Entrepreneurial Data Center Operations: Interview with Eli Scher of New Continuum

Steve Sidwell:

On this episode, we interview Eli Scher, the CEO of New Continuum. During our interview, Eli explains what led him to start New Continuum, what he believes is the next frontier of the data center industry, and so much more. Brace yourself, you’re now entering the Tech Bench Podcast.

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Steve Sidwell:

This is Steve Sidwell and James Patrignelli of the Tech Bench Podcast. Today we’re talking with Eli Scher of New Continuum. Eli, Thank you for joining us today and welcome.

Eli Scher:

Thanks guys, appreciate it.

James Patrignelli:

Why don’t you just tell us a little bit about how you have a career in finance, and then all of a sudden you find yourself owning and operating a data center in Chicago?

Eli Scher:

Yeah. I do view myself as more of an entrepreneurial finance person, right? So this wasn’t my first venture. I’ve operated things in the past. I had lived in Shanghai, China for five years and operated two media businesses, real operating companies. And then also raised a SPAC, which is a special purpose acquisition corporation, which is a publicly traded vehicle that trades in the US. But our mandate was to acquire a business in China. So all that is to say, entrepreneurial finance, right?

Looking for opportunities and not being afraid to roll up my sleeves. So I was working at a hedge fund after I moved back from China, and we saw an opportunity. I saw an opportunity to acquire an asset. I kept looking at this particular facility and it was a really, really nice facility that had been built to a very high standard, and had been not completed. Right? So it was almost completed and then effectively the whistle blew and people stopped working. So I saw an opportunity to get ahold of this asset and redevelop it and build a business around that. Right? I guess the things that I saw from a high level where fiber, the convergence of fiber. And so this asset had been built years ago for a government tenant.

 And so at the time it was way out in the Western Chicago suburbs and there was really nothing there. But then over the years, well, the Chicago mercantile exchange moved its matching engine, at least in part, to Aurora, from downtown. At 350 Cermak, which is the legacy carrier hotel, really for the Midwest. And so what I saw was the convergence of long haul dark fiber, right? So you had all of this fiber that converged at 350 Cermak, and then the CME moved its matching engine to Aurora. And all of the high frequency traders built custom networks, low latency networks from Secaucus on the East Coast to terminate in Aurora now. And so they are these ultra low latency routes that can move data from the East Coast to the Midwest, to Aurora now, not downtown. And again, going West out to the Asian markets, the lowest latency routes from the Midwest are now from Aurora up to, I think Seattle, but don’t quote me. Well, I guess I am being quoted. But anyway, I’m not sure exactly where it goes. But again, those low latency routes were built for financial applications.

 And so I saw that and said, “Okay, the fiber converge is there. There’s abundant inexpensive power. There’s land. Data center should grow.” And obviously it’s much more complicated than that, but I saw that from a very high level, and that’s still maintains true today, right? All of those ingredients exist. And so we built our business plan around that, trying to leverage that and make it work for us.

James Patrignelli:

Sure. That’s a bit of luck that CME chooses that area and you just become their immediate neighbor.

Eli Scher:

Yeah. Right? I mean, so they chose the region for a good reason. The region had been, or is very well vetted for natural disasters. There’s advanced research labs in the region that are federally funded, and there’s also abundant power. So they knew what they were doing when they put the matching engine out there. It was intentionally to be a diversification of risk from downtown Chicago, where all the fiber converges at the Legacy Carrier hotel. And now to have you’re B side far enough out, but again with that same rich connectivity. So if that’s the architecture that makes the most sense for a matching engine that needs to be up all the time, the same architecture for everything that needs to be up all the time. Right?

And so we went about building what we think is the B side to downtown Chicago. Which, if that’s going to be where all the major switching continues to happen, because it will. Right? And that’s all good. We want to build that B side where new workloads can interconnect efficiently with one another, and also efficiently back to downtown and throughout the entire metro. So that’s how we saw it.

James Patrignelli:

Of course. I mean, it’s the same as lower Manhattan and then you have Secaucus, Mahwah, and Carter at the same thing.

Eli Scher:

Yep, exactly. And all of the exchanges. So the key is to have more exchange of traffic at each of those locations, and then to allow the interconnection among those sites. And that’s starting to happen, and New York is one market where it is starting to happen. Right? New York, New Jersey. But still that metro interconnection isn’t quite happening. It’s happening on a custom and application level. And it can, because there are plenty of software defined networks, but it hasn’t happened at scale yet.

Building National Data Centers

James Patrignelli:

Great. Now you are new to the data center market. You’re new to Chicago in a sense, but you’re living in New York city. How does it go about? What’s your day-to-day in operating a business out of Chicago?

Eli Scher:

Yeah. Right. I saw this asset, right? There was an opportunity, I thought, to get control of this particular building. And I’ve lived in New York my whole life. So it’s important for me, obviously, to have a great team that it operates on the level that we operate, to the standards that we operate to. And so we’ve got a great team on the ground. And so from my perspective, it’s not going to be… Sure, I’m involved in all of the conversations with customers, and the decisions about all of the various in the weeds, nitty gritty line items.

But really where I can add most value is on seeing the bigger picture, hopefully. And trying to be able to position our business for growth in the future. Right? And so living in New York, obviously, I think there’s opportunities for me to meet with folks and be exposed to ideas, and conversations that allow me to position the business in somewhat a better way. And so what we’re doing now is obviously positioning ourselves for expansion. We think we’ve figured out what is required from an infrastructure standpoint for, I guess you could say, internet infrastructure broadly to advance. We kind of see where the shortcomings are, what’s holding things back. And I think it’s very solvable. And I think there’s consensus, right? It’s not me.

I’m not the only guy who sees this, everybody sees it. And there are lots of people working on it. And it’s pretty exciting, right? So from my perspective, it doesn’t matter where I am, right? [inaudible 00:10:15] the answer. I view this business we’re building as something that will be national, maybe international. But it’s really about what the opportunities are. And I would’ve liked to have expanded earlier, right? I mean, I think I’ve been having a vision of where this business can go for years, but it was also important for us to crawl before we walk, and really get the business right, and the value proposition right before we try to replicate it nationally.

Steve Sidwell:

So a question for you, when you’re talking about expansion, I mean, obviously that’s going to be on a bunch of different levels at different times. I’ve seen the video on your website, it’s really cool, actually. And it very much makes me want to get a better drone. The area around you guys, are you thinking about additional building space type expansion, or expansion of connectivity, changing the type of connectivity? Or expanding by, not shrinking, but you have a very different, it looks like to me caged structure than most of the data centers I’ve been in. So is it through that type of, I guess, [crosstalk 00:11:40] client consolidation down to single rack based on just increased computing power? Where are you looking to go there, do you think? [crosstalk 00:11:50] the question.

Eli Scher:

No, no, no. It’s good. No. I mean, I think there’s the expansion thing. So there are two pieces to this, right? So the expansion piece, what I’m looking at, sure, yes, there’s adjacent acreage. We could potentially expand. We have plenty of space and power where we are. And to your point, we believe footprints in general can be consolidated and be more high density. Right? Or I guess, can take a smaller footprint and deliver more power. Right? That’s what we’re talking about. That said, when I’m talking about expansion, I’m talking about other markets, right? So entirely other markets outside of Chicago, looking in the Northern Virginia market and the Seattle market, and Dallas market, Atlanta, these are markets where we think it’s population density, right?

Ultimately, where do you think there’s going to be enough mobile traffic that will grow on those mobile lines that are currently being routed very inefficiently. And so if you can just marginally improve that mobile routing, you can do a lot, right? And so you can put workloads where that mobile routing is happening. And so we’re positioned for that, and we’re trying to do that in Chicago. And then there are these other markets that we’re trying to go after. When you talk about the shrinking workloads, that’s a whole nother conversation, which I think is really interesting. And because we just got into business, it’s a very different conversation, right? So when most people who have full enterprise data centers are experiencing this, flight to cloud, and then a shrinking enterprise footprint, and we started with an empty data center and no preconceived notions.

And immediately it became apparent to us that interconnection and interoperability of service providers was going to be key. And the enterprises were consuming services more. Right? And so, yes, there’s the mega cloud guys, but there’s also all kinds of other service providers, and they’re growing. Right? Very rapidly. And they’re customized, and they need to be in co-location facilities. And then ultimately the enterprises, when they shrink small enough, they’d rather be in a co-location facility where they can easily consume all of those services, right? Than somewhere else.

So we’ve tried to build our ecosystem around that, and basically, trying to attract service providers. Right? So we invested in a multi-site peering fabric that connects multiple buildings in Chicago and allows networks that are connected in any building to pass layer two traffic to one another freely on this exchange. So you pay for a port and you connect at a regional data center, and that’s where workloads reside. We built this thing to facilitate what we think is the next evolution of architecture. And so we’re doing that in every market we go to, where we’d like to do that anyway. But that’s how we are, I guess, expanding. Right? The first part of your question. But also how we’re viewing shrinking footprints, to the second part of your question. If that helps.

Steve Sidwell:

Absolutely. So it sounds like effectively the… So one of the big differences, it sounds like, between what you guys do and a lot of the other data center providers out there is, it’s hard. I mean, obviously you’ve been doing this for a while, so it’s easier for you to put it into words than it is for me. But it’s the having multiple types of services in one location, and being able to access them from just absolutely anywhere. And then being able to tie those at really high speed down a layer two switching, without bothering to go through layer three routing and all the rest of it. Which is where you get a lot of real slowdowns from back plane processing and cross traffic, and all the rest. That you can link that up, not only with your data center, but with other data centers, or with other of your facilities in markets that you’re looking to expand into. Am I understanding that correctly?

Innovative Increases to Data Center Connectivity

Eli Scher:

Yeah. I mean, our concept is pretty simple. Right? Again, I’m not a technical guy. I don’t have a very deep technical background. I took an approach that was very simple to a problem. Right? And the problem was, how do I bring more connectivity and interconnection to my facility? And so the way I thought about it was very simple. Right? Okay. What are the barriers to doing it today, right? And, what do people want? Well, people want to interconnect more. They want to have more opportunities to exchange traffic with one another if they’re in the same place. And data centers are good with that, everybody’s good with it. Why don’t we make it happen? So we facilitate that broadly in a market, and that benefits all the market participants, not only us. Right?

 So that’s not any special sauce, that’s just something we believe the market needs. Separate from that, we approach the market to offer data center services. And of course the connectivity that comes from the other part, right? From building the internet exchange. But also other carriers and other services that are built into our facility. And we support the market with flexible co-location, right? And so the way I differentiate today is just by carrying more, right? So it’s really, we try harder, we care more about the smaller footprint, the service providers, the guys who are putting out 10, 20, 40 racks, whatever it is. We treat them with respect, and we care about those deals.

 And so that is important because those customers, we believe, are growing and those workloads are growing. Those aren’t enterprises, to your point, that are continuously migrating stuff to other service providers. Right? So we just try to think about, what do these folks want, and how do we build our product to what they want? And so it’s about being flexible. It’s about literally carrying more, right? It’s hard to differentiate in a crowded sector. Right? And so what we try to do is lead with our culture, I guess, and what we believe in as a company. Right? And that includes more interconnection in every region, we think that’s important, just broadly speaking. We like high density footprints, we like efficiency.

We like supporting folks who are doing cool things on the technology side to, again, deliver new experiences, deliver efficiencies. That’s just broadly how we differentiate. And then we, again, we try to support. And not just talk about that stuff, but actually go and support these causes. So whether it’s volunteering our time, or contributing to an organization, whatever it takes from our perspective. Or however we can contribute to advancing, we view it as our broader philosophical objective for internet.

Innovative Technology in a Saturated Market

Steve Sidwell:

That makes a lot of sense. I mean, definitely just going through your website. And I know reading the bios of the people on your team, it sounds like you have a really solid team there. And it just, honestly, it sounds like a cool place to work and a cool product that you’re pushing out. And, I mean, it’s a very fresh feel to the whole thing. It just feels solid. And just, I don’t know, to me it just seems well-designed and interesting. And I like that. When you say get involved with trying to push forward interesting projects that people are doing, and seeing what you can do to help with that, I think that’s fantastic. I think there’s so much of the data center world that is amazing to guys who love technology. And outside of that it can get very, very boring very quickly.

And I think there’s a lot of us out there that really love the tech, but at the same time, after a few years of that tech doing the same thing it becomes a lot of electricity and a lot of metal and a lot of network. And pushing forward new products and new services is, I don’t know, to me it’s more interesting because that stuff keeps changing. And it doesn’t get stale because you’re continuing to ride this wave that is going with it. So with that said, being that you started this pretty much from a scratch, right? From a non-completed data center that wasn’t up and running. There wasn’t a lot of… I don’t know how much cooling and power and everything was in there at the beginning. But obviously you’ve sure added a lot since. Where do you feel like you see you guys going in a few years, but then also the rest of the data center market?

 I feel like it is, as you say, I mean, it is a saturated market, but the technology is only growing, especially through more people state side building blockchain setups and all the rest. And then I know that China has obviously been pushing massive, massive push into blockchain data centers and all the rest. But that’s something that I don’t feel like I really see a lot of that in most data centers, but that is something that you guys work with. How do you feel like that that connection is towards where the data center market is going?

Eli Scher:

Yeah. So, a couple things, right? I think we’re trying to provide the infrastructure that’s going to facilitate what people are trying to do. So, that said, we have a very nice center. Right? That’s very well built. So there’s only so much I can do. When you’re talking about putting things in environments that don’t require what I need, then it becomes difficult to compete. Right? But what we’re trying to do, is build the most conducive environment for things to grow. That will, again, benefit from what we have. So it’s the flexible power, it’s allowing you to consume high density power, or whatever kind of cooling you like. We’ll cool it at the rack.

We’ll cool it in row cooling. However you need it for your gear, really, we’ll customize that. We’ll let you consume it how you like. And we’ll provide better routing, right? So from our facility, you’re going to be able to interconnect with more networks from one location in the Western suburbs than anywhere else. And so that’s important because then you can build your applications around that, and then we think that feeds on itself. One of the things you were saying, it reminds me of a phrase I’ve been using lately, which I think accurately describes our philosophy, or our approach, and how our approach differs. Right? So if you think about how the internet works, to your point, you were just saying, we love this stuff.

 We love how the new tech, and we’re all in it together. And everybody’s sort of… After some period of time it starts to get annoying, right? And a chore, and it’s costly, and all that bad stuff. Right? I think, from our perspective we’re trying to bring the approach of the internet, which is very consensus building, right? So the internet works because networks talk to one another. Right? BGP, border gateway protocol, works because different autonomous systems agree to behave in a certain way. Right? When people do bad things like throw bad traffic at autonomous systems, those are called DDoS attacks. Right? So by and large, we all play by the same rules and we agree this is how we’re going to operate and cooperate.

 Right? And that’s how the internet works, from interconnection, right? And so on the flip side, you have real estate and infrastructure, and that mentality is about building walls and charging tolls. Right? And so you have these two fundamentally juxtaposed ideas of building walls and charging tolls and everybody working together. And so that’s where I think you have this conflict. And so from our perspective we’re trying to say, okay, I get it. I have to build walls and charge tolls because this stuff has to live somewhere. But at the same time, you want it all virtualized so it can live anywhere. All right. You want it secured by blockchain, so you really don’t care that much about security. All right. Right? Okay. But really, all of that stuff still needs something, and what’s that? Interconnection

So what I decided was, okay, this is how we’re going to differentiate. We’re going to focus hard on the interconnection. We can strip back on the resiliency and the redundancy if people don’t need it. High density is required for all of these workloads that do a lot of parallel compute, and that’s blockchain and anything that’s… Well, that’s a whole nother conversation. Right? But there’s lots of those, lots of those new workloads growing. So, again, we customize and build the infrastructure to these compute trends that we see, and that we think we should be aligned to. And that’s the guiding view.

James Patrignelli:

Based on what you’re doing with interconnectivity and providing access to that, and what others are doing in the cloud, where do you see the data center market in say five years from now, if you had to guess?

The Future of the Data Center Market

Eli Scher:

Yeah. I think everything’s growing, right? Broadly speaking, I think large cloud continues to grow for large commodity compute. I think regional data centers will grow if they have interconnection and a flexible business plan, right? They need to be able to deliver value. I think you’re seeing much more enterprise consumption according to their specific needs. It’s no longer wholesale do this or wholesale do that. It’s build something that works well together with the best in class vendors for each of our application sets. Right? So your financial application might live somewhere. Your customer management might live somewhere else. And all of this stuff needs to work well together, and work well on a mobile phone, and work well everywhere. Right? And we don’t have that yet. Right? So we need the infrastructure to support that so that you can watch a movie in a car on the highway, right?

I read that somewhere. 5G network, when can we watch it a full movie on the highway without it getting blurry? So there are immediate use cases today where we can improve things, and that will all need to happen. And that will all require more data centers and more regional data centers. But the on premise stuff, I think that’s going to go away. Right? I mean, I do think that… Let me rephrase that. The corporate data center, right? A single tenant corporate data center, I think goes away. The on premise compute, I think grows. And it just looks very different. So I think you see a lot more of these edge compute platforms growing, because I think you need to keep… And the killer application really there is avoiding transport, because fiber is expensive and you don’t need to move that much data, but you still want to process it because that’s where we get the benefit.

 You get the benefit from mass processing at the edge, and anomalies getting flagged. And that’s where this stuff will really take off. And I do think there’s consensus around what this is going to look like, at least in the next evolution, or at least in the next half step. I think that’s starting to happen now as part of the 5G rollout. So I think, broadly speaking, hyperscale cloud continues to grow, regional data centers with services and connectivity continue to grow, and then corporate single tenant data centers, unless they’re doing one very specific purpose. Right? And there’s always those. Those will probably continue to shrink or fade away.

James Patrignelli:

Sure. Any concerns over looming recession talks that there might be some impact in the data center market considering the amount of competition out there?

Eli Scher:

I guess there’s a couple different things. So recession or competition, right? So there’s two different things out there. Recession, I’m not a macro economist, there’s certainly a bunch of tail risks out there. Right? But still, we continue to climb the wall of worry on all major indices, and that’s where we are today. Right? Who knows where we’ll be, there are lots of things that could scare us and cause people to spend less. And obviously the trade friction, international trade friction isn’t great. But I think broadly speaking people will continue, things continue to look okay. And from a data center standpoint, it is one of those areas that is growing, right? Regardless of most of the macro issues, or unaffected by most of the macro issues.

 So I think from that perspective there’s some level of insulation. But I think on the competition standpoint, that’s a very different question. Right? So on the competition standpoint, I think there’s something really interesting going on there, which isn’t fast, right? I mean, I think it’s, much more capital has come into the space. And I think that’s a good thing because it helps define the space much better. I think historically, all throughout the telecom stack, there’s a ton of opacity, right? It’s just like, nobody quite knows what’s being sold where. And so I think that as investors get smarter and make more investments, that the capital markets get more receptive to it, and capital becomes more available. I think it’s a good thing that there’s more competition, because we need more data centers. And we’re going to continue to need more data centers. We just need to make sure that they’re invested smartly so the capital continues to come, and that people don’t overinvest in the wrong areas, which will be bad for the industry. Right? That’s the only concern.

Steve Sidwell:

And that, of course, making sure that these data centers can talk to each other in a way that everybody understands what’s going on. And that it’s just all very open.

Eli Scher:

Yeah. I think everybody knows that now, or at least most of the major… Anybody who talks to customers, end users who run applications, they know that this is very important. And for the enterprises to start consuming more customized services, which is good for the industry, and it’s good for enterprise because they get more actionable intelligence, that’s something we need to be supporting. I think people will do that, but of course there are those data centers that have been built that are very far away from population centers and don’t have any real reason to exist. And so I think those will continue to play out. But yeah, broadly speaking, I think getting these things connected and making sure you’re in the right places with the product you need. Not the product you want to sell, but what the end user wants.

James Patrignelli:

Great. So Eli, if a listener is in Chicago looking for data center space with amazing connectivity and power, what’s the best way that they could reach out to you or New Continuum?

Eli Scher:

If you’re interested in experiencing what we perceive as a better experience in multi-tenant co-location, please visit our website at www.newcontinuum.net. You’ll have all the information there about our connectivity partners, and somebody will be happy to answer questions, I’m sure. And yeah, we hope to see folks out there.

Steve Sidwell:

That’s fantastic, thank you. And we’ll have the link to that in the show notes. All right, I just want to say two things real quick. First is, Eli, thank you so much for your time today. I really appreciate it. We’ve been talking today with Eli Scher, of New Continuum. It’s a data center company based out in Chicago with facilities in Aurora. It’s a fantastic new data center. And we’ve had a really good time, James and I both really appreciate it. Thank you so much.

Eli Scher:

Thank you.

Steve Sidwell:

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