Economy Boosts Colo, But Many Prefer to Build

The credit crunch has boosted adoption of colocation, as some companies who might normally have built their own data centers have instead leased colo space to conserve cash, according to a Gartner analyst.

Data Center Knowledge

December 9, 2009

3 Min Read
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The credit crunch has boosted adoption of colocation, as some companies who might normally have built their own data centers have instead leased colo space to conserve cash. But the majority of enterprise companies still want to build their own facilities, and will likely pursue either new construction or retrofits to meet their expansion needs in the next two years.

Those were some of the key points emerging from a session by Gartner analyst Lydia Leong at last week's Gartner Data Center Conference in Las Vegas. Leong examined the expansion options available for companies with growing IT operations, and the economics influencing the choices in today's data center marketplace.

"The colo market has seen a real upsurge over the past several years," said Leong. "Colocation is where you go when you need space right now. Most people choose colo close to home, but it doesn’t have to be that way."

She noted that colocation facilities vary in quality, meaning that it may sometimes be better to look outside your immediate area. "The greater your willingness to conduct a national search, the lower your costs will be," Leong said. "We have providers who are terrible in one facility and great in another city. The difference is often the data center manager."

The credit crunch has led many companies to forego data center construction projects that would require a significant outlay of capital. Some enterprises companies have opted for colocation, in which they lease cages or cabinets within a third-party data center.

Others have chosen wholesale data center space, in which tenants lease entire suites of data center space with dedicated power capacity. The wholesale market has been particularly attractive for fast-growing Internet companies, such as Facebook and Rackspace, who have been major players in the wholesale space. Most wholesale leases are in the seven to 10-year range, although Leong noted that a number of recent deals have featured five-year leases.

Both models have benefited from the credit crunch, which has made it harder for companies to borrow money. The tight capital market has meant closer scrutiny of construction requirements. In an instapoll of the audience, financial considerations were the top factor in company data center decisions.

Seven to 10-Year Lifespan

"If you want to be really honest, the lifetime of your data centers is 10 years, maybe only seven," said Leong. "The cost effectiveness of a building with that lifespan is limited." What about retrofits as opposed to ground-up "greenfield" construction. "The up-front investment is still pretty high," said Leong. "These are for tenant improvements you’re going to make that you don’t own."

Leong said the economics only make sense if a company needs at least 50,000 square feet of data center space.

But many attendees at the Gartner event appear undeterred, and say they will build their next data center. An audience poll found 34 percent indicating their preference for data center expansion in the next 24 months would be greenfield construction, followed by 31 percent preferring a retrofit. Twenty one percent cited colocation as their preference, followed by wholesale space at 15 percent.

Cloud Options Abound

What about cloud computing? "A lot of you will probably be thinking about cloud," Leong said. "You’re going to have a wide range of options. Just about all the major outsourcers are building clouds. It will affect the way you think about servers, particularly if you have less than 50 servers. For most of you, the cloud will be a tactical option, and not your main option."

What's the number one mistake companies should beware of in planning data center expansions? Leong says it's getting the power capacity right. "Power density is going to be your major limiting factor," she said. "But most of you completely overestimate how much power you’re going to need. One of the best ways you can contain cost is by not overbuying power. If you overestimate your power needs, you can grotesquely inflate your costs."

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