in Asia, how mainland market can be any different? The reason can be found in the explosive growth of the main business customers there. According to Data Monitor, in 2008 the Chinese banking industry is forecast to reach a value of $6,102.6 billion, an increase of 83.0% since 2003 10 . In the case of Insurance Companies in 2010, the market is forecast to have a value of $101.2 billion, an increase of 68.4% since 2005 11 .

    • 7 Hong Kong Business Magazine. Racks & the telecom revolution. Hong Kong: Mar 2001. Vol. 18, Iss. 225; pg. I2, 3 pgs

    • 8 Gartner Research. Asia/Pacific Internet Data Centers: From Gold Rush to Gold Dust. 22 February 2002.

    • 9 Bidaud, Bertrand; Calvert, John. The Dawn of Internet Data Centers in Asia. 28 August 2000.

    10 Banks Industry Profile: China. Datamonitor. November 2004.

    11 Insurance Industry Profile: China. Datamonitor. October 2006.

    Trends on Data Center Total Revenue (millions USD)

    Trends on Data Center Total Revenue (millions USD) • Figure 2.2. Package software market size in

    Figure 2.2. Package software market size in China, including Enterprise application solution, business intelligence and data warehouse 12 .

    Pricing

    Trends on Data Center Total Revenue (millions USD) • Figure 2.2. Package software market size in

    Figure 2.3. Pricing structure for datacenter capacity per Gigabyte as function of frequency of access. Source: Teleconference Data Storage Trends 2007, Andrew Reichman, Analyst Forrester Research June 19, 2007. Call in at 12:55 p.m. Eastern Time.

    12 Han, Grace. Software & Service Research. IDC China. 2007.

    2.3 HOW TO ANALYZE A DATA WAREHOUSING COMPANY

    • 2.3.1 KEY MARKET VARIABLES

    When analyzing a data center company, the three primary areas to address concern market composition, quality of service, and financial performance. The markets that are served by a data center company help define the company’s strategic direction and focus employed to expand its market presence. Thorough analysis requires a study of a company’s geographic footprint, market share, the breadth of its service offerings, and the level of competition in its markets 13 .

    Market share can be defined as floor space in square meters or bandwith in Megabits/second. This percentage should be compared with those of a company’s peers, and with the industry average.

    Market maturity within the same country can vary greatly, as in the case of China where Mainland, Honk Kong and Taiwan have completely different degrees of maturity (listed here in ascendent level of consolidation).

    Competition is basically on quality and features more than price, and in markets as the Chinese the effect of bundle services through partnerships favors the complementation among the different players.

    • 2.3.2 VALUATION

    The computation of Standard & Poor’s Core Earnings (a new methodology for calculating companies’ earnings) excludes goodwill impairment and merger and acquisition charges as being nonrecurring and includes stock options expense and pension interest costs as valid costs of doing business.

    Earnings quality. For data center companies, the most notable difference in reported earnings and Core Earnings comes from not expensed stock options. Stock options are granted to employees as part of their compensation packages. Other components of compensation include salaries, cash bonuses based on individual or corporate performance, medical and other employee benefits, and defined benefit and/or defined contribution pension plans.

    13 Telecommunications and Wireless Industry Survey. Standard & Poor’s. September 28, 2006.

    Figure 2.4. Diversified Communication Services Industry ratios . From POPs to P/Es. Start-up data center providers

    Figure 2.4. Diversified Communication Services Industry ratios 14 .

    From POPs to P/Es. Start-up data center providers take on heavy debt loads to build and facilities and install equipment. It usually takes several years to yield substantial revenues. As a result, price per potential customer reflects prospects for cash flows far in the future. At the early stage of a company’s development, stock market prices tend to fluctuate with changes in expectations. As operating income increases, analysts turn from per-POP comparisons to valuation measures based on sales or earnings before interest, taxes, depreciation, and amortization (EBITDA). Standard valuations based on P/E ratios (price divided by net earnings) can also be used. Figure 2.4 shows the P/E ratio for the industry on 12.7, although this value can only be used as a proxy due to the segmentation in the industry (see chapter 3). Some data center companies can be traded in other industries such as Application Software, while big scale providers such as Level 3 will be included in the Diversified Communication Services industry category.

    Free

    cash

    flow.

    FCF

    can

    be calculated by subtracting capital

    expenditures from an after-tax estimate of EBITDA. Historically, capital expenditures have exceeded EBITDA for most firms because the industry required large up-front investment. However, projections must assume anticipated growth rates based on market share.

    14 Yahoo Finance’s Industry Center: Diversified Communication Services. biz.yahoo.com, Sept

    2007.

    3. THE MARKETING SIDE

    3. THE MARKETING SIDE 3.1 F ROM THE U TILITY SIDE TO THE I DENTITY SIDEchinadaily.com.cn . July 2007. v.percy pvenegas@mib,edu Holistic Branding as B2B Marketing Strategic Advantage: The Case of the Data Centers Business in China 16 " id="pdf-obj-15-4" src="pdf-obj-15-4.jpg">

    3.1 FROM THE UTILITY SIDE TO THE IDENTITY SIDE

    Chinese companies started playing with the concept of branding since less than 30 years ago, once they realized that little differentiation related to product features and focus on price competition.erodes profitability once choices increase. Companies were forced to find ways to add value to their products through branding: "Products are built in a factory, but brand is built in the mind," as Walter Landor used to say. Landor is one of the major advertising agencies in the world with presence in China, they state that Chinese manufacturers have done a good job on the utility side of branding and now they must work on the identity side by building emotional connections with customers. 15

    Nevertheless, a number of experts, including IDC senior analysts Ting Yang and Felix Liu agree on the fact that in the case of mainland market, big scale enterprises (typically in the financial sector) tend to choose foreign providers that have established presence in China. The answer can be far beyond a poor work in the branding side.by local companies, and touch some behavioural aspects: most global businessmen and corporate professionals have been educated at the same elite institutions, work in similar environments work across many countries. Because of this, they create and rely in a wide network of people and companies who they can trust. Personal connections within those vendors and their clients can literally bring new business opportunities and close deals within their circle of trustworthy relationships. In the context of an holistic framework (Figure 3.1), global players leverage their identity, while adapting as necessary in the dimensions that stress the business client relationship management.

    15 Liu, Baijia. Chinese firms grow more brand Conscious. chinadaily.com.cn. July 2007.

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    Holistic Branding as B2B Marketing Strategic Advantage: The Case of the Data Centers

    Figure&3.1.&Holistic&positioning&framework,&as&per&Dr.Klaus&Schmidt.&Source:& Henrion.de,&July&2007. 3.2 STRATEGIC ANALYSIS 3.2.1 K EY M ARKET S EGMENTS Managed services Managed services

    Figure&3.1.&Holistic&positioning&framework,&as&per&Dr.Klaus&Schmidt.&Source:&

    Henrion.de,&July&2007.

    3.2 STRATEGIC ANALYSIS

    3.2.1 KEY MARKET SEGMENTS

    Managed services

    Managed services are dedicated server products built to a defined standard and offering a Common Operating Environment: standard operating system, standard network management, standard monitoring tools. Managed services are monitored and maintained in-house by the data center’s own technical and support staff, with a complete maintenance and support contract. Reporting is provided to alert customers of any events and to respond to any calls for assistance from the customer 16 . In China, the total enterprise managed service market top $3.7 billion in 2006, according to the research firm IDC; vs $8.0 billion in the US.

    Typically data center companies define and develop a baseline service definition for managed services. This service definition specifies the maintenance and support that are defined as standard (including web server, email service and backups). The definition can then be expanded to encompass optional or additional maintenance and support elements that can be added and

    16 Planning and Building a Data Center: How to Succeed in Today’s Competitive Internet Services Market. Intel Corp 2000.

    charged for on an item-by-item basis (those include firewalls, web analytics, and others).

    For example, at the beginning of 2007 AT&T opened its second Internet data center in Shanghai, and added more space to its Internet data center in Hong Kong. Combined, the Shanghai and Hong Kong centers have nearly doubled AT&T's Web hosting footprint in the Asia/Pacific region since the beginning of 2006. AT&T operates the Shanghai facilities in alliance with local service providers and will coordinate service delivery with those providers. AT&T, however, will be customers' single point of contact for Enterprise Hosting Services being delivered in China 17 . At the global level one of those customer’s is Hyatt Hotels, who relies on AT&T's hosting services.

    Co-location services

    Co-location is the provision of racking space, power and network connectivity (frequently referred to as “power, ping and POP”) to servers supplied by the customers. The attraction to the provider is that co-location offers relatively straightforward revenue generation against a minimal outlay. As customers supply the equipment found in co-location racks, often this equipment is poorly suited to the task and a possible risk to the data center infrastructure.

    An opportunity for service providers to gain additional revenue and stabilize any risk is to sell data center products to their customer, specifically products that have already been validated and deployed in other areas of the data center. Vendors such as Teradata even take care of developing the data center infrastructure, as done for their client China Construction Bank which was the first enterprise data warehouse in China's banking history.; 18

    Application Service Provision

    Front office applications are ideal candidates for the ASP deployment model. Most companies implementing front office systems need to serve a geographically dispersed sales force or engineering staff and must provide reliable customer service via the Web. The operating characteristics of these applications place a premium on a reliable and centralized approach to systems management.

    17 AT&T Opens New Internet Data Centers in China/US. Worldwide Telecom. Jan 1, 2007. Vol. 19, Iss. 1

    18 Bank&Is&First&To&Build&Data&Warehouse&in&China. Bank&Systems&&&Technology.&Feb&2002,&Vol.&39&Issue&

    Service implementation is key. While there are minor changes to the hardware requirements for applications hosting, the ability to manage customer relations, track faults and implement change management requires specialists and solid business processes. For instance, data warehousing vendor Teradata resells integration technology from data integration company Sunopsis, and integrates this with its data warehouse product. Performing the transactions within the database eliminates the need for a dedicated transformation server, thereby simplifying a customer's architecture and implementation, reducing costs and shortening any learning curve. The result in this case is a win-win situation for both vendors. Teradata gains by accessing sophisticated data integration technology that complements its data warehousing tools, and Sunopsis - until recently a fairly Europe-centric company, and still fairly young - gains access to Teradata's sales channels 19

    3.2.2. TARGETING: PLAYERS AND THEIR MODELS

    Acer CyberCenter Services, Inc, Taiwan

    A

    unit

    of Acer

    Inc, the Taiwan

    PC

    maker, the company owns and

    operates a data centre about half-an-hour's drive south of Taipei. Recently completed, the US$100 million facility is world class, with 200,000 square foot of raised floor space. It handles Acer's internal IT operations and will also serve as an IDC for other companies, including banks and Internet business providers. 20

    ACER focus is on disintegration, according to them Data Centers used to be an affiliated business of the ISP, but now DCs can do also the ISP business. This is desintegration at the business level, but they market themselves as a total solutions provider at the customer level. ACER does Managed Hosting, leaving all content intensive side of the business to partners: bandwidth provider, ISP, ASP. In the infrastructure side, ACER exploits economies of scale. They spent upto US$100 million for the facility, covering a net raised floor space of 200,000 square feet just racks. Simple put, ACER focus on two ends, the real estate and managed solutions business. For them, this is also a step to move from their traditional manufacturing business to services management. ACER CiberCenter has as customers to all the 400 companies of the ACER group, also. So, the seizing about contruction scale to cover the demand from external customers comes after the consideration on cost of real state (which has been

    • 19 OpinionWire by Butler Group (www.butlergroup.com). Datamonitor, December 2005

    • 20 Players & their models. Hong Kong Business. Hong Kong: Mar 2001. Vol. 18, Iss. 225; pg. I14, 7 pgs

    mitigated by constructing in rural areas) and bandwidth (which price is droping by general trend of the industry).

    Diyixian.com Ltd, Hong Kong

    An Internet protocol (IP) carrier with end-to end control of its overseas circuit,the company is a leading player in China and Greater China, with 12 points of presence (POP). It offers a range of IDC services including dedicated Net access, virtual private network, co-location, web-hosting, content distribution, traffic management and managed security.

    Diyixian’s Chinese name means First Network. Their focus is being the first IT network connecting the whole of Greater China and serving the market segment of regional companies. Its one of the few companies that provides end-to-end wireless and hosting solutions in China, Taiwan and Hong Kong simultaneously.

    CCC Network Systems, UK

    The company possesses enterprise-class switches and remote management technologies that allow secure real-time management of Internet and large corporate data centres. One class of switches, called Free Vision, permits the management of servers at a remote location or at the network operating centres. The company has expanded rapidly the past year and has just open a Taiwan office. Acer is one of its customers.

    Exodus Communications, US

    The Internet hosting company which bought the former. Exodus offers system and network management solutions along with professional services for customer web site. Exodus and Global Crossing, a cable bandwidth supplier, has a 10-year-long network agreement under which Exodus receives preferred pricing on all network services and assets.

    Exodus provide facilities, bandwidth and network management, but the focus is on high level services and applications. It is know for growing with the needs and demands of their customer base.

    F5 Networks, US

    Founded in 1996, FS delivers Internet traffic controllers that link cables and bandwidth with the data centres. Although not strictly a data centre, its products such as routers and switches are deployed in load balancing, which is an element in server management and which constitutes one of the managed services to regulate Internet traffic.

    HKNet Co Ltd, Hong Kong

    Founded in 1994, the company is a joint venture of Japan's NTT Communications and CCT Telecom Holding, a listed telecommunications group. It is one of the first licensed Internet service providers in Hong Kong, and in April 2000 it also obtained an external fixed telecommunication network service (E- FTNS). A Greater China player, it delivers a range of IDC services ranging from web-hosting and ISP to broadband.

    HKNet has three core businesses: the data centre, the ISP services, and the e-business. The focus is provide one-stop solution for corporate customers, and have been defocusing from mass customer services as this kind of customer is more price sensitive. Part of this strategy is about delivering customized IDC services (including space, bandwith, data base and web hosting, streaming, and others).

    iAsiaWorks, US

    This is an IDC company with particular focus on US-Asia connectivity. Headquartered in California, listed in Nasdaq, it is present in 13 Asia Pacific markets and has more than 4,000 customers. It operates privately managed networks from carrier-grade data centres, and it offers managed services, hosting and co-location, and other professional consultation.

    iAsia seeks to position itself as the leading premium service provider, providing both infrastructure and services.

    iLink.net Ltd, Hong Kong

    A joint venture of Pacific Century CyberWorks and DotCom Pacific Ventures, the company has a data centre in Shatin but calls itself an "Internet facilities-based application service provider" (ASP), a business much closer to the terminal or desktop user than it is to an Internet service provider. Other than

    data center services, it delivers e-commerce applications targeting small and medium size companies and it has a focus on Greater China.

    iLink business focuses on two benefits to the customer: Quality of service (how the customers can improve their cost-saving by outsourcing to iLink), and Provide control of the customer IT business operations (How will they utilize iLink facilities and professional resources to improve their own business?).

    Level (3) Communications, US

    A giant, it has 66 Internet data centres, 6.5 million square foot of gateway space and extensive submarine cables cross the Pacific and the Atlantic. The company is expanding rapidly, laying more cables and opening up more networks. It serves primarily communications intensive companies employing the Level 3 networks that are built on Internet protocol platforms. Its services include broadband, transport, and co-location.

    Level 3 is focused on bandwidth. With massive presence in both US and Europe, the capacity they brought to Honk Kong went up to 8 times the installed capacity, helping bring the costs down and improve the margings at the data center provider level.

    PSINet Inc, US

    This is an Internet protocol data communications carrier, and is the first and largest independent Internet service provider globally. Its IP network connects over 900 points of presence (POP) and its 42 hosting centres are available in 25 countries. Other than dedicated access, it supplies broadband and suite of managed services. Its Hong Kong ISP has two backbones, one running to the US and the other to the UK.

    PSINet is focused on the corporate customer. They leverage their knowledge of the industry (first commercial Internet service provider in the world) to serve global customers.

    PCCW Powerbase Data Centre Services, Hong Kong

    Internet data centre is a new business for PPCW –formerly Pacific Century CyberWorks. The group plans to roll out a network of such centres

    throughout Asia Pacific, with an initial focus on hosting, including co-location on dedicated and shared servers. Ultimately, the centres are to deliver a complete range of products on the strength of its physical assets like bandwidth and on managed services. Ownership of PCCW has changed hands recently with Spain's Telefónica and China Network Communications Group now its largest shareholders. 21

    3.2.3 THE HOLISTIC APPROACH

    Schmidt proposes that competing in a global marketplace demands& a& holistic approach to brand development and management 22 , which means take into consideration the synergies across all brand dimensions: culture, behaviour, products & and services, markets and customers, in the case of Chinese market, it is clear that special interest should be placed in some of those in order to create a positive differentiation, such as relationship management and culture. The hipothesis is that holistic branding can create value and competitive advantage in this context.

    throughout Asia Pacific, with an initial focus on hosting, including co-location on dedicated and shared servers.www.henrion.de , June 2007. " id="pdf-obj-22-18" src="pdf-obj-22-18.jpg">

    Figure 3.2. Holistic branding creation and management, an end to end

    approach.&Source:&Henrion.de,&July&2007.

    As

    an

    exercise, let us apply the

    steps in

    the value creation chain of

    Holistic branding to a real case (see Figure 3.2). Previously in this chapter

    ACER, one of the major players in the Managed Services segment was reviewed. According to ACER management they position themselves as a Total Solutions provider , even though the optional services are generally offered

    • 21 PCCW Limited Profile. Hoovers.com. July 15 2007.

    • 22 Holistic branding. Henrion Ludlow Schmidt. www.henrion.de, June 2007.

    through partnerships and are not part of their core business. In Step 1 we will have this starting point statement We are total solutions provider. The customer benefit for Step 2 is then clear, We are your one-stop-shop for all your datawarehousing needs. But, is there any discrepancy between this statement and the reality? With a company of the muscle of ACER it seems that can be easily mitigated, while the group owns hundreds of firms and keeps partnerships with a number of other solutions providers the main concern is integration, and thus Step 3 concludes. And what about the Formulation of Initiatives from Step 4? In the case of ACER, they use their scale (infrastructure development) and expertise (established hardware vendor) to economize in the capital intensive sides of the business; those savings can be easily passed to the customer while maintaining the image of a top end total solutions provider, or be use to improve margins, depending of the competitive advantage. This is specially useful in a business where profits can be deteriorated for the influence of externalities such as prices of bandwith provided by carriers. Finally, in Step 5 ACER makes sure to converge their message in communication events such as roundtables, which are attended by corporate desicion makers and other experts.

    3.2.4 BRAND DEVELOPMENT

    It is clear that companies that have decided to acquire a data center facility (or lease Co-location space) must consider several options according to financial considerations, risk assessment, market conditions, and degrees of control and flexibility. 23 However, outsourcing in the form of Managed Services is a viable alternative, mostly where several constrains pushes the Data Center customer to focus in their core business while meeting the challenges of externalities due to increased information security concerns, state regulatory requirements for records management and new industry trends in bandwidth capacity and pricing. In any case, players globally (and China is not an exception).will deal with the factors shown in Figure .All this factors should thus be considered in the mix, but players in China know very well that micro segmentation is important while preparing their value proposal. In one side, the Honk Kong and Taiwan markets are consolidating, while the Mainland market is emerging thanks to the influx of foreign companies and last year IPO’s in local enterprises. Proximity is also a concern, mostly when considering the effect of the Great Firewall, which is known to slow down and sometimes prevent access to information from outside. So, in this scenario we have all the elements of brand creation: for the Chinese players currently positioned in the low end segments of small and medium size enterprises, but actively working to climb up such as Diyixian, the global players that are extending the brand to cater the specific needs of Chinese customers in terms of relationship management, but all leveraging Digital Branding, which is expected to be a core competence of a technology services provider.

    23 Bell, Michael. Deciding Whether to Lease, Buy, Build or Outsource Data Center Facilities. Gartner Research. 26 January 2007.

    Figure 3.3. Meeting the business client concerns and expectations. Adapted from Forrester Business Technographics® Surveys (CIO

    Figure 3.3. Meeting the business client concerns and expectations. Adapted from Forrester Business Technographics® Surveys (CIO Confidence Poll Survey & PC and Server Survey, Q3 2005).

    The Adoption Cycle

    Due to the high quantity of foreign enterprises with operations in China and following the hypothesis that in the case of Data Center business the needs of Chinese customers are basically the same as their western counterparts, the adoption cycle can be analyzed by priorities. Forrester’s Business Technographics® Study of March 2006 for North American And European Network And Telecommunications concludes that 16% of Global 2000 firms (+20000 employees) are seeking to outsource more technology services, while 23% very large firms (5000 to 19000 empl) are willing to do so. Additionally, they conclude that the bigger the firm, the more likely it will outsource telecoms:

    64% of executives at the largest ones (Global 2000’s) already buy managed telecoms

    Europeans are more likely than North Americans to outsource telecoms , 82% vs 47%

    Security concerns such as Terrorism and natural disasters, and even data security compliance make enterprises that still manage their own data center facilities (usually large banks and multinationals) look outside for backup services. For redundancy purposes that is added to their in house backup

    facilities, ready to be switched into action in a momento of notice. They also have realized that a cost effective alternative is to pay a data center provider to handle this role. Disaster Recovery allows the customer to revert to a previous position and resume processing in the data center equipments while theirs are being activated. 24

    But what happens once the customer signs up with a data center vendor? There is rarely a traditional cycle of decline after the technology maturity phase, usually the industry trends push for upgrades (in both products and services). As Valeria Castellana from Hong Kong player Exodus explains “we have grown with the needs and demands of our customer base”.

    Client Motivational, Involvement and Behavior

    According to research firm Forrester, B2B marketers face two primary challenges: reaching key decision makers and demonstrating marketing results. They point out that outdated marketing tactics, immature lead management processes, and metrics focused on pipeline inputs (not sales results) are major roadblocks. In the data center business, however, the second is expected not to be an issue while vendors in this area are specialized in the business intelligence practices and technologies “to move from basic sales-centered support to customer-centric strategists as they evolve customers from buyers to advocates”.

    Reaching decision-makers. is one of the top five issues across industries when referring to B2B products and services, as per Ramos and Andresen analysis. They argue that most marketers waste time and money on tactics that fail to catch buyer interest because they dedicate too much effort in campaign execution and demand generation, caring only for leads and failing to identify the most profitable customers and cultivate their loyalty and advocacy. In this respect data center vendors in China seem to have learned their lesson, as Mok from HKNet explains “although we do have a large market of mass customer services, we will be focusing on corporate customers in the next 12 months. Mass market customers are very greedy, they want good services without paying any money”. The following are technologies where data center vendors have mature expertise and it is included as part of their holistic mix:

    Customer Relationship Management (CRM): Among the 2007 spending initiatives 45% of B2B marketers are planning to deploy some kind of sales force automation, customer analytics, customer service and

    24 Beating The Odds Asian Finance. Computer Bureau. Sep 15, 1989; 15, 9; ABI/INFORM Global pg. 16

    support, customer self-service and assisted service, and multichannel management. Being themselves providers of such services, data center marketers have a clear advantage when using for their strategic planning.

    Data Management and Analytics: As primary providers of this services, data center businesses can harness the opportunities provides by their own technologies to design and implement the infrastructure, processes, and best practices needed to integrate, report, and analyze customer profile and purchase information in their own marketing efforts.

    Digital Asset Management (DAM): Also a core competence of data center providers, with their expertise in deployment of content management systems and consulting on best practices and business process optimization.

    What is the role of Interactive Marketing and Digital branding in this process? With relative few players in the Chinese market, and very specialized services, most vendors rely on their websites and instruments such as online surveys and teleconferences to obtain client feeback, improve internal processes and fine tune marketing tactics. Big players such as ACER CiberServices will leverage the brand of their group head company ACER, while smallers players are usually known in their Chinese local market only.

    Up to this point it is clear that Data Center B2B marketers have the tools on place to quantitatively understand their targets, the problem comes to build awareness and preference for their high-consideration products that involve multiple decision-makers, direct sales negotiations, and after-sales support or training. So how to generate and manage demand, and engage customers? Here it is necessary to start by choosing the branding strategy, whether it is Corporate or Product oriented. To do so, let us take a look at the conclusions of the 2006 paper by Yu Xie and Boggs “Corporate branding versus product branding in emerging Markets”. The authors elaborate eight “propositions” out of their data analysis:

    P1. The broader the stakeholders’ interests, the more likely firms operating in emerging markets are to choose corporate branding.

    P2. The more corporate image is emphasized by stakeholders in emerging markets, the more likely entrants from developed countries are to choose corporate branding.

    P3. The more complex a target market in an emerging economy is, the more likely entrants from developed countries are to choose corporate branding.

    P4. The higher the costs of marketing in emerging markets, the more likely entrants from developed countries are to choose corporate branding.

    P5. Market entrants selling industrial products in emerging markets are more likely to use corporate branding than those marketing consumer products.

    P6.

    The

    size

    of

    a

    firm entering the emerging market is positively

    associated

    with

    the

    probability

    of

    choosing

    product

    or

    corporate

    branding.

     

    P7. The length of a firm’s relevant experience is positively associated with the probability of choosing product or corporate branding.

    P8. The extent of a firm’s international experience is positively associated with the probability of choosing product branding over corporate branding.

    Even though it is not in the scope of this work to review each of this propositions extensively, we can take some important insights from a few of them. Proposition 2 and 8 can be associated with the effect of reputation, which is a key decision criteria in the business of data centers. Here, main stakeholders are the customers, usually global professional and decision makers who, specially in the high end segment, tend to choose the value side in the price/value relationship. Due to tipically high set costs some kind of customer lock in is expected and the major triggers for customer loyalty will be consistent quality of service (for example expressed in the form of near to 100% uptime). In the other side, the effect of scale expressed by Proposition 6, as discussed previously in this chapter favores the big and global players not only regarding to margins, but to the associated customers benefits such as redundancy.

    Figure 3.4. Conceptual Framework of Factors Affecting Branding Strategy of Developed Country Firms in Emerging Markets,

    Figure 3.4. Conceptual Framework of Factors Affecting Branding Strategy of Developed Country Firms in Emerging Markets, by Yu Xie and Boggs 25

    According to this analysis, is natural that data centers in China choose to build a Corporate Brand strategy and adjusting their marketing strategies accordingly. Well stablished brands that are facing slower growth in mature markets can find the opportunities in China extremely atractive. In Chapter 1 Joint Ventures as Entry Strategy was explained, so this is a good moment to take a look at the branding side of the game, mostly considering the possible negative of positive effects in branding. As Michael Dunn from Centaur Communications explains:

    “Global brands with western associations and status can garner more interest in China, but that's still no guarantee of success. Those that bolster their brand's local positioning via partnerships with Chinese businesses (easier now that the nation's regulations around joint venture ownership have relaxed) can gain better and faster insights into critical cultural nuances. This is particularly critical in sectors of the B2B market where service is a key component of the brand. Do your partner's people have the capabilities and

    25 Yu Xie , Henry and Boggs, David J. Corporate branding versus product branding in emerging markets A conceptual framework. Marketing Intelligence & Planning Vol. 24 No. 4, 2006 pp.

    347-364

    values to deliver a consistent on-brand customer experience? Without proper due diligence, it might be easy to be lured by a partner with the requisite local knowledge but a brand with a negative standing.” 26

    Communications

    Generally global positioning statements are not specially localized in this market, as the appeal of the data center business is rather to ensured the same level of service in China that in the home countries where headquarters are located –this also have to do by the technicality of the business, which is almost location independent besides the facilities side.

    This also has to do with name conventions, where global players leverage on the image of their parents group (Level3, ACER, who keep their global images and color palette to reinforce brand equities and easy recognition) and local players try to leverage in their level of localization and knowledge of the local market by keeping geographical or cultural references in their names and try to resonate with the Chinese customer at the emotional level (HKNet, Diyixian).

    Cultural influences

    Dunn also offers a list of useful recommendations to align the marketing initiatives with the brand strategy, while taking into account the national pride and heritage Chinese are famous. Those are resumed below:

    “Treat customers like VIPs. Visiting customers regularly, wishing them well during relevant holidays and organizing tailored events.

    Participate in industry trade shows to forge bonds with customers, giving them easy access to information. Advertising: use the Chinese trade press for brand awareness. Public relations is critical; developing relationships with Chinese journalists opens the door to the third-party endorsement.

    Establish a local Chinese presence and connection. Arranging highly visible visits by senior executives sends a strong signal to the local marketplace and is a great opportunity to forge direct relationships with stakeholders. A website is also an economical way of reaching customers across a vast country”.

    26 Dunn, Michael. BRANDING IN CHINA: Building a successful relationship with Chin .Brand Strategy. London: Jun 12, 2007. pg. 50

    Corporate or service endorsements, particularly by a Chinese company or notable individual (such as a government official), also enhances both credibility and confidence in the brand. 27

    Relationship Management and returns

    As discussed before, while business-to-business relationship marketing activities are clearly important in the B2B context, those are a must when talking about the Chinese market. Palmatier, Gopalakrishna, and Houston developed a model that can be easily applied to this case, and shows the impact of those relations in the bottom line of the business (in the form of a marginal-customer specific return on investment). Their study is based in the data from a matched set of 313 business customers covered by 143 salespeople of 34 selling firms, with the following observations 28 :

    Social relationship marketing pays off: These include meals, special treatment, entertainment, and personalized information. The resultant social bonds are difficult to duplicate and may lead customers to reciprocate via repeat sales and recommendations, and by ignoring competitive offers (Blau 1964, De Wulf et al. 2001). These programs are believed to have a strong impact on relationships (Gwinner et al. 1998).”

    Data Center vendors target their marketing efforts to top management and decision makers. In the context of China, where personal and government relationships are enforced by culture, the weight of Social Relationships and their returns are expected to be also positive.

    Financial relationship marketing investments do not pay off.: These programs include discounts, free products, or other financial benefits that reward customer loyalty. However, unless enabled by unique sources (e.g., low- cost structure), any advantage accruing from financial relationship marketing is unsustainable because competitors can easily match the programs (cf. Day and

    27 Dunn, Michael. BRANDING IN CHINA: Building a successful relationship with Chin .Brand Strategy. London: Jun 12, 2007. pg. 50

    28 Palmatier, Gopalakrishna, and Houston: Returns on Business-to-Business Relationship

    Marketing Investments. Marketing Science, Vol. 25, No. 5, September–October 2006, pp. 477–

    493

    Wensley 1988). Moreover, customers attracted by such incentives may be deal prone and less profitable to serve (Cao and Gruca 2005).”

    Data Center industry is already pushed to lower prices for the effect of broadband penetration and low bandwidth prices. Moreover, price centered strategies undermine the value proposal for the high end services segment and damage profits, destroying value at the end.

    Structural relationship marketing investments are economically viable for customers serviced frequently. These programs increase productivity or efficiency (or both) for customers through investments that customers would probably not make themselves. Examples include customized order processing systems and dedicated personnel. These programs typically require considerable setup efforts and offer unique benefits; thus, customers may be reluctant to switch or fragment their business among suppliers. Such idiosyncratic investments bind the buyer and seller. Structural bonds also may generate strong competitive advantages because customers increase their business with the seller to take full advantage of these value-enhancing linkages (Berry 1995)”.

    This is the typical case of a company like Honk Kong based iLink, which additionally to data center services is an applications and e-commerce service provider. This it make sense for iLink to maintain dedicated customer relationship resources that allow to convert entry level customers into total solution customers. In the model of Figure is clear the dependence of return generate from a business customer on the recurring returns , expenditures and the effect of customer, salesforce and sales manager.

    Wensley 1988). Moreover, customers attracted by such incentives may be deal prone and less profitable to

    Figure 3.5. Conceptual model that links customer-specific relationship marketing investments to short-term, customer-specific financial outcomes. By Palmatier, Gopalakrishna, and Houston.

    The Green Data Center, leveraging in Sustainability

    There are two good reasons to turn to corporate responsibility in the data center business: the positive impact in terms of branding and the operational energetic cost savings. This is specially important in a energy hunger country as China, that is striving to manage the huge scale of development of their cities.

    In the data center environment power accounts for as much as 50% of operating cost. 29 . According to an estimate by Jonathan Koomey, a Lawrence Berkeley National Labs scientist the power consumption of servers doubled between 2000 and 2005, while are in use only 15% of the time. One solution is virtualization, which allows running multiple operating systems and applications on just one single server, thus reducing the power consumption (Jason Lochhead from managed service provider Data Return points out that they could realized savings up to 70% on its power and cooling by virtualizing their entire server farm). Virtualization can be also implemented to storage devices (which utilize up to 25% of total data center’s energy) in a process called data data minimization, or alternatively blade servers (single boards with processors and memory that can be slid into servers) can be use to save energy. Finally, energy savings of turning from air conditioning to water cooling can both make the data center vendors look good and impact positively their bottom line. In the case of China, Data Center news reports that “escalating pressures exacted to integrate more environmentally sensitive behaviors in the data center, while 'Environmentally-friendly' appears to be rapidly shooting up the list of vendor differentiation strategies”, specially in countries recognized to have enormous potential for revenue and consumption, such as China and Brazil. 30

    3.2.5 MARKET PENETRATION TACTICS BY SEGMENT

    The high capital and operating costs in the data center business means that economies of scale are needed in order to bring down unit prices, which is difficult because of the nature of the business which is part leasing and part

    29 McCormick , John . Energy Efficiency: Some Simple Steps. Baseline Magazine, June 2007, Issue 073.

    30 Ptak, Richard. Green data center operations on docket for '07. SearchDataCenter.com, 08 Dec 2006

    professional services. The dynamics of continual evolving technologies and market needs creates a mix-and-match challenge for the providers about on which segment should they position their services.

    The basic segmentations in the business can be drawn by function, as high capital-intensive which at the same time can be considered as the high end side (typically telecommunication companies and financial institutions). The low end is focused on the professional services and it is skill-based, less capital intensive but with higher operational overheads. Those segments are not mutually exclusive, moreover, providers usually combine both in their service portfolios, although concentrate their expertise in one of them.

    Playing in the economies of scale part of the game, the most important thing is reaching critical mass in terms of installed capacity (floor space) and user volumes, which allows to reach breakeven. With the introduction of new fiber optic technologies direct link prices from China to Europe or US may go down to $500.000 from double this price within just one year, driving down also bandwidth costs (yet constrains exists in comparison with more mature markets such as the american or european, where prices can be up to 10 times lower 31 ). At the middle end side there could be some positive effect, as the lower bandwidth prices can stimulate the whole economy and thus the demand for business services (here we consider households as the low end). However, time for technology maturity should be also considered, as overdimensioning has the price tag of overcapacity on it.

    Global player with presence in China, Level 3, supports the idea that in a business with so many different value chain layers vendors should focus on a particular layer. In their case, that would be bandwidth instead of application services, where they prefer to work through partnerships: “If a customer comes to us and say he wants managed services, wants load balancing, wants monitoring, and wants applications, then we say this is not our strength”.

    In the other side, local players such as Diyixian focus on managing network services (such as virtual private networks), not offering bandwith or physical space. “If someone comes and wants 5,000 square feet from us then we ask them to kindly go to another IDC. We try to offer services at the server level. We try tell the customers that we can manage their Internet applications by providing the basic hosting part and the access part. The hosting part is the

    31 Racks & the telecom revolution. Hong Kong Business Magazine. Hong Kong: Mar 2001. Vol. 18, Iss. 225; pg. I11, 3 pgs

    basic hardware/OS network systems. We don't intend to go beyond that”. In this scenario economies of scale are achieved by standarizing services.

    V. Castellana from Exodus explains that the existing model in Hong Kong is unusual because the customer gets a bundled price in data centre services, which is indeed a smart marketing move. However, as more international customers move to China the model will be challenged, as those customers will keep some of their vendor services back home. This can be also perceived as one signal of different levels of market maturity, as Chinese data center providers seen to exist at a complementary rather than at a competitive level.

    FINAL REMARKS

    FINAL REMARKS The growth of the financial sector in mainland China is opening new opportunities to

    The growth of the financial sector in mainland China is opening new opportunities to all kind of data center vendors, from the capital intensive bandwidth and floor space providers to more talented intensive application services providers. In general the middle market relies in local players for warehousing, the top end is brand sensitive in terms of data warehousing but will buy other solutions (specially application management and business intelligence) from local players. In terms of outsourcing, MNC (multinational) companies adoption is generally higher, and companies relied heavily in their economies of scale, brands and expertise. The effect of the integration of Honk Kong and the proximity of Taiwan as consolidating markets has been negligible, as customers in mainland seek other complementary solutions from them.

    It was found that an holistic brand positioning can effectively explain the success of the foreign data warehousing providers in China. Particularly, the dimensions related to customer relationship management by: 1) The effect of reputation, by considering the customers as main stakeholders, who are usually global professionals whose decision maker process is heavily influenced by their personal networks and are more sensitive about value than price. 2) And proven pay off of social relationship in a context where personal and government relations are enforced by culture.

    v.percy

    pvenegas@mib,edu

    Holistic Branding as B2B Marketing Strategic Advantage: The Case of the Data Centers

    Appendix

    PARTIAL TRANSCRIPT OF IDC INTERVIEW

    Interview, 24July 2007

    Felix Liu Senior Analyst, Business Intelligence Software & Service, IDC China Email: fliu@idc.com Direct: +86 10 8391 3610 Ext. 3722

    Ting Yang

    Senior Analyst

    Software & Service, Datacenters IDC China 8610-83913610 Ext 3203

    Appendix P ARTIAL TRANSCRIPT OF IDC INTERVIEW Interview, 24July 2007 Felix Liu Senior Analyst, Business Intelligencefliu@idc.com Direct: +86 10 8391 3610 Ext. 3722 Ting Yang Senior Analyst Software & Service, Datacenters IDC China 8610-83913610 Ext 3203 tyang@idc.com China Data Warehousing market growth has account for over 16% in revenues since last year, with the financial services (including insurance keeping large amounts of data), while Manufacturing sector usually prefers to warehouse data in house. For Outsource warehousing the localization of clusters is traditionally in Shanghai and Beijing, keeping disaster recovery facilities (mirrors) in other cities such as Guangzhou and Shenzen. Regarding environment conditions, China's WTO Agreement and its Impact, any comments in the pre/post 2001 periods R/it became Knowing that the WTO agreements affecting banks directly were being effective in 2006, this institution started early preparations in 2005, so there was no perceived impact in operations. Also related to Hong Kong integration under the “1 country, 2 systems” law, the data center market has not been affected –HK is focusing on providng other value added services than warehousing, including ticketing systems and other applications. China is below the worldwide market for outsourcing, MNC (multinationals) companies adoption is high with the top end/brand sensitive segment while local enterprises will warehouse with local warehousing providers. Both foreign and local enterprises buy application solutions from local vendors. Also, Local players leverage their joint venture relationship with main foreign suppliers (HP,IBM,Oracle). v.percy pvenegas@mib,edu Holistic Branding as B2B Marketing Strategic Advantage: The Case of the Data Centers Business in China 37 " id="pdf-obj-36-25" src="pdf-obj-36-25.jpg">

    China Data Warehousing market growth has account for over 16% in revenues since last year, with the financial services (including insurance keeping large amounts of data), while Manufacturing sector usually prefers to warehouse data in house. For Outsource warehousing the localization of clusters is traditionally in Shanghai and Beijing, keeping disaster recovery facilities (mirrors) in other cities such as Guangzhou and Shenzen.

    Regarding environment conditions, China's WTO Agreement and its Impact, any comments in the pre/post 2001 periods R/it became Knowing that the WTO agreements affecting banks directly were being effective in 2006, this institution started early preparations in 2005, so there was no perceived impact in operations. Also related to Hong Kong integration under the “1 country, 2 systems” law, the data center market has not been affected –HK is focusing on providng other value added services than warehousing, including ticketing systems and other applications.

    China is below the worldwide market for outsourcing, MNC (multinationals) companies adoption is high with the top end/brand sensitive segment while local enterprises will warehouse with local warehousing providers. Both foreign and local enterprises buy application solutions from local vendors. Also, Local players leverage their joint venture relationship with main foreign suppliers (HP,IBM,Oracle).

    v.percy

    pvenegas@mib,edu

    Holistic Branding as B2B Marketing Strategic Advantage: The Case of the Data Centers

    GLOSARY 32

    G LOSARY ASP (application service provider). These are service firms that provide a contractual service, offering

    ASP (application service provider). These are service firms that provide a contractual service, offering to deploy, host, and enhance what is usually packaged application software from a centrally managed facility. Applications are accessed remotely, for instance, over the Internet or leased lines. ASPs provide all of the specific activities and expertise aimed at managing the software application or set of application.

    ASDL (asymmetric digital subscriber line). A technology that allows more data to be sent over existing copper telephone lines. ADSL supports data rates of 1.5-9.0 Mbps when receiving data (known as the downstream rate), and 16-640 Kbps when sending data (known as the upstream rate). ADSL requires a special ADSL modem, which will likely be one of the more popular choices for Internet access over the next few years.

    ATM (asynchronous transfer mode). A network technology based on transferring data in cells or packets of a fixed size. The cell used with ATM is relatively small compared to units used with older technologies. The small, constant cell size allows ATM equipment to transmit video, audio, and computer data over the same network, and ensures that no single type of data hogs the line. Current implementations of ATM support data transfer rates of 25-622 Mbps, compared with a maximum of 100 Mbps for Ethernet, the current technology used for most LANs. Many technical experts believe ATM holds the answer to the Internet bandwidth problem.

    Broadband transmission. A type of data transmission whereby a single medium (wire) can carry several channels at once. For example, Cable TV uses broadband transmission. In contrast, baseband transmission allows only one signal at a time. Communication between computers, including through most local area networks, employ baseband transmission. B-ISDN networks use broadband.

    Bandwidth. The amount of data that can be transmitted in a fixed amount of time. For digital devices, the bandwidth is usually expressed in bits per second (bps) or bytes per second. For analog devices, the bandwidth is expressed in cycles per seconds, or Hertz.

    Browser (or web browser). The software applications that serve as the front end to the WWW on the Internet, and that allow users to locate and display Web pages. Although Mosaic was the browser that put the Web on the map, the two major browsers today are Netscape Navigator and Microsoft Internet Explorer. Both of these are graphical browsers, which means they can displays graphics as well as text.

    32 Racks & the telecom revolution. Hong Kong Business Magazine. Hong Kong: Mar 2001. Vol. 18, Iss. 225; pg. I11, 3 pgs

    v.percy

    pvenegas@mib,edu

    Holistic Branding as B2B Marketing Strategic Advantage: The Case of the Data Centers

    Cable modem. A modem designed to operate over cable-TV lines, because the coaxial cable used by cable TV provides much greater bandwidth than telephone lines, a cable modem can be used to achieve extremely fast access to the WWW. There are a number of technical difficulties, however. One is the cable-TV infrastructure is designed to broadcast TV signals in just one direction - from the cable-TV company to people's homes. The Internet, however, is a twoway system in which data also needs to flow from the client to the server. It is still unknown whether the cable-TV networks can handle the traffic that would ensue if millions of users began using the system for Internet access.

    Co-axial cable. A type of wire that consists of a center wire surrounded by insulation and then a grounded shield of braided wire. The shield minimizes electric and radio frequency interference. Coaxial cabling is the primary type of cabling used by the cable television industry and is also widely used for computer networks. Although more expensive than standard telephone wire, it is much less susceptible to interference and can carry much more data. Because the cable television industry has already connected millions of homes with coaxial cable, many analysts believe they are the best positioned to capitalize on the much-heralded information highway.

    Co-location (colo). Locating a web server in a dedicated facility designed with resources that offer 24-hour technical support and maintenance to ensure the smooth and continued operation of the server.

    Ethernet. A local-area network (LAN) protocol developed by Xerox in co- operation with DEC and Intel in 1976. Ethernet supports data transfer rates of 10 Mbps. It is one of the most widely implemented LAN standards. A newer version of Ethernet, Fast Ethernet, supports data transfer rates of 100 Mbps. The newest version, Gigabit Ethernet, supports data rates of 1 Gbps (1,000 Mbps).

    Electronic data interchange (EDI). An early form of e-commerce that predates the web, EDI is defined as computer-to-computer transfer of business transaction information (such as invoices and purchase orders) using standard, industry accepted, message formats. The format for documents transferred using EDI is typically defined by vendor specifications, the most prominent of which are the ANSI X12 standard and the United Nations EDIFACT standard. EDI uses software to translate fixed files into the standardized EDI formats, then relays the extracted information via communication software for transmission.

    Fiber optics. A technology that uses glass (or plastic) threads (fibers) to transmit data. A fiber-- optic cable consists of a bundle of glass threads, each of which is capable of transmitting messages modulated onto light waves. Fiber optics is a particularly popular technology for local-area networks. In addition, telephone companies are steadily replacing traditional telephone lines with fiber-optic cables.

    Host. A computer system accessed by a user working at a remote location. Typically, the term is used when there are two computer systems connected by modems and telephones lines. The system that contains the data

    is called the host, while the computer at which the user sits is called the remote terminal.

    Internet. A global network connecting millions of computers. More than 100 countries are linked into exchanges of data, news, and opinions. Unlike on- line services, which are centrally controlled, the Internet is decentralized by design. Each Internet computer, called a host, is independent. Its operators can choose which Internet services to use and which local services to make available to the global Internet community. The centre piece of the Internet's working is a network protocol called TCP/IP (see below), which is a kind of coding system that lets computer electronically describe data, like words in this page, to each other over a network.

    IP (Internet protocol). IP defines how information gets passed between computer systems across the Internet. It specifies the format of packets, also called datagrams, and the addressing scheme. Most networks combine IP with a higher-level protocol called transmission control protocol (TCP), which establishes a virtual connection between a destination and a source. IP by itself is something like the postal system. It allows a user to address a package and drop it in the system, but there is no direct link between the user and the recipient. TCP/IP, on the other hand, establishes a connection between two hosts so messages can be sent back and forth for a period of time.

    ISDN (integrated services digital network). An international communications standard for sending voice, video, and data over digital telephone lines. ISDN requires special metal wires and supports data transfer rates of 64 Kbps. Most ISDN lines offered by telephone companies provide two lines at once, called B channels. One line can be used for voice and the other for data, or both lines can be used for data to give data rates of 128 Kbps, 3X the data rate provided by today's fastest modems.

    ISP (Internet service provider). An ISP is a company that provides access to the Internet. For a monthly fee, the service provider provides a software package, username, password, and access phone number. Equipped with a modem, the user can then log on to the Internet and browse the WWW and send and receive e-mail. In addition to serving individuals, ISPs also serve large companies, providing a direct connection from the company's networks to the Internet. ISPs are connected to one another through network access points (NAPs).

    Leased line. A permanent telephone connection between two points set up by a telecommunications common carrier. For example, a T-1 channel is a type of leased line that provides a maximum transmission speed of 1.544 Mbps.

    Load balancing. The service quality a web server gives its end users depend on two things: transfer speeds between networks and the response time from the respective servers. Transfer speed depends on the Internet-link bandwidth, while server response depends on computing resources, for example, your CPU, your RAM or good input/output performance. However in a situation when the network traffic is heavy or when the resources are exhausted, the quality of the service suffers. Load balancing attempts to redress, that is, to correct this deterioration in the quality. Several options are

    available, install more servers, or upgrade your CPU, but there are limitations to these methods especially in high-- volume sites like Yahoo and Netscape. Other standard solutions to the problem are related to domain name system (DNS) and to the reverse proxy approach.

    Network. It refers to a group of two or more linked computer systems. There are many types of computer networks, including local-area networks (LANs) - the computers are geographically close together (in the same building) - and wide-area networks (WANs) - the computers are farther apart and are connected by telephone lines or radio waves.

    Node. (1) In telecommunication/computing networks, a processing location. A node can be a computer or some other device, such as a printer. (2) In tree structures, it is a point where two or more lines meet.

    POP (Post Office Protocol / Point of Presence). (1) A protocol used to retrieve e-mail from a mail server. Most e-mail applications use POP although some use the newer IMAP (Internet message access protocol). POP2, the version of POP, receives message and requires SMTP to send messages. POP3, the newer version, can be used with or without SMTP. (2) Point of Presence is a telephone number that gives you dial-up access. ISPs generally provide POPs so that user can make a local call for getting into the Internet.

    Portal. A web

    site

    that offers a variety of information

    and services,

    including e-mail, forums and search engines.

    Protocol. An agreed format for transmitting data between two devices. The protocol determines the following: the type of error checking to be used, data compression method, how the sending device will indicate that it has finished sending a message, and how the receiving device will indicate that it has received a message. They are a variety of standard protocols from which programmers can choose. Each has particular advantages and disadvantages; for example, some are simpler than others; some are more reliable and some are faster.

    PSTN

    (public

    switched

    telephone

    network).

    This

    refers

    to

    the

    international telephone system based on copper wires carrying analog Voice data. This is in contrast to newer telephone networks base on digital technologies, such as ISDN and FDDI.

    Server. It is a computer or device on a network that manages network resources. For example, a file server is a computer and storage device dedicated to storing files. Any user on the network can store files on the server. A print server is a computer that manages one or more printers, and a network server is a computer that manages network traffic. A database server is a computer system that processes database queries. Servers are often dedicated, meaning they perform no other tasks besides their server tasks.

    SME. Small and medium size enterprise.

    Supply chain. A network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished

    products to customers. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm.

    T-1 line. A dedicated phone connection supporting data rates of 1.544 Mbps. A T-1 line consists of 24 individual channels, each supporting 64 Kbps. Each 64-Kbps channel can be configured to carry voice or data traffic. The T-1 line is a popular leased line option for businesses connecting to the Internet and for ISPs connecting to the Internet backbone. The Internet backbone consists of faster T-3 connections.

    T-3 line. A dedicated phone connection supporting data rates of about 43 Mbps. A T-3 line consists of 672 individual channels, each supporting 64 Kbps, The T-3 line is used mainly by ISPs connecting to the Internet backbone and for the backbone itself.

    WAP (wireless application protocol). A secure specification that enables users to access and send information instantly via wireless devices. WAP is supported by all operating systems.

    Web server. It is a computer that delivers (serve up) web pages. Every web server has an IP address and possibly a domain name. If a user enters the URL in the user's browser, this sends a request to the server with the domain name. The server then fetches the page name and sends it to the user's browser. Any computer can be turned into a web server by installing server software and connecting the machine to the Internet.

    Web site. It is a site (location) on the WWW. Each web site contains a home page, which is the first document users see when they enter the site. The site might also contain additional documents and files. Each site is owned and managed by an individual company or organization.

    WWW (world wide web). It is an Internet facility that links documents. The web document is called a web page, and links in the page let users jump from page to page whether the pages are stored on the same server or on servers around the world.

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