The Data Centre market pot is being stirred vigorously

Comment and speculation over the past few months has focused on the potential death of both co-location and enterprise data centres. Certainly the growth of AWS, Azure and other cloud providers along with apparent consolidation in the data centre operator market has fueled that opinion.The latest news about Redcentric buying City Lifeline and Digital Realty weighing up a bid for Interxion could also be seen as further pointers in that direction. Rather than this being the end of something, it feels more like the start of a major re-structuring of the market into new, more clearly defined segments which build on the co-location base to take advantage of new deployment and business models.

Overall there doesn’t appear to be a slowdown in the provision of new data centre space. A clutch of 2014 research studies from analysts like Tariff Consultancy Ltd and Synergy Research Group all pointed to double digit growth globally in the co-location market. The latest CBRE quarterly reports on data centre building projects in Europe tend to point to continuing new investment and the major hyper-scale operators from AWS to Facebook have all been rushing to build new data centres.

Underneath that headline growth there are some tectonic shifts in the structure of the market. These shifts are being driven by three core drivers; the growth of public cloud, the growth of hybrid cloud and a linked decline in enterprise run data centres; and thirdly, the growth of IoT. This is forcing the traditional wholesale and retail co-location providers to reassess their market positioning and business models.

The UK journal, the Register, somewhat unfairly caricatures the co-location providers as ‘bit-barns’. But there is no doubt that, without a reassessment of go-to-market strategies, co-location operators could find themselves in the same sort of bottom of the eco-system price fight that was threatening to engulf telcos. Equinix has pioneered the high performance, global inter-connectivity hub approach very successfully. Digital Realty has scrambled to follow suit quickly by buying Telx and eyeing up Interxion. In contrast to these largely metro based inter-connectivity hubs, the Internet of Things is driving compute and storage to the edge, nearer to the end user and the transaction. EdgeConnex is growing rapidly with a focused offer. Local data centres area also beginning to see the advantage of being closer to the action as long as they have “good enough” latency and bandwidth for any onward transmission requirements that aren’t absolutely speed critical.

A more visible change is being driven by the enterprise requirement for hybrid cloud. Excellent direct connectivity to AWS, Azure etc. is now a must-have. But CIOs need a lot of help to understand how to migrate legacy systems to a cloud environment and reduce or eliminate their need for their own data centres. At the top end of the market we have seen Equinix acquire Nimbo to provide consultancy to Enterprise CIOs on this topic. Lacking the constraints imposed by a REIT (Real Estate Investment Trust) structure a number of data centre operators like Node4 are moving, through acquisition, to becoming managed services companies who own data centres. The Redcentric move also shows that the MSPs are starting to see the benefits of owning their own data centres and I think we will see more of data centre operators and MSPs coming together in 2016.

Vanilla co-location is not where you want to be in this new environment. But owning the underpinning data centre facilities, be it small edge locations, medium sized local sites or large metro based hubs remains a critically important component in providing for our interconnected world.

This post first appeared on the old Cassini Reviews website.