How the Colo Industry is Changing

LAS VEGAS – The business of providing colocation data center services is changing in numerous ways and for different reasons. Customers are getting smarter about what they want from their data center providers; enterprises use more and more cloud services, and the role of colocation data centers as hubs for cloud access is growing quickly as a result; technology trends like the Internet of Things and DCIM are impacting the industry, each in its own way.

Some of the trends are having a profound effect on the competitive makeup of the market, where even some of the largest players are making big strategic changes and spending lots of money on acquisitions to adjust to the new world they are doing business in.

Bob Gill, a research director at Gartner, outlined eight of the most consequential current trends in the colocation industry at the research and consulting giant’s annual data center operations summit here this week:

Bifurcation

While some providers are branching out, adding higher-level services, such as hosting, cloud, interconnection, or managed services, others are sticking to what’s often referred to as “pure-play colo,” providing space, power, and cooling, and doing it well and at a low cost to the customer.

Examples of the former would be ByteGrid, which went from pure wholesale to hosting, cloud, and managed services, or Digital Realty Trust, which after the acquisition of Telx has moved into the retail colocation and interconnection space in a big way. An example of the latter is DuPont Fabros Technology, which after dabbling in retail colocation last year has changed plans and refocused squarely on wholesale space and power.

Flexible Design

As colocation customers’ understanding of their workloads and data center needs gets more sophisticated, they want more capacity and density options from colo providers. Companies often want multiple power densities in the same space – something providers like Vantage Data Centers and DuPont Fabros have designed for.

Customers also want more flexibility in capacity commitments. Aligned Data Centers, for example, launched this year offering colocation capacity customers can scale up or down and pay only for what they use.

Growing Role of DCIM

Data center infrastructure management software is having an impact on colo providers both internally and externally.

Internally, providers use it to improve efficiency and resiliency, making more informed decisions about their infrastructure using empirical data. Externally, many use DCIM to provide customers with insights into their power usage.

While a full-suite approach to DCIM is useful for internal use, colocation customers don’t need all the bells and whistles that come in a typical suite. An average customer doesn’t need 3D visualization of their environment, for example but will find visibility into their power consumption very useful.

Mergers and Acquisitions

The colo industry has never been a stranger to M&A, but this has been an especially acquisitive year. Some blockbuster deals went down, including Equinix’s purchase of TelecityGroup, and Digital Realty’s Telx deal. Smaller examples include the acquisition of Carpathia Hosting by QTS Realty Trust, and CyrusOne’s entry into the New York market by buying Cervalis.

Acquisitions have both positive and negative effects, according to Gill. On one hand, they create more opportunity for the providers, expand their reach both geographically and in terms of product selection.

At the same time, big acquisitions sometimes create gorillas in certain markets. Equinix, for example, will become the biggest player in Europe by far if the Telecity deal is completed successfully, and it will be nearly impossible for any company to challenge its dominance.

In some cases, companies also make acquisitions to take advantage of a single strength of a company, discounting the rest. And, of course, acquisitions always bring about change in procedures and priorities.

Changing Face of the Buyer

Colocation providers increasingly find themselves talking to people who are in different roles within their organizations. Instead of staff in facilities roles, a data center provider rep may have to pitch to a cloud architect, for example.

Since colocation is becoming a major access point to cloud services, people within customer organizations who oversee cloud strategy are involved in colocation decisions.

Edge Computing

Cloud service providers and digital media companies need to store more and more data in population centers that haven’t traditionally been major data center markets. This is driving growth in the edge data center space.

Providing services in edge markets, however, is a complex business model, since it requires lots of connectivity to and from the data center, internal interconnection as well as WAN capacity.

Edge data center providers also need to be able to attract a critical mass of last-mile ISVs, long-haul carriers, and content providers to make the model work.

Internet of Things and Big Data

What do you call all the IP-connected temperature and humidity sensors, power meters, and CPUs that transmit operational server data if not the Internet of Things? Internally, IoT for data center operators means instrumenting the facilities and analyzing data from that instrumentation to make more informed operational decisions.

Externally, colocation facilities can act as aggregation points for clients’ IoT data, as well as places where processing of that data takes place.

Cloud

“Cloud and colo are natural-born allies,” Gill said. “The cloud has to live somewhere.” While companies like Amazon and Microsoft build their own data centers to house much of the infrastructure that supports their cloud services, they are also massive colocation customers, using data center providers to expand in places where for one reason or another they don’t build their own facilities.

Colocation data centers are also becoming hubs where enterprises access a multitude of cloud service providers. Enterprises seldom use a single cloud provider. Most of them use different providers for different things, and instead of connecting to those providers from their on-premise data centers, it’s a lot easier to access them from a single colocation site, where their infrastructure already sits.