Home Articles How is the Cloud affecting the Colocation market and traditional Colocation Providers?

How is the Cloud affecting the Colocation market and traditional Colocation Providers?

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By Mark Underwood

CTC: Mark Underwoood presents his view of traditional colocation markets, how cloud computing affects these markets, and how colocation providers need to adapt to change and embrace cloud.

Colocation (or co-location) is “the act of placing multiple (sometimes related) entities within a single location” (Wikipedia), and – to this extent – Colocation and Cloud Computing are two services which were founded on very similar principles. Both cloud and colocation see customers coming together in order to benefit from a purpose-built service or facility that in themselves, individually, they would be hard-pushed to afford, let alone manage.

The Cloud is in the House.

Despite this, you may be surprised to learn that Cloud Computing is posing one of the greatest challenges to Colocation providers; it places a new set of demands on data centre operators, and has dramatically shaken up the typical profile and cross-section of customers.

Cloud Computing …places a new set of demands on data centre operators, and has dramatically shaken up the typical profile and cross-section of customers.

So what is it about Cloud Computing that is forcing Colocation providers to re-examine their business models, facilities, and their approach to securing new and existing business?

Well, in the same way that the arrival of commercial multi-tenant Data Centre (Colocation) facilities meant that businesses no longer needed to invest in power and cooling for their on-site makeshift ‘broom cupboard’ server rooms; Cloud Computing now provides businesses all the computing power they may need without maintaining their own infrastructure.

The result is a shrinking colocation market for traditional end user enterprise colocation customers, brought about by companies relocating their workloads to the Cloud. This is especially noticeable in the mid-size enterprise sector where businesses are agile enough to quickly take advantage of new technology opportunities, and historically invested less heavily in their own data centre infrastructure.

…despite on-going exponential growth in computing needs, a mid-size enterprise that may have needed 10 racks three years ago, now only needs two or three racks

It’s these disappearing mid-size enterprises that represented a large, reliable, predictable and profitable segment of your typical colocation provider’s customer-base. Combine this with the increased density of compute resources and we find that despite on-going exponential growth in computing needs, a mid-size enterprise that may have needed 10 racks three years ago, now only needs two or three racks.

The flipside of this is the arrival of a new ‘super-breed’ of customer to Colocation facilities. These are the cloud computing service providers – the very businesses that are taking on the relocated workloads from our traditional client base!

Whilst many of these Cloud Service Providers (CSPs) have morphed into existence from legacy web hosting businesses, systems integrators (SIs), managed service providers (MSPs) and indeed traditional IT value-add resellers (VARs), they have been joined by a whole new breed of software providers, platform providers, and infrastructure providers offering their wares “as-a-service”. However regardless of their origins, becoming a CSP has required a fresh and substantial investment in computing infrastructure and software.

[Cloud Service Providers] are looking to colocate the latest ultra-efficient high density computing hardware. However the latest hardware is not as compatible with older data centres as you might think.

As a result CSPs are looking to colocate the latest ultra-efficient high density computing hardware. However the latest hardware is not as compatible with older data centres as you might think. Indeed, older data centre and colocation facilities that may have been perfectly adequate for a colo customer of any size and orientation even as little as two years ago, today fall a long way short of being adequate to support an increasingly large proportion of colocation Customers requiring high density power and cooling solutions. So what options do these legacy operators have? One option is dropping their prices to attract new business – and you don’t have to look far for super-cheap colocation racks – they are cheap for a reason. Another option is to over-subscribe existing power and cooling resources – a dangerous strategy that no operator would admit to, but has the inevitable consequence of unplanned outages and falling service levels. (Google “data centre outage” for further reading.) The obvious correct option is to invest in upgrades to the facility – but capital-intensive investment is pretty hard to come by right now even for large businesses – and did we mention the erosion of the existing core colo customer base of mid-size enterprises? So, many older data centre facilities – particularly those without a very solid financial backing – have their work cut-out to keep up with this brave new world, and this is the biggest upset in the market.

Meeting the needs of Cloud Service Providers and Cloud Operators.

Cloud economies-of-scale are derived directly from the efficiency of the infrastructure or platform – and this includes the efficiency and economy (the value) offered by the underlying data centre. Cloud operators need to know that their data centre can match their ambitions, growth and uptime expectations.

Cloud operators also need connectivity and lots of it – available all the time and scalable to the highest levels. Inevitably, bandwidth has become an increasingly important consideration for data centres – so factors such as duct capacity, fibre entry, cross-connect methodology and management, re-sold and low-cost aggregated bandwidth offerings – as well as rules and regulations for on-site network operators should be examined very closely.

Once you’ve determined that the colocation facility has what you need in order to provide a stable and reliable foundation for your cloud service for both today’s and tomorrow’s requirements, you are likely to find that your short-list of providers is made up of the more expensive facilities. So what can a colocation provider do more to assist your cloud operation and your bottom line? At Virtus we’ve examined this very challenge and come up with Colo-on-Demand. It’s designed to align your colocation expenditure with your cloud revenues. In other words, as your cloud customer computing requirements increase, you can quickly and easily ramp up your colocation requirements. The same goes for when they decrease. Our colocation flexes with your cloud.

Cloud and Colocation were founded on very similar principles. At Virtus we are committed to ensuring that our colocation – and your cloud – tracks the same productive path into the foreseeable future.