Growth Trends and Opportunities for Colocation Providers

This audio was created using Microsoft Azure Speech Services

A couple of years ago many colocation providers were feeling considerable angst over the idea that customers would flock in droves to the big cloud computing companies, the so-called Internet Giants, leaving colo’s out in the cold. The giants had scale and cost on their side as well as speed, meaning they could get customer applications up and running quickly.

But a funny thing happened on the way to Internet Giant world domination: they ran into some headwinds that opened up opportunity for colo providers.

A few big numbers help illustrate what those headwinds look like. In 2013, experts were predicting that in 2020 we’d have 30 billion objects connected to the Internet, along with 4 billion people. Data centers would consume 3% of all the world’s electricity and we’d have some 9 zettabytes of IP traffic. Fast forward to today and now you find that the 30 billion object figure has gone to 50 billion by some predictions and the 9 zettabytes is more like 16, headed to 20. Even if, like me, you’re not quite sure what a zettabyte is, you get the picture: the growth is dramatic.

Much of this growth is coming from the Internet of Things (IoT). We’re connecting more and more devices, collecting vast amounts of data from them, and attempting to analyze it to help drive better business results. In many cases, customers want to perform this analysis in real time, or close to it.

Many of our friends in the colocation world have seen a spike in demand as the Internet Giants have needed an outlet to help meet the tremendous growth required by their businesses.  5 megawatts, 10 megawatts at a time – in many markets, they have been soaking up all of the available supply.  I believe there to be opportunity for colocation beyond just filling in the gaps in mega data centers.

As it turns out, large, centralized data centers are not always the best answer for dealing with that kind of scenario. From a technical perspective, the reason comes down to two fundamental issues: latency and bandwidth. If the devices are spread too far apart, too much latency is introduced in the process of collecting data from them and shipping to it a centralized data center for analysis.

And as the number of devices grows, so, too, does the amount of bandwidth required to support all that data transfer.

Of course, the IoT is not the only driver of these trends. Consumers, too, are playing a role, as we’re all now armed with at least a couple of devices that connect to the Internet, often at high speeds. And we’re accessing bandwidth-intensive applications like voice and video as if it’s second nature. Because at this point, it is second nature.

It’s often not cost-effective to deliver services from a single, centralized data center and it can be difficult to deliver a quality customer experience. So, we’re now seeing adoption of a more decentralized, hybrid data center architecture, with three basic layers:

  • Localized edge data centers
  • Regional edge data centers
  • Centralized cloud data centers

As I mentioned in my opening keynote talk at the recent International Colocation Club 2016 event in Paris, Netflix represents an example of how this architecture plays out in practice. To improve the customer experience and reduce its own costs, Netflix adopted a content delivery network model. It pushes video out from the point of origin to a network of regional servers in different countries. There, it is replicated for delivery to the customer. The strategy delivers a far better experience to customers while helping Netflix reduce costs because it’s not sending duplicate video streams end-to-end over its network.

This strategy presents tremendous opportunity for colocation providers. To quickly scale and build all those local and regional edge data centers, cloud providers will look to house infrastructure in colocation facilities that already exist.

But that’s only one piece of the puzzle. The IoT presents another significant opportunity for colo providers. Companies of all sorts will be wanting to build their own IoT networks and they’re going to need help not only collecting the data from far flung devices, but analyzing it to deliver business value. Colocation companies that position themselves to help with both pieces of that puzzle will find a huge source of additional revenue.

To learn more about the opportunity I see for colocation providers in the year ahead, check out the video of my talk at the International Colocation Club event. I hope it will get you thinking about how to take advantage of the transformational trends our industry is now witnessing.


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