Why Keep the Enterprise Data Center?

Big cloud providers like Amazon Web Services continue forecasting doom and gloom for the enterprise data center. The most recent example was AWS CEO Andy Jassy’s keynote at the cloud provider’s conference in Washington yesterday, in which he said few companies will own data centers in the future.

That message is of course self-serving, and it’s a message AWS has been hammering for years. The reality is that while the amount of investment companies are making in their own, internal enterprise data centers is either flat or shrinking, no-one really knows whether that on-premise infrastructure model will go away completely. In fact, many signs today indicate that the hybrid infrastructure model, where companies use a mix of on-prem, cloud, and outsourced data center services, is sticking around for the foreseeable future.

As Apple’s former data center network manager, Jason Forrester, recently put it in an interview with Fortune, companies need “complete command and control” of the infrastructure that supports their core strategic applications, such as Apple’s Siri, Uber’s mapping service, and company accounting or inventory tracking systems. “It’s hard to have that command and control if you can’t even tour your public cloud data center,” he said.

The reality is that most companies are keeping at least some data center capacity in-house, while outsourcing the complicated and expensive task of managing infrastructure for non-core applications, such as email and web apps, to the cloud. "Most enterprise applications are highly customized for the company’s needs, which means they don’t fit neatly into the public cloud mold," Forrester said.

See also: How Juniper IT Went from 18 Data Centers to One

Recent survey data illustrates clearly that while a lot of capacity is being outsourced, a lot of it is also staying put. Results of this year’s data center industry survey by the Uptime Institute, published today, show that 50 percent of enterprise IT budgets have been either flat or shrinking over the last five years, and that 55 percent of enterprise server footprints have been either flat or shrinking as well.

At the moment, however, more than 70 percent of enterprise workloads are still running in corporate data centers, according to Uptime. Colocation data centers host 20 percent, and only nine percent is in the cloud.

Read more: Slow Waning of the Enterprise Data Center, in Numbers

Enterprise data center construction is slowing, but it’s not disappearing. In 2014, 18 percent of the enterprise IT respondents to the survey said their companies had built a new data center within the previous 12 months. About 15 percent said their companies had done so in 2015. The answer to the same question was affirmative for about 15 percent of respondents this year.

It’s also important to consider that a lot of the corporate data center requirements are going into facilities leased from wholesale data center providers. This option gives companies full control of their infrastructure without having to own additional real-estate assets.

It is this type of data center where a lot of the core application workloads by the likes of Uber and Apple have been going. Apple, for example, signed at least two 6MW data center leases – in Northern Virginia and Chicago markets – with wholesale provider DuPont Fabros Technologies last year. The same year, Uber leased a 6MW data center from Digital Realty Trust in Dallas.

Read more: Who Leased the Most Data Center Space in 2015?

In another example, enterprise software giant SAP recently bought a piece of land in Colorado from T5 Data Centers where it plans to build a data center of its own.

It’s undeniable that the total portion of the enterprise IT budget that goes to the corporate data center is shrinking. Whether it will eventually reach ‘zero,’ however, remains a huge unknown.

See also: Top Cloud Providers Made $11B on IaaS in 2015, but It’s Only the Beginning

Corrected: A previous version of this article incorrectly stated that SAP had leased data center space from T5 Data Centers. The company actually bought land on a T5 data center campus where it plans to build a data center.