Colocation Outlook: Smashing the Crystal Ball

Andy Huxtable, Colocation Product Management at Savvis.

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When it comes to Infrastructure as a Service (IaaS), why invite risk in the old pay-up-front capital expenditure (CapEx) model when you can align revenue to expense in a pay-as you-go operating expenditure (OpEx) model?

It seems obvious, yet many still base their growth plans on their existing business model. They look into their crystal ball to gauge demand for services, "guestimate" and make a commitment upfront, despite many realizing that along the way, things will change radically and so will their needs.

Cloud computing is sold on the notion of decreasing this consumption gap and adding flexibility, yet adoption has been slower than expected. In 2011, the annual State of IT research report showed that 14 per cent of IT decision makers from around the world expected the majority of their IT infrastructure to be outsourced to the cloud by 2013; the reality is that only five per cent currently do so.

Colocation As First Step to Cloud

This year’s research revealed an interesting expectation of colocation in coming years, which may help make the wider transition to the cloud a reality. Seen as the equivalent of “dipping a toe in the water”, colocation is often viewed as the first step into outsourcing on the "Stairway to the Cloud." Based upon a global survey of IT decision makers, a sharp increase in colocation usage is expected over the next two years before it falls again, as companies move to managed services and outsourced cloud.

If colocation is “dipping a toe in the water,” then the emergence of termless contracts must surely be the dipping the smallest toe. The introduction of rolling 30-day colocation contracts, which sees a cloud commercial model being applied to the colocation environment, should increase experimentation as it lowers the risk for the customer.

"Contractual obligations" was one of the top reasons survey respondents gave as a barrier to outsourcing, but new models are taking away almost all obligations and removing the need for the long term commitments of old.

Trial Presence

For example, if a business is thinking about having a presence in another country, all they now need is some spare kit and the ability to pay their NRC. They can get a rack for one or two months, and therefore, make an informed decision whether to negotiate a longer term contract with the provider or pull the plug if things don’t work out.

Such an option is not the kind of thing you’d use for a 500kw suite, but the advantages of rolling contracts opens up all kinds of possibilities for those taking their first steps, experimenting or simply for those needed several months of extra space.

Economic Realities

The rise of "XaaS" (whatever "X" may be) is widely acknowledged and for those still wanting to own the hardware and software stack within a data center; pay-as-you-go colo may be just the thing to start their journey into this new consumption-based world.

As businesses realize that building another data center for their own use is not cost-effective, termless contracts should help remove any lingering concerns.

The crystal ball needs to be smashed. After all, no CIO knows what the future holds for their business, but the emergence of flexible payment models is one way of de-risking the uncertainty rather than trusting 100 per cent in business forecasting or guesstimation.

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