Introduction and a lucrative opportunity
In the B2B tech world, there's always talk around the decline of the data centre and how the cloud will replace it in the foreseeable future. Why? Data centres are supposedly stuck in the past and only suitable for big corporations with a lot of money to spare.
While there may be some merit to the argument that data centres aren't perfect for every business, the rise of colocation says something different. As an industry, it's booming and isn't showing any signs of slowing down.
According to a report published in April by 451 Research – which monitors 4,800 data centres annually – the data centre colocation market will be worth $33.2 billion (around £25 billion, AU$44 billion) worldwide by 2018. In the first quarter of last year, it made $27 billion (around £21 billion, AU$35 billion) globally. For the most part, this revenue and growth came from local providers.
A number of questions need to be answered here. Firstly, why is colocation so lucrative in the age of the cloud? It's clearly an area that's contributing a lot to B2B technology. And from a business perspective, what are the benefits for firms, especially SMEs? That's what we're going to discuss in this article.
Understanding colocation
Businesses deal with a mass of data and information on a daily basis, so managing it effectively is crucial. Data centres, traditionally, have been a great way of doing this. However, actually owning one is virtually impossible for many businesses. Colocation gives smaller businesses the chance to reap the same benefits as larger firms.
This route provides SMEs with the ability to rent space, equipment and bandwidth at an affordable cost. Usually, a colocation data centre will offer facilities such as power, cooling, space and security for server, networking and storage equipment. It's not much different than outsourcing staff to complete certain tasks and contribute to overall business needs.
The benefits are wide-ranging and not only focused around cost-saving. That's an important part of colocation, of course, but another main attraction is the fact businesses get to focus on other areas. With most providers, there are experienced professionals on hand to manage the day-to-day running of your facilities. This also means you don't need to worry about having complex technical knowledge.
Brian Hall, key account sales director of critical infrastructure tech provider Emerson Network Power, explains that colocation has led to businesses moving away from ownership of their own data and server rooms. Why? Because it's so flexible.
Hall says: "Colocation data centres have risen in popularity over the past few years as companies move away from owning their own physical computer server rooms and opt for third-party providers. Most commonly, businesses rent space for their own servers and racks, either as their core facility or as a disaster recovery facility.
"An advantage of colocation data centres is the flexibility that it brings to an organisation's IT needs. When a company expands or contracts its operations, it can rent more or less space in the data centre depending on its current need. This avoids oversized data centres being built, which saves money, but also gives instant capacity should a company need it."
A lucrative opportunity for SMEs
Not every business has the time and resources to build in-house systems to handle their data, which is what makes colocation so lucrative. Jon Healy, associate director of data centre designer Keysource, says it's a simple and reliable way for firms to handle their data needs and save money at the same time.
"Colocation is an easy way for businesses to outsource their data centre requirements. Recent history saw the market oversupplied, with the 'build it and they will come' mantra. However, we are now in a period of sustained growth with 'demand' outstripping the rate of supply. This is driven by an unprecedented upsurge in cloud services, digitisation, IoT and competition driving down costs, making it more cost-effective than ever," he says.
In particular, he sees major benefits for small and medium-sized firms. Healy continues: "SMEs benefit from reduced capital expenditure (normally associated with a design and build project), greater flexibility to expand on demand and potentially greater efficiency and resilience associated with being in shared professional white space."
More control over IT
Improved global footprint
Jorge Balcells, director of technical services at Iceland-based data centre operator Verne Global, says colocation can help businesses improve their global footprint and reduce overall carbon contribution. There's also potential for getting access to low-cost power that'll last years.
"In today's data-driven economy, business innovation is dependent on the effective management of data insights. Companies looking to expand must gauge whether retaining control of data centre operations or outsourcing to colocation sites is the most efficient solution," he observes.
"In many scenarios, outsourcing to the experts – the colocation providers – makes the most financial sense, as the high cost of power, metropolitan real estate, and the long-term op-ex associated with running data centre campuses adds up.
"Other advances include the ability to expand the global footprint of your business quickly and easily, with minimal upfront expense; the possibility of reducing your carbon-impact and the knock-on benefit of being able to guarantee low-cost power for years to come; as well as the assurance that colo facilities' policies, procedures and technologies are kept up-to-date, delivering you the highest standard of data centre management at all times."
Quick access to the public cloud
Simon Francis, colocation director at data centre firm Digital Reality, says colocation will play a fundamental part in IT operations as data continues to become more complex, and allows businesses to connect to the public cloud within a fraction of a second.
Francis told us: "As data grows in size and importance, colocation will become mission critical. It gives customers the opportunity to access the public cloud in under 1.5 milliseconds. IT teams will be able to interconnect with an ecosystem of partners more easily, quickly and cost effectively.
"By colocating in environments that can house a company's private cloud storage in close proximity to public cloud providers' compute nodes, companies can quickly connect to the public cloud via cross connect with extremely limited lag-time and no expensive network tethers.
"Companies need to be mindful of where they establish the private portion of their hybrid cloud. It's important they really do their homework and not only think about what their requirements are today, but also what their potential future requirements will be."
More control over IT
Firms also get more control through colocation. Emma Fryer, associate director of British technology trade body TechUK, says: "Colocation allows companies to retain control over their IT function while taking advantage of far better resilience, energy efficiency, connectivity and security.
"Organisations today are increasingly IT dependent and keeping critical IT functions on company premises can compromise business continuity and add unnecessary cost, particularly if they are in hot, poorly ventilated server cupboards with only enough backup to allow them to power down safely.
"So moving all this to a purpose-built secure facility is an obvious choice for many. The decision to outsource to a colocation provider is often taken when companies are faced with the need to upgrade or refresh their IT capabilities and many do it to make cost savings, particularly capex, as well as reducing financial and other risk."
Colocation will only continue to grow
Building new data centres is extremely costly, especially in light of the current financial uncertainty circling Brexit. Jon Leppard, COO of IT firm Future Facilities, says colocation will continue to be the most viable and popular option for businesses wanting to manage their data. He predicts that Britain's exit from the European Union will give the colocation market an even bigger boost.
"A data centre is at its core a bricks-and-mortar investment based on a long-term business view, so it is not surprising that in the light of the uncertainty caused by Brexit, we have noticed increased caution from the UK industry in committing to new build projects until the economy is more stable," Leppard says.
"We are also seeing increased investment from the US and other countries, looking to rent data centre space in the UK during this period of the weaker pound. I predict there to be a natural increase in the use of colocation and shorter-term projects, instead of businesses choosing the new build option, until the outlook is clearer. That said, there is a general trend of the industry moving towards colocation, so Brexit may just be a catalyst for the quicker adoption of this model in the UK."
Although it can be a nice luxury to own your own data centre facility, it certainly isn't an option open to every business out there. SMEs, which often have to manage tight budgets and spend appropriately, can use colocation as a way to get the same data benefits but at a much cheaper price. And as more firms discover this area of tech, it'll no doubt continue to grow in the future.
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