Colocation Crunch Time

It might seem like there are data centers popping up faster than Starbucks, but it’s simply not true. In fact, there is a high demand for data centers and many colocation service providers are scrambling to keep up. According to Nemertes Research, there is a colocation shortage in North America, with a billion dollar gap. Supply and demand just can’t find common ground, which shouldn’t be surprising. After all, colocation customers don’t just want more options, more competitive pricing and more features. They also want a service provider that offers the best in security and customer service. That’s a tall order that needs filling.

Researchers at Nemertes say, “We looked at the data center market by independently assessing both supply (the current and predicted availability of commercial data center colocation facilities) and demand (the user need for such facilities) and we found that while supply is growing, demand is growing faster.” Nemertes has dubbed this conundrum the “colocation crunch,” but it is actually great news for two camps: Consumers who hold all the power (for now) and colocation providers who are leading the pack.

Bigger, Better, Faster

Supply is growing steadily and surely, as reported by Nemertes, but of course some providers are going to come out on top. By using classic primary and secondary techniques for market research, Nemertes concluded that there is a fragmenting within the colocation market. In fact, just a handful of providers make up 60 percent of the entire colocation market. The other 40 percent is comprised of thousands of smaller, startup or struggling providers. This 40 percent will weed itself out, likely with a few shining gems transitioning to the 60 percent side.

Small, family owned colocation providers might provide the kind of quaintness and customer service clients want, but they simply cannot compete where it matters. For example, it is incredibly expensive to build a highly secure data center. You need around the clock human security (ideally), a fantastic location and several thousand square feet. Connectivity is key, which is not available in a lot of cost-effective regions, and once you add in the demand for great customer service around the clock, suddenly mom and pop joints aren’t cutting it.

Spacing Out

Nemertes researchers were also interested in seeing what the average data center space size was—which proved challenging. “Some providers disclose colocation revenue, but not colocation square feet,” say researchers. Sometimes it’s the other way around. The good news is that there was enough disclosure to figure out an average rate per square foot for colocation providers. However, with so many centers not providing full (or any) details, this is a guesstimate at best.

On the other hand, supply is just part of the picture. Nemertes conducted interviews with hundreds of enterprises. The key question was, “What percentage of data center facilities requirements do enterprises meet today, and want to meet in the future, specifically by colocation?” There are many reasons enterprises (and other large organizations) depend on colocation instead of housing servers themselves, going with cloud services or finding other approaches. Around 15 percent of enterprises use colocation services, but that demand/usage is expected to keep growing. Overall, nearly every industry is relying more on colocation, but enterprise’s needs are growing fastest of all.

A Colocation-er’s Market

In the game of supply and demand, one side is always winning. Enterprise colocation demands will continue to skyrocket according to Nemertes, so it’s up to colocation providers to match—or surpass—that pace. As more and more colocation providers figure out what customers want, what they’re willing to spend and what features are most important, the offerings will get narrowed down to only the best and most in-demand.

However, it will always remain the customer’s job to match themselves to the “best” colocation provider. For example, businesses in Utah would be wise to go with a Utah colocation provider. Sticking close to home helps with speed and connectivity, as well as quality of customer service.

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