Fragmented data center co-location market continues to grow

Posted by Mike Vizard on Apr 28, 2015 12:00:00 PM

Data center buildingWith more than 1,000 global providers of data center co-location services, this highly fragmented market continues to show signs of healthy growth.

In fact, a recent report published by 451 Research projects that the market for data center co-location services will reach $36.1 billion in 2017, up from $22.8 billion projected for 2015. Most notably, providers of these services with less than $500 million in revenue account for 74.8 percent of the market.

Location, location, location

In terms of the providers that specialize in these services, Equinix and Digital Realty represent a whopping 8.4 and 5.65 percent of the market based on an annual revenues, respectively. That would suggest the data center co-location market could be ripe for consolidation if it wasn’t for the fact that so many IT organizations still prefer to be able to visit and touch their servers. As a result, there is a marked tendency to favor data center facilities that are close to where the internal IT organization is located.

But there are two emerging trends that might finally force internal IT organizations to give up hugging their servers so tightly. The first is the emergence of programmable data centers that will make it simpler to remotely manage servers. The second is the increasing need to host applications as close to an Internet peering exchange as possible.

Early on, most data center facilities were built in remote locations where real estate and electricity were inexpensive. But once cloud computing came along, organizations began rediscovering the laws of physics. As a result, there is a shift underway that is driving deployment of cloud applications to facilities that are located as close as possible to Internet peering exchanges. In fact, it’s not surprising to see IT staffs being relocated to where those data center facilities actually are.

The bigger, the better

Analysts at 451 Research note that on average most of the owners of facilities are currently operating only a total of three facilities. With more applications moving to the public cloud, the economics of operating those facilities in the face of competition from operators of larger data center co-location facilities is going to be challenging. While the number of facilities considered viable enough to host those applications is narrowing, demand for the hosting of private clouds continues to grow.

The analysts at 451 Research forecast that the total operational square footage of data center space managed by providers of data center co-location services will grow from 108.9 million square feet to a 149.7 million square feet by the end of 2017.

The end result should be fewer, but most definitely economically stronger, data center co-location service providers. The challenge facing IT service providers that use those facilities is making sure they deploy applications in facilities that will continue to operate no matter who owns them, not ones that are likely to become the digital equivalent of a ghost town that the Internet superhighway is about to bypass.

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Photo Credit: Aaron Paxson on Flickr. Used under CC 2.0 license.

Topics: Cloud Trends

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