ColocationEnterprise IT

The Future of the Co-location Market and how it Affects your Decision to Select a Provider

Colocation is growing rapidly. It offers enterprises a chance to offload a lot of the drudgery of buying, maintaining and managing servers and software and reduces capital and operating costs. One example of how important it is becoming is the amount of investment colocation is experiencing. For example, in Germany, 25% of the capital investment into datacenters in 2014 was invested in colocation.

German datacenter colocation investments 2014Global colocation by square feet








The colocation market in North America, which is the largest colocation market by operational floorspace worldwide (~43%), is highly competitive and fragmented today. Most of the colocation operators around today will either be gobbled up or be road kill in the next five years.

If you want to minimize the cost and risk of deploying with colocation firms, it is important to carefully select the colocation firms that can deliver and differentiate their services, are cost competitive yet profitable and are large enough to withstand consolidation and continually improve the breadth of their offerings.

colocation market shares in NA

Currently colocation is a very fragmented and highly competitive market in North America. One quarter of the available floor space and about one quarter of the revenues are derived from about 18 big players. The rest is offered by multiple mom and pop shops including hundreds of local colocation firms. It is mainly a retail business where the colocation firms are selling directly to companies and very few are wholesaling their services.

Most colocation firms offer a combination of processing power and storage, floorspace, cooling and bandwidth to enterprisers looking to have their hardware and infrastructure managed at a cheaper price yet in an accessible and secure environment. The key driver for many enterprise IT departments to consider colocation hinges around space and infrastructure availability and management to reduce capital investment and operational cost requirements.

Technavio 2014 list of US colocation providersSource: Technavio, July 2014

In addition, the larger players are offering certain features that are seen as advantages, especially to geographically dispersed businesses and larger enterprises, which also tend to purchase more advanced colocation services. These features include examples such as:

1) The ability to host or colocate your servers physically near to your locations where an IT operative can get easy access to the equipment.

2) Access to more and better skilled personnel and robust service delivery processes when issues occur or systems need rebooting, migration, reprovisioning etc.

3) Better security, including physical access that is better protected with guards and premise security

4) Investment in more available and disaster resilient capabilities. The larger colocation firms can mirror apps and environments more easily and some have invested in remote backup systems accessible via high throughput networks like the 10Gbps used by Expedient.

There is a distinct advantage in being larger, as it brings economies of scale and the ability to attract and retain larger customers who spend more and buy more profitable products above and beyond mere space and bandwidth.

Therefore, as the market matures it is expected that many of the smaller colocation firms that have enough customers, offer a strong presence in an under served geography or offer breakthrough services will be swallowed up as part of a pervasive consolidation where small, medium and larger firms will start getting swallowed up. These smaller firms that do not offer unique advantages may either fail, lose customers or get bought up, post bankruptcy.

As that begins to happen, colocation firms will continue to try and differentiate themselves and offer products such as value-added services, encompassing datacenter infrastructure and server platform monitoring and management, and requirements for content storage, high-bandwidth connectivity, and IT security such as managed firewalls.

Assuming that consolidations happen at a moderate rate, the future market, in the next 5 years may contain fewer than a handful of large independent colocation firms.

Bottom Line:

If you want to minimize the cost and risk of deploying with colocation firms, its going to be important to carefully survey the available providers and shortlist those colocation firms that

1) have repeatedly shown they can successfully deliver and differentiate their services

2) maintain cost competitiveness and a sustainable business model for survival

3) are large enough to withstand consolidation and continually improve the breadth of service offerings


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