It’s not always easy to know what to expect from the colocation industry. According to some, cloud technology is a threat to the data centre itself, while other sources point out that cloud is actually behind the surge in demand for colocation, responsible for the 87 per cent of data centre operators that plan to increase their facility spending over the next year.

So what do you choose if you’re looking to refresh your hardware? Does cloud herald the end of the data centre, or will the data centre industry thrive in competition with webscale giants?

87% of #datacentre operators plan to increase their facility spending over the next yearClick To Tweet

As it stands, the colocation industry still seems to be growing at an impressive rate despite growing adoption of public cloud. While proponents of both have good cases to make, it’s likely that many CIOs will opt for a mix between the two. The cloud has left many rethinking their existing approach to storage, yet at the same time demand for colocation services is on the rise. So how will the colocation industry look over the next few years?

Colocation as we know it

Despite the rise of cloud hosting, the colocation industry is in rude health. It’s growing at a rate of nine per cent year-on-year, while it has even been claimed that the market will grow to over $36bn by 2017. In addition, any disruption in this market seems to be hitting in-house corporate data centre operators more than most. Industry leaders such as Google and Microsoft tend to build their own data centres, an uncommon practice outside of FTSE250 businesses.

the market will grow to over $36bn by 2017

That the colocation market continues to thrive is particularly remarkable given how fractured it is. Industry leaders target their own focus areas such as specific sections of the market or vastly different positions on issues such as security, speed and scalability. This complicates the process for IT decision makers looking for that ‘one size fits all’ option, but it does indicate that the colocation industry is making an effort to target the user’s needs. Digital Realty for example offers a vastly different model to local specialist Leaseweb. Despite this, the cloud alternative remains much closer to the ‘one size fits all’ model.

The data centre of the future

The rate of growth in demand for colocation services is likely to shrink gradually over the next few years as cloud chips away at its market share, but it won’t change substantially. Plenty of firms are opting for colocation as a viable alternative to building their own data centres due to the greater confidence in security it provides.

Firms are opting for #colocation as a viable alternative to building their own #datacentresClick To Tweet

This is a key factor behind the growth in the ‘mega data centre’ – a buzzword to describe huge infrastructure projects with an incredible amount of collocated server space. In response to demand for colocation services, sites such as ViaWest in Oregon and SuperNAP in Nevada are emerging across the board, bringing in blue-chip customers such as eBay in as anchor tenants. It’s certainly going to be interesting to see if these projects continue to attract high profile customers and whether or not the cloud is likely to have any impact on the sustainability of these projects going forward.

Hybrid workloads are also set to grow over the coming years, which is good news for small and medium-sized enterprises (SMEs) that might find colocation more impractical. These firms may have to be ready for peaks and troughs in demand, but it isn’t usually cost effective for them to invest in the right hardware and scale out for peak capacity in a third party data centre. Instead, SMEs can opt for a ‘best of both worlds’ approach by collocating in steady state day-to-day workloads and sending data intensive tasks to public cloud services where necessary.

Hybrid cloud still depends on using colocation facilities in data centres

Hybrid cloud still depends on using colocation facilities in data centres, so it isn’t going to impinge on the data centre as we know it. Moreover, cloud has been part of the picture for over a decade now, yet remains much smaller than the colocation industry. If cloud is taking over the world, it’s doing it very slowly.

The impact of cloud

The retail industry provides a good example of this. While the biggest names run their own data centre facilities, this luxury is becoming increasingly rare for the next tier down. Even where cloud begins to affect some of the colocation industry’s ‘bread and butter’ customers such as low-end hosters, the industry has been able to attract the great majority of cloud providers, blunting the impact on revenues.

The debate on the impact of cloud divides the colocation industry in two. Some businesses plan to develop their own clouds or at least a cloud ecosystem, while others don’t touch it and believe it may bring them into competition with customers. There’s still no clear verdict on the success of products like AWS Direct Connect and Azure ExpressRoute. Do they add a new tier of services to bring new customers into the data centre, or merely paving the way for customers to leave the cloud?

Hybrid approach

For the time being, cloud and the data centre are coexisting peacefully; it seems as if claims that cloud will destroy the carrier neutral data centre industry are misplaced. Instead, we’re seeing a hybrid approach. Buying decisions fundamentally come down to economics, and hardware is usually cheaper than cloud. Plus, when it comes to housing equipment colocation always provides a cheaper, more secure and more reliable option than going in-house.

Even among SMEs, a market segment largely responsible for the popularity of hybrid cloud, colocation is an increasingly popular option for predictable day-to-day applications such as Exchange. Cloud will play an increasingly large role in the data centre of the future, but IT decision makers shouldn’t write off colocation just yet.

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Daniel Beazer, senior consulting analyst, Peer 1 Hosting

With years of analyst experience at a number of reputable research, IT and security institutions, Daniel is Peer 1 Hosting’s Senior Consulting Analyst responsible for strategy, consultancy and growth. Prior to his current role, Daniel worked as Chief Strategy Officer for Firehost, a global provider of security-focused cloud services.  Additionally, Daniel held the position of Senior Research Analyst (EMEA) for 451 Group and covered the hosting, cloud computing, CDN and datacenter markets. 

Daniel was educated at Oxford University and is a member of the Bar of England and Wales.