Pushing into the Australian market paid dividends for privately-owned Datacom.
The Wellington-based technology company reported 13 percent revenue growth to a shade over NZ$1 billion. It is the first New Zealand technology company to pass the billion dollar milestone.
In comparison profits were small. The group after tax profit was NZ$27 million, up 12 percent on the previous year.
Revenue grew 13 percent in New Zealand. The Australian and Asian business grew by the same amount.
Datacom says it’s Australia Systems division saw increased demand for hybrid cloud services and the company’s new software portfolio. It says software development in Australia gained as the company boosted delivery capabilities in Melbourne and Sydney.
The company opened four new offices in the last year and now operates from 29 locations around the world.
Unlike Spark Digital, which now focuses almost exclusively on New Zealand, Datacom is increasingly international in its outlook.
This is paying off: the company is on a strong growth path, albeit with razor-thin margins.
Those slim margins are not likely to worry anyone during an expansion phase. And, anyway, cloud is a low-margin business. For now, the game is all about bulking up. Datacom is doing that with a vengeance.
Latency is a good reason to build a data centre closer to customers.
Spark Digital has just spent NZ$60 million building a data centre in Takanini, South Auckland. That puts it within spitting distance of New Zealand’s biggest market. According to Spark the Takanini data centre is part of a NZ$200 million investment in New Zealand cloud services.
Rivals Datacom and Catalyst IT have both invested in New Zealand data centres. So have multinationals. In 2011 IBM opened an NZ$80 million facility in Auckland. Earlier this year IBM spent a further NZ$10 million bringing new managed cloud services to New Zealand.
Latency isn’t the only reason to build data centres in New Zealand. Data sovereignty is also important. Some data must be stored in New Zealand by law. There are companies who prefer to keep their data where predictable, manageable New Zealand privacy laws apply. And fears that foreign governments often have the rights to snoop on data stored in their territory also drives some companies to keep data where it is relatively safe.
Price is the downside of buying cloud services in New Zealand. One local start-up told me it would cost almost ten times the going international rate to use local cloud servers. That would put their business at a significant disadvantage.
Yet, latency can mean the higher cost of local cloud services is worth every penny.
The submarine cables connecting New Zealand to the rest of the world are fast — data travels though those pipes at the speed of light. However, over long distances — and from New Zealand that means most places — even light-speed travel times are a problem.
There’s nothing we can do about latency. As they say in Star Trek: “You cannae change the laws of physics”.
Here is a list of round trip ping times to overseas destinations. The numbers come from Verizon statistics and are for direct trips. Think of these numbers as the best case. Some traffic travels over roundabout routes, it is not unknown for NZ-Singapore traffic to go via the USA and routes through the public internet can get held up for all kinds of reasons.
I’m told latency becomes noticeable on desktop interactive apps when round trip ping times go over 50ms. You may have a different experience. Moving a mouse around a spreadsheet or typing more than a few words into a form is frustrating when there’s a long lag between action and effect.
Ping times to Australia are on a par with domestic times. Reannz (Research and Education Advanced Network New Zealand Ltd) reports domestic latency between the two furthest points of presence on its network, North Shore and Invermay is 22ms. While traffic from New Zealand’s South Island has to travel to Auckland before making the trans-Tasman hop, for New Zealand companies in Auckland, Eastern Australia has domestic-like latency.
What does this mean for New Zealand cloud providers? Putting aside data sovereignty, the issue is how important is latency to your application. You can farm out low priority jobs to the cheapest cloud providers anywhere in the world — the size of the US economy means that’s where there are economies of scale. It makes sense to keep the highest priority workloads, where speed is essential, in New Zealand. Everything else can go to Australia.
Buying Origen is an interesting move on Datacom’s part. On the surface it’s a simply a consolidation play. The acquisition shores up the company’s business in the local government sector – a substantial market for the company.
At the same time, Datacom gets to leverage its Trans-Tasman presence. The company’s brand is well-known and trusted – that can open doors for Origen where a 15-person Tauranga-based outfit might struggle. Australians are used to dealing with larger technology providers and may wonder if a small company can be provided the depth of support. That’s probably not fair – but then life isn’t either.
But the part that caught my eye is that Datacom plans to offer Origen along with cloud services and business process management. That’s a business where its relative scale can score. Presumably, there are a lot more specialist vertical market software developers out there who could do with a similar cloud and services leg-up.
New Zealand tech companies don’t come much bigger than Datacom. The company is also old by industry standards. It started in the 1960s. For years Datacom deliberately stayed out of the public eye. It prefers to keep its own counsel and communicate directly with customers.
Despite that, there’s nothing staid or complacent about Datacom.
He says the company deliberately fosters an internal innovation culture. In effect he said there are virtual start-up teams and there are competitive events where Datacom developers work start-up style.
Big technology companies often claim they support internal entrepreneurial activity. Often it’s a matter of paying lip-service to the idea. Partly it is a way of keeping developer teams happy.
Datacom workers innovate outside work hours
Davidson made it clear Datacom’s entrepreneurial culture is more than skin deep. He told me the events often take place outside normal work hours. They are popular and well attended. Although he didn’t say so, it was also clear the company’s senior management stands squarely behind these activities.
Tech feature writing works best when you focus on one or two big ideas, throw everything in and it gets hard to follow. So I left this material out and made a note that it could be worth a follow-up later.
Then I spoke to Mohit Singh for a story about Garden Genie. The team won top prize at the Auckland Startup Weekend in November. That’s an achievement. But it went on to win the global ecommerce prize. Team members are now in Austin, Texas working in an incubator to get their idea ready for market.
Singh works as a developer for Datacom. Moreover, he works on phone apps. You’d think that might mean a conflict: a motivated, smart entrepreneur delving away in a tech giant. Singh told me he has nothing but encouragement from his managers – presumably including time off work to take up the prize. Nothing serves as a better illustration that Davidson means it when he talks about fostering an internal innovation culture.