At Data Center World, Colos Covet the Enterprise

While they haven’t had much trouble selling to tech companies, many of the more traditional enterprises – healthcare and biotech firms, banks, universities, and so on – are harder to convince for colocation providers.

The colocation trends panel at Data Center World Tuesday spent a big chunk of the session’s allotted time making the case that owning and operating data centers is something enterprises are better off leaving to the service providers sitting on the panel (Keystone NAP, Vantage, CyrusOne, and ViaWest).

As Liz Cruz, associate director with the market research firm IHS and the panel’s moderator, pointed out, hardware and infrastructure equipment sales into data centers are declining, while revenue colocation providers are raking in is growing in double digits, which means more and more companies choose outsourcing over their own data centers.

Still, when she asked people in the audience to raise their hands if their companies had at least two-thirds of their IT capacity in colocation data centers, only a handful did. It’s cloud providers who are driving a lot of the revenue growth for colo companies – a lot more than enterprises, although enterprise data center spending is slowly waning. “Cloud providers are now the largest tenant of multitenant data center facilities,” Cruz said.

The question panelists were most consistently asked (and had the most trouble with) was, “What would be the reasons to not outsource to colo providers?”

If your business revolves around your data center – a SaaS company, for example – you may choose to build your own, was one answer (by ViaWest’s Dave Leonard). It might also make sense if you know you’ll need a number of data centers around the world, he said. Neither of those answers is definitive of course, which is why the panelists had difficulty with the question. There are plenty of SaaS companies who outsource data centers (heard of Salesforce?), and plenty of data center providers that will gladly set you up with an international footprint.

The one category of users that have to build their own facilities are internet and cloud giants. They provide applications at unprecedented scale and have figured out that at their scale it makes more sense to customize infrastructure to fit their specific needs. Still, most of them supplement the hyperscale facilities they build around the world with leased footprint.

For colocation providers, these hard-nosed enterprise users are not only a big growth opportunity; it’s a matter of longevity. The race to capture the hearts and minds of the enterprise is on, but they’re not only racing each other. They’re also racing the Amazon, Microsoft, and a few others.

Most colo providers have embraced public cloud as reality and have been using their ability to provide direct network access to cloud services from their facilities as a way to attract enterprises, pitching customers on the hybrid cloud, where a physical footprint the customer has full control of is supplemented with public cloud services, all under one roof in a colocation facility.

For the big cloud providers, hybrid cloud is a necessary evil. They have found that at least for now they can’t simply dismiss the idea, but they would surely love to see a future where hybrid cloud is no longer necessary. That scenario would leave colo providers with a much smaller role to play.