Data Center Journal

VOLUME 48 | FEBRUARY 2017

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THE DATA CENTER JOURNAL | 7 www.datacenterjournal.com negotiating prices. More broadly, the move toward centralization of com- puting resources may produce some undesirable effects, but the history of computing has been a pendulum-like back and forth between centraliza- tion and decentralization of resources. For now, economics and the state of technology seem to dictate greater centralization, feeding the above- mentioned trend. MACROECONOMIC CONDITIONS A looming specter is the condi- tion of the macroeconomy as well as forthcoming Federal Reserve mon- etary policy. Since recessions have averaged about once every seven years for many decades, a new recession may be in the offing. Turmoil from the recent change of presidential admin- istrations may or may not exacerbate the situation, depending on the kinds of economic policies that result. In particular, if the Republican-con- trolled national government lives up to its "business friendly" reputation, it may eke out a few more years of relative economic prosperity (whether real or imagined). But if the Federal Reserve continues to raise interest rates, it could put major pressure on real-estate markets, potentially includ- ing data center real estate. Regardless of the direction of the economy, business will continue. e question is whether companies will face a more or less urgent need to cut costs in order to increase profitability or minimize losses. An economic crunch would certainly make opera- tional expenses more appealing than capital expenses as companies try to make their existing capital last them until growth resumes. In that case, colocation providers would likely face a mixed bag of conditions: customers might be cutting expenditures, but they would still need someone to pro- vide the IT resources that their busi- ness relies on. Colocation would then be far more palatable than facing the costs and distractions of an in-house data center. e cloud would siphon some demand, except for industries in which customers must retain control of their IT equipment, perhaps for regulatory compliance. But even cloud providers need data center space, so the net effect of the whole situation for colocation is uncertain—it could simply be a wash. CONCLUSIONS An interesting dynamic in the colocation market is the coexistence and cooperation with cloud providers. Differing primarily in who controls the IT resources (the customer for colocation and the provider for the cloud), these two outsourcing models nevertheless have much in common. us, for example, cloud providers can take advantage of colocation to deliver IT services without bearing the bur- den of power distribution, cooling and other functions of a traditional data center. is crossover makes it dif- ficult, however, to evaluate colocation as a standalone market independent of the cloud. Nevertheless, the trend ap- pears to be positive, and for good rea- son: as companies struggle to stay in the black, one option is to outsource tasks with no direct relationship to the main business—for example, data center facilities. Colocation (and the cloud) is a clear beneficiary. One noteworthy feature in the commingling of the cloud and coloca- tion is cross-connects, as the different parties to this market seek more- secure, lower-latency connections among themselves. And as companies try to optimize their IT architectures while eliminating tasks that are sec- ondary to their main business, many will choose a hybrid approach that includes colocation and the cloud, fueling the intersection of those two markets. As always, broader economic fac- tors are important, but making timely predictions is almost impossible. Because IT is so central to businesses of all types, colocation (and the cloud) will likely remain fairly recession proof, so even if the economy turns down, providers may weather the con- ditions better than other industries. For now, however, colocation is riding the wave of IT outsourcing and will continue to do so unless technologies or economics change considerably. n One noteworthy feature in the commingling of the cloud and colocation is cross-connects, as the different parties to this market seek more-secure, lower-latency connections among themselves. And as companies try to optimize their IT architectures while eliminating tasks that are secondary to their main business, many will choose a hybrid approach that includes colocation and the cloud, fueling the intersection of those two markets.

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