Why Hybrid Cloud Is Central to the Colocation Industry’s Future

As public clouds grow more sophisticated, it becomes harder and harder for data center providers to build compelling offerings by selling rack space.

Christopher Tozzi, Technology Analyst

January 6, 2021

5 Min Read
Why Hybrid Cloud Is Central to the Colocation Industry’s Future

It's no secret that colocation providers have for years been facing a critical challenge from public clouds. As public cloud platforms like Azure and AWS grow ever more sophisticated (not to mention cheaper), it becomes harder and harder for data center providers to build compelling offerings by selling rack space.

A key to meeting this challenge is for colo companies to add more value around hybrid cloud. By deploying or supporting hybrid clouds built with infrastructure that runs inside their data centers, colo providers can offer more than just real estate. Indeed, if they want to compete with the public cloud over the long term, they have to embrace solutions that cater to hybrid cloud use cases, even if those use cases involve customers leveraging public cloud services as part of hybrid architectures. Many colo operators have already started down this path, adding everything from cloud network on-ramps inside their facilities to a variety of higher-level services aimed at making it easier for customers to stand up hybrid environments.

Colocation's Dilemma

Traditionally, the core of the colocation industry's value-prop centered around physical space. Colo providers allowed their customers to cease being landlords for their own data centers and instead host their servers inside colocation facilities.

Related:Dell Gets ‘Assertive’ About How Off-Prem Private Cloud Is Designed

As long as your customers need to run their own servers, that business model works well. Today, however, the public cloud gives businesses lots of good reasons to move away from private infrastructure entirely, and opt to instead run workloads on IaaS services in the public cloud. That means that colocation providers need to offer value that extends beyond convenient server space.

They can do that in a variety of ways. Vendors like Rackspace have gotten into the managed services business, including not just for hardware that lives in their own data center but also for public cloud services. Colo providers can also offer hardware deployment and provisioning services. Giving customers the ability to do that instantly, like IaaS, is the goal at the core of Equinix's Packet acquisition.

Hybrid Cloud and the Future of Colocation

But perhaps the most fertile ground for colocation providers to deliver new types of value centers on the hybrid cloud ecosystem.

In a world where the vast majority of businesses are already using public cloud services, the ability to extend public cloud resources into private infrastructure is highly valuable. It means businesses can keep the workloads they already have running in public clouds, but without the compliance and cost headaches that can arise from having to host workloads on public cloud infrastructure.

Related:Colocation Powers Oracle’s Hybrid Cloud Play On Two Fronts

At the same time, however, building and managing a hybrid cloud is a difficult proposition, even if customers use public cloud vendors' own frameworks. Fully managed solutions like AWS Outposts are quite costly. Alternatives like Azure Arc and Google Anthos require users to acquire, provision, and manage their own hardware, which may be especially challenging for businesses that are no longer accustomed to doing so because they have become dependent on the public cloud.

For colocation providers, then, there is tremendous opportunity in offering support services that help their customers manage hybrid cloud infrastructure inside colocation data centers. Those services could be the help that many businesses need to make the jump from using the public cloud alone to going hybrid -- or from having a poorly integrated IT strategy that involves private infrastructure and public cloud resources running side-by-side, with no unified control plane.

The hardware side of hybrid cloud, too, is an area where businesses are likely to need help. Finding servers that work with a company's hybrid cloud framework of choice, then provisioning them and connecting them to the hybrid cloud control plane, is a service that colo providers could offer. Indeed, it's a type of solution that you can envision a company like Equinix providing on the tails of the Packet acquisition.

And it’s not just the industry giants that are in a position to help provide hardware for colocated hybrid clouds. Ali Fenn, president of ITRenew, which repurposes server hardware from hyperscale companies for use in smaller data centers, told Data Center Knowledge that “colo providers are increasingly looking to establish and grow incremental revenue streams beyond power, space, and interconnects.”

Fenn’s company “is engaged with several as they evaluate opportunities to provide Bare metal-as-a-Service and more complete IaaS and private cloud offerings to enterprise customers, and want to deliver infrastructure and services in the most cost effective manner,” she said.

Growing Demand for Colocated Hybrid Cloud

These types of solutions are likely to become more central to the colocation industry going forward for two reasons. One is the general momentum surrounding multi-cloud and hybrid cloud, which are becoming the focus of more enterprise cloud strategies. It's a safe bet that demand for hybrid architectures is likely to grow, especially as public cloud vendors continue to develop their own hybrid cloud frameworks.

The second is that, unlike managed services that cater primarily to colocation customers who haven’t yet moved to the cloud at all (or are only using a private cloud), hybrid cloud services can help colo providers win back the business -- or at least part of it -- of companies that have already moved to the public cloud. This is especially true given that cost pressures and compliance challenges are pushing more and more companies to "repatriate" their cloud workloads. If colo providers can make it easy to repatriate those workloads into a colocated hybrid cloud, rather than on-premises, they stand to become winners of the cloud repatriation movement.


There are a variety of ways in which colocation providers can remain competitive in an era when rack space alone is no longer worth very much. Some of the greatest opportunity, however, lies in building out hybrid cloud deployment and management services, which are a great way for colo providers to attract more businesses to their facilities, even if those companies previously invested in public cloud.

About the Author(s)

Christopher Tozzi

Technology Analyst, Fixate.IO

Christopher Tozzi is a technology analyst with subject matter expertise in cloud computing, application development, open source software, virtualization, containers and more. He also lectures at a major university in the Albany, New York, area. His book, “For Fun and Profit: A History of the Free and Open Source Software Revolution,” was published by MIT Press.

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