Data Center Journal

VOLUME 48 | FEBRUARY 2017

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6 | THE DATA CENTER JOURNAL www.datacenterjournal.com go model is much less expensive than the capital-intensive model of tradi- tional on-premises data centers. at issue remains a matter of debate, but the rate of market change may provide some indication of how companies in aggregate see the situation. Regarding the market direction, Cruz said, "e trend is definitely upward. Combined, cloud and colo are both rapidly accounting for more space. And as part of that trend, cloud companies are increasingly looking to colocation companies to build out and maintain their data centers, given the economies of scale as well as the expertise in building and real estate that colo companies offer." Inasmuch as companies are correctly evaluat- ing the costs and intangible benefits, then, colocation and the cloud do offer an advantage in some cases, though probably not all. e tough question is when the market will reach a balance between outsourced and in-house IT. Fast-changing technology complicates the situation and makes any predic- tions tenuous at best. MARKET PRICES Another important market indi- cator is the cost of the product. In the case of colocation, cost per square foot and/or per kilowatt (kW) provides a metric for assessing demand relative to supply. According to Cruz, "For the colocation market, the average monthly recurring revenue (MRR) per square foot has been increasing and is expected to continue to do so, driven by the additional cross-connects that tenants are paying for." In other words, customers are paying more than in the past, but not necessarily just for the same amount of space or power. "e base rate/rent for the space/kW is the same, but providers are offer- ing additional services in the form of interconnections to other enterprise customers in the data center. ey are also increasingly purchasing direct connections to cloud providers in data centers. For example, many colo companies are now offering cloud- enabled platforms, such as Interxion's Cloud Connect or Equinix's Cloud Exchange." So colocation and the cloud are indeed riding on each other's coat- tails, owing in part to companies being able to take a hybrid IT approach rather than choosing one model to the exclusion of all others. Cruz added, "e cloud is certainly driving the colocation market's business—not just because cloud providers are buying up space in colocation facilities but also because enterprises are drawn to colocation by the ability to directly connect with multiple cloud provid- ers." is interconnection capability among companies, cloud providers and customers offers critical ben- efits—in particular, low latency and high security. "e focus on security is ever increasing, and the ability to reduce latency is a major differentiator for many industries, including content providers and financial trading; even online retailers are increasingly attrib- uting lost sales to slow load times." MARKET BREADTH Geographically, colocation already has a strong base in the U.S., but the hottest markets are on the other side of the world, according to Cruz. "e U.S. colo market is well established at nearly $9 billion annually, so growth rates tend to be lower, although it's still adding healthy revenue each year. In terms of high- growth areas, Asia always stands out: colocation revenue in Hong Kong, Singapore and Sydney increased significantly in 2016." Relative to the broader data center market, Cruz estimates the leading 145 cloud and colocation companies represent 40% of the world's total data center floor space. She foresees no major obstacles to expansion of this share and believes 60% is a reasonable possibility within several years. Another observation is that spending on new data center space is centralizing in fewer hands. In a market where economies of scale are critical to success, this kind of consolidation is to be expected. Cruz expects the trend to produce a twofold effect: market volatility for infrastruc- ture suppliers and greater leverage for cloud and colocation companies in Geographically, colocation already has a strong base in the U.S., but the hottest markets are on the other side of the world, according to Cruz. "The U.S. colo market is well established at nearly $9 billion annually, so growth rates tend to be lower, although it's still adding healthy revenue each year. In terms of high-growth areas, Asia always stands out: colocation revenue in Hong Kong, Singapore and Sydney increased significantly in 2016."

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