ORLANDO, Fla. - The North American colocation sector generated $6.5 billion in revenue in 2012, and is expected to grow to $10 billion by 2017, according to new data from IMS Research (an IHS Company). That total includes both retail colocation and wholesale data center operations, and reflects the strong growth in the market for multi-tenant data center space.
IMS Associate Director Jason dePreaux discussed his firm's projections for market growth as part of a panel discussion on the colocation sector Monday at Data Center World. dePreaux said wholesale data center operators account for about $2 billion of the 2012 total, with retail colocation representing the remaining $4.5 billion.
The session covered a range of topics relevant to the colocation market. Here's a roundup:
More Power, Scotty! The colocation industry was once defined by networks, but panelists say that has shifted. "The colo business began as an outreach of the telecom industry," said Jim Leach, Vice President of Marketing at RagingWire Data Centers. "What's really driving this industry is power. Can I expand and contract power? Can I move power around the data center? Going forward it will be about power and how we provision it."
Both Leach and John Dunaway, the Director of Data Center Sales at Data Foundry, cited the attractiveness of metered power, in which customers are billed based on usage rather than the full capacity of their circuit.
Watch Out for Water Fees: Water management is a growing concern for data center and colocation operators. Now there's a new component in the water equation: up-front access fees from utilities. "The water authorities in many areas are introducing connection fees," said Steve Spinazolla, Vice President at RTKL Associates, an architectural firm that works on many advanced data centers. "Now you really have to do your due diligence up front, and not just look at power."
Spinazolla said one data center project in Denver had been asked to pay a $5 million connection fee.
The Colo-Cloud Connection: The panel was asked whether cloud computing represented a threat to colocation services. Panelists said that the two are complementary, although providers are taking a variety of approaches.
"All these clouds have to sit in a data center," said Dunaway. "Several years from now, every colo will have some type of cloud just to keep people from leaving the building."
Some colocation providers are partnering with cloud providers or hardware vendors to offer "turnkey clouds" for their colo tenants that desire to add a cloud component. Some providers, like RagingWire, want to ensure that they're not competing with their customers.
"Do you want your colo provider to also be your cloud provider?" asked Leach. "We've made the strategic decision that we're a colocation provider, not a cloud provider. We fundamentally believe the two businesses are very different. Colo is the business we want to be in, and cloud is the business we want to enable for our customers."
Compliance Matters: Regulatory compliance remains a key concern for many end users. To address diverse customer scenarios, colocation providers must support many different compliance requirements.
"The majority of these compliance requirements are checkmarks for your CTOs," said Dunaway. "We try to take a broad stroke on compliance to address a broad range of requirements. The bullet proof glass in my entryway may only appeal to one out of 10 customers. But for that one customer, it really matters."
Leach said customers can benefit from the relationship by including their colo providers' compliance audit documents with their own compliance submissions.
Hottest Markets: Northern Virginia and Dallas are among the hottest geographic markets, according to Todd Cushing, Senior Consultant with the Technology Practice Group at CBRE. The Chicago area is shy of supply, he added, while one of the hottest regional markets is Minneapolis/St. Paul.
Understanding the regional demand patterns in the colocation is essential, said Leach. "To look at the US colo market collectively is really difficult," he said. "You really need to look at each of these areas as micro-climates. Each of them have their own market dynamic that can be extremely important to your decision."
"The majority of our customers come w ithin 100 miles of our data centers," said Leach. "The data center industry has always been a location-driven industry. But with smart operations folks and good remote management tools, that's starting to change."
Leach, who is based at the RagingWire site in Ashburn, a market where customers have an unusual variety of options.
"Coming to Ashburn, Virginia for data centers is like going to Napa Valley for wine," said Leach.