Double-digit increase in data center co-location services spending forecasted

Posted by Mike Vizard on Sep 10, 2015 9:00:00 AM

DatacenterAs IT organizations continue to make the shift away from deploying IT infrastructure on premise, a new survey of more than 1,000 IT professionals from the 451 Research finds that nearly half (42 percent) of IT organizations expect to spend 15 percent more on average with their co-location providers in 2016 compared with 2015.

That forecasts suggests that more organizations than ever are less enthralled with owning their own data center—a trend that may accelerate as IT organizations come to terms with the complexities associated with managing their own private cloud. In fact, 451 Research reports the highly fragmented co-location market grew 11 percent year over year on a square footage basis in the first quarter of 2015, and is forecasting that hosting service providers will maintain that growth through 2018.

Workloads moving to co-location service providers 

For all intents and purposes the 451 Research data suggests that for IT service providers, the hybrid cloud will actually resemble more of a three-legged stool. There will naturally continue to be workloads running on premise and on public cloud services managed by providers such as Amazon Web Services and Microsoft Azure. But it’s also apparent that large numbers of workloads are moving to co-location service providers that eliminate the need for organizations to allocate capital budget for building a data center. Instead, they can either buy their own servers and storage or outsource the acquisition and management of the IT infrastructure altogether.

That shift is actually already driving a frenzy of merger and acquisition activity across the data center co-location service category. Telx is being acquired by Digital Realty Trust, while Equinix bought Telecity. The overall global market, however, still consists of more than 1,000 providers, and only three of them, Equinix, AT&T, and SunGard, are used by more than 10 percent of the IT professionals surveyed by 451 Research. That situation appears to be going to persist.

Only 14 percent of the IT professionals surveyed said they are very likely to switch from, or use a different co-location provider for new capacity. For that reason, the larger providers of data center co-location service providers are essentially buying market share that has become too difficult to actually win. How long that situation will persist remains to be seen, but in general industry analysts expect to see more consolidation among the mid-tier players. At the same time, well-funded startups that have invested in modern data center facilities continue to enter the market.

Takeaways for IT service providers 

For IT service providers, the 451 Research suggests that enterprise will be defined by multiple types of deployment scenarios for years to come. On the one hand that's good news because there’s generally a direct correlation between IT complexity and the profitability of the average IT service provider.

On the downside, the cost of acquiring and retaining the IT expertise needed to manage application workloads that will be bi-directionally moving between cloud service providers, co-location services and on premise IT deployments will probably continue to be the single highest cost incurred by IT service providers at least through the end of the decade.

Photo Credit: Intel Free Press on Flickr. Used under CC 2.0 license. 

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Topics: IT Services Trends

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