The colocation market continues to undergo consolidation, its three leaders all active participants in mergers and acquisitions, according to Synergy Research.
The top-twelve providers in the research firm's Q1 data account for 40 percent of the worldwide market. There is also a long tail of smaller providers with less than 1 percent market share.
The market is increasingly being driven by service-provider clients rather than enterprises, according to Synergy chief analyst and research director John Dinsdale. As a result, data center providers have to be able to provide both scale and breadth of geographic footprint to meet service-provider needs, prompting consolidation in the market.
In terms of market drivers, cloud is the big one, said Dinsdale, adding that the relationship with colo is somewhat complex.
“Growth of cloud puts a bit of a damper on the enterprise segment of the colo market, but helps to drive the service provider side of colocation,” he said. “But colo providers make a lot more money from their service-provider clients than they do from their enterprise clients.” (Note: in this context “service provider” means cloud and IT service providers, telcos, content and digital media companies).
Market leader Equinix holds close to 10 percent of the market and is in the process of acquiring TelecityGroup, which ranks tenth. There’s been chatter that the second-largest provider, Digital Realty, might acquire top-20 player Telx. A Telx acquisition would not only mean consolidation, but a deep expansion into retail colocation for Digital, which is primarily a wholesale data center provider.
Retail colocation dominates the top ten and will likely continue to do so. The lines between what is retail and what is wholesale continue to blur, however, Dinsdale sees this as a small trend and not a major shift.
“Digital Realty has already dipped its toe into the retail market and may be getting ready to dive in. But in the other direction, for example, retail colo provider NTT is moving more into wholesale via a couple of acquisitions that it has made,” he said.
A Digital acquisition of Telx would be a much more significant blurring of the wholesale-retail lines, but Dinsdale questioned whether it would be a good fit.
“Personally, I’d say that the logic is somewhat questionable,” said Dinsdale. “While there will always be something of a blurry demarcation line between retail and wholesale, at their heart, these are two market segments with differing characteristics which have different business metrics and require somewhat differing skill sets.”
Rounding out the top three on the leader board is Japan's NTT, which recently acquired e-shelter, significantly boosting its European market share. Europe continues to be a focal point and battleground for market share.
Another interesting highlight from the report is that colocation market leader-board spots are now split evenly between colocation specialists and telcos, six on each side. Four of the telcos on the board landed there through acquisition.
Whether or not telcos can continue success via organic growth is uncertain.
“This tends to be a bit of a tough play for telcos,” said Dinsdale. “Generally, they are in the colo business because they have to offer a comprehensive range of services to their enterprise clients. But their real goal is often to drive sales of other more core services. So their focus on colo is oftentimes a bit half-hearted.”
There are exceptions, he added. A few telcos have made big acquisitions of substantial colocation business lines, such as NTT, Verizon, CenturyLink, and Rogers in Canada.
Consolidation activity is not limited to the top players, said Dinsdale. “For sure, [regional activity] is happening already,” he said. “A lot of this is among small-medium-sized colo providers, but regional consolidation is ongoing. The market is pretty fragmented in the smaller metro areas with a lot of small local players being active.”