The emergence of colocation data centers

February 27, 2015

As the global cloud market continues to expand, the value of a high performance data center ascends right with it. Over the past few years, business leaders have developed a greater interest in building out their cloud storage capacity. However, investing in your own infrastructure can be quite expensive for a company that must keep a tight budget to ensure a sustainable growth trajectory. In an era of increasingly competitive pricing for cloud services, colocation has become a desirable alternative to help businesses meet their demand.

With a colocation plan, a hosting company leases floor space to a client in a shared data center. The client may then use the facility much like its own and benefit from the power, cooling and a high performance network.

The state of the colocation market
The global colocation market has accumulated $25 billion in annual revenue, and more than 50 percent of that figure is fueled by the top 60 colocation data center providers, according to Data Center Knowledge. The top 10 colocation companies lure about 28 percent of sector-wide revenue.

The news outlet noted that the colocation market is gradually consolidating. However, more than 1,000 companies, a great number from regional backgrounds, accumulate the other 50 percent of the industry’s earnings.

“At its heart, the multi-tenant data center business is a regional business,” Greg Zwakman of 451 Research, a global technology analysis group, told the news outlet. “So despite active consolidation and some concentration at the top, much of the market remains highly fragmented, with a mix of national and local players.”

How to approach colocation
Ted Davies, the senior vice president of the Bick Group, spoke with Data Center Knowledge and said that there are many different reasons to explain a company’s transition to a colocation service.

“Capacity is one of the drivers,” Davies told the news outlet. “Usually the main driver of colocation or managed services is the company’s asset is not functioning well. It’s at the end of life, such as power or cooling are insufficient, or it could be capacity.”

He added that it is imperative for a company to take a look at its business model and understand the exact capacity needs. It is often much more difficult to lower capacity than it is to expand.

“You look at your first need, five or six years ahead, and you get that funded because you don’t want to back to the board for more funding,” Davies told the news outlet.