7L Networks rides Toronto’s start-up wave with specialized contracts

Posted on October 6th, 2013

We acknowledge that a large majority of hosting companies do not make their customers sign annual contracts. This is due in part to the highly competitive nature of the hosting industry as a whole. Software developers are building at such a rapid pace, iteration of ideas has become incredibly important.
We have had the pleasure of working with many small businesses. Some have start-up capital, some don’t, but they all have one thing in common; the uncertainty and sometimes discomfort of having to sign longer term contracts.
7L is solving this challenge by offering month to month colocation contracts.
We wanted to share our most recent interaction with 451 Research. If you are subscribed to 451 Research the article can be found here, alternatively you can just read below!
7L Networks rides Toronto’s start-up wave with specialized contracts
Analyst: Michael Levy 17 Sep, 2013
Developer-centric datacenter services provider 7L Networks (7L) has spent the past year reassessing its positioning. When we last spoke with the provider, its customer base was growing increasingly diverse, with much new business hailing from outside the Greater Toronto Area. Observing the start-up boom in the region, 7L decided to refocus its efforts on serving the new business flocking to the city. Since the company is targeting net-centric startups and the venture capital funds that support them, traditional three- to five-year colocation contracts are often too much of a commitment for them to make, considering their future is often uncertain.
In response, 7L decided to offer month-to-month colocation. For a small premium, these nascent companies can get access to pure-play colocation without having to worry about potentially breaking a contract. 7L has observed that many technologists and developers still prefer maintaining their own environment and prefer colocation to public IaaS. 7L believes that if IaaS and VPS offer short-term leases, why shouldn’t colocation providers?
In 2011, 7L achieved 22.5% Y/Y revenue growth. During this refocusing period, the company slowed its aggressive sales approach and Y/Y growth for 2012 dropped to 12.5%. The company expects 2013 growth to bounce back now that it has solidified its trajectory.
7L’s founders are rooted in the Toronto real estate market. In 1996, they acquired 7 Labatt Avenue, which originally served as the first Labatt Blue distribution warehouse in the early 1900s. 7L’s founders inherited a single datacenter tenant that deployed its supporting infrastructure in an adjoining structure attached to the original warehouse. In 2000 the tenant was acquired by a Canadian services provider and moved out. Three years later, the current owners of 7L developed a shared dedicated hosting company within the vacated datacenter environment under the whimsical name LabattRacks. In 2007 the company started offering colocation, and rebranded as 7L Networks.
7L’s facility is a mixed-use building with 65,000 square feet of commercial and industrial space. 7L has multiple office tenants, many of which are developers that also leverage datacenter capacity. Currently, 7,500 operational square feet of capacity have been built out that is 40% utilized.
Services and competition
7L provides colocation, managed services, dedicated hosting, virtual private servers and IaaS. One aspect of the colocation service that 7L emphasizes is its willingness to allow customers to install their own dedicated infrastructure in the facility. The company still operates shared hosting services for a legacy customer base. In response to demand for a hybrid offering, 7L created a public resource pool from which colocation customers may draw when they need temporary elastic capacity. This service will launch Q4 2014.
The company’s virtualized offerings account for 25% of its revenue. Colocation also accounts for 25% and the remaining 50% can be attributed to hosting and managed services.
The 451 Take
Every major multi-tenant datacenter market is home to a developer community that demands a more personalized touch than large service providers are able to offer. These small customers appropriately elect smaller multi-tenant datacenter providers that can introduce greater degrees of flexibility into their contracts. Colocation providers like 7L Networks, which takes a ‘for developers, by developers’ stance, are not competing with other colocation providers but rather with large IaaS and managed hosting companies like Amazon Web Services and Rackspace, respectively, which capture a majority of developer business.
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Analyst(s): Michael Levy

Data centers & facilities / General
Hosted services / Colocation