A Dissenting Voice on Colo Growth

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Lydia Leong from Gartner has a blog post discussing why her growth projections for the colocation market are lower than those from many other analysts. She says that she sees lower growth because Gartner’s broad-based analysis of the IT market doesn’t support it, and that strong demand may not extend beyond key markets and providers.

“If you’re judging the data center market by what’s happening in Equinix Cities or even Savvis Cities, you’re missing a lot,” Leong writes. “If I’m going to believe in gigantic growth rates in colocation, I have to believe that one or more of the following things is true:

  • IT stuff is growing very quickly, driving space and/or power needs
  • Substantially more companies are choosing colo over building or leasing
  • Prices are escalating rapidly
  • Renewals will be at substantially higher prices than the original contracts

“I don’t think, in the general case, that these things are true,” Leong continues. “They’re sufficiently true to drive a colo growth rate that is substantially higher than the general ‘stuff that goes into data centers’ growth rate, but not enough to drive the stratospheric growth rates that other analysts have been talking about.”

Read Getting  Real on Colocation for Leong’s full commentary.

About the Author

Rich Miller is the founder and editor-in-chief of Data Center Knowledge, and has been reporting on the data center sector since 2000. He has tracked the growing impact of high-density computing on the power and cooling of data centers, and the resulting push for improved energy efficiency in these facilities.

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2 Comments

  1. Ken Baudry

    I think ultimately it comes down to a few simple questions that are very difficult to answer: From an economic view, forgetting about the glitz that technology holds, can collocation offer a good value to its customers, can it provide a rate of return for investors that merits taking a risk? If both of these statements are true then collocation will attract both investors and users. It is how the economy works when our government stays out of the way. Its sexy to talk about the largest of the large facilities but the fact is that only a few cities have multiple large providers. Most are dominated by a single large provider with a host of smaller providers. By some measures costs for collocation are way out of line and the collocation centers are not offering what enterprise customers really need or can afford. By other measures pricing is in lien and a good value. The average data center today is small, has supplemental air, a single UPS, no generator and is located within the enterprise's office space. It also doesn’t have multiple layer of security, retinal scanners, etc. It is very inexpensive to build and operate. Industry pundits have said that you are not a real data center if you don’t have multiples of everything and lots of watts per square foot. There is a very large gap between what industry pundits say and collocation providers provide and what the average customer really wants, needs or can afford. Collocation is poised to grow in leaps and bounds but cannot without first addressing this GAP. This means taking off the blindfolds and looking hard at what’s real and what consultants tell us is real. It means educating the industry. It means easy to understand standards and definitions (Does BOMA ring a bell). It means stop taking people for fools. I do not disagree with the idea that a lot of companies are operating at a higher risk level then they should be. But companies incur all sort of risk, data center downtown is just one of them and the cost of downtime is not nearly as high as industry pundits would have you believe. My guess is that there are actually more companies that only suffer minor losses that don’t amount to much more then inconvenience to their employees. For most companies in most locations a simple UPS with 15 minutes of batteries will limit the number outages to one per year or less. And because most data centers aren’t very dense, guess what, they don’t overheat before the power comes back on. Capture this business and the industry grows by leaps and bounds. How do you capture this business? You offer more flexibility in terms of UPS capacity, cooling and level of availability. You price it based on the investment risk involved and a reasonable return to the investors. You go out and sell the benefits. Can the big players do this?. Probably not. The big players just can’t understand how limited their big footprint, our way or the highway model is. This means that there is a significant role for smaller developers, operators and facilities to play. Small developers will come into the market because 1) There is little demand for new office, industrial and retail facilities, 2) there are few opportunities to make a reasonable return on investment, 3) if they are smart they can make a reasonable return in collocation. Enterprise customer in TIER ii AND Tier III cites , cities without pro football teams, aren’t going to the big city to do business. They like being the big fish in a small pond, like service, like to be able to talk with the big guy when they need to, and like the idea that if they ever had real problems they go drive over there fix the issues or pick up their boxes and take them elsewhere (IT guys have always been pretty self sufficient and a little rebellious)…. And we call them “server huggers”. How many of you have been in a Home Depot lately? Like many of you I switched to shopping at Lowes when Nardelli’s leadership resulted in a “Find it yourself attitude” among the associates on the floor of the stores. Now, under their new CEO, service is back and I’m shopping there again. To understand the collocation market, whether it will grow or not, you have to understand people. Its not about the technology, it is about the people. Always has been, Always will be. I'm very bullish on collocation because If the industry can provide a value and service, then more and more enterprises will enter the market, the sky is the limit. If not then collocation will see limited market penetration and limted growth. kjbaudry

  2. I agree with Ms. Leong. There remains a significant gap between the hype and reality of this industry. We are seeing pricing declines in Silicon Valley, Los Angeles, and Chicago. Virginia declines have reversed somewhat, but for the time being, it is still a buyers market. AZ and Texas are very competitive. We do not see a shortage of space. The positive for Equinix, Telx, and other players that are out performing the market is that they are taking market share.