Should Colocation Data Centers Fear Consolidation?

Yes! No! Wait a minute… To understand whether consolidation threatens colocation data centers, we need to know what kind of consolidation is concerned.

IT consolidation, for instance, refers to the actions of an enterprise to reduce its IT resources through more efficient technologies.

On the other hand, data center market consolidation refers to mergers or acquisitions of service providers, producing smaller numbers of providers but increasing their average size.

Now that we know what we are talking about, we can assess the negative risk, meaning the threat, and perhaps also the positive risk, meaning the opportunity. 

Consolidation from the Customer’s Point of View

There is no shortage of technology to help customers do more with less regarding hardware and operating systems. Blade server systems have replaced or obviated the need for mainframes.

Server virtualization allows multiple virtual machines to run on one physical box. IT automation makes processes run faster, more efficiently, and with fewer errors. How does this affect colocation providers that offer data center space and facilities?

• Overflow customers. Those whose own data centers were filled to the brim may now find consolidation gives them space to bring colocated systems back in-house. If so, they may no longer use colocation services.
• Outsourcing customers. Technology is only one part of the total IT solution. Data center facilities and competent data center staff are also critical. These customers may consolidate their installations within the colocation data center but will reduce rather than eliminate their colocation budget.
• Customers consolidating their own data center. Customers may need only a fraction of their original data center space in this case. Compared with trying to build or find a smaller data center of their own, colocation can be an attractive solution. Colocation can also appeal to larger organizations consolidating multiple data centers. Some individual business units may prefer to retain their IT autonomy by moving to colocation instead of trying to sort out internal cross-billing in one organizational data center that houses the systems of all business units together.

Consolidation of the Colocation Market

Currently, larger colocation players are buying up smaller ones. Other independent providers must compete with larger providers offering wider geographical coverage, economies of scale, or both. This situation is a classic one in business. Smaller colocation providers then have several options.

They can specialize in different colocation market segments (retail, for example), and distinguish themselves by offering personalized service.

Some growth sectors, like the industrial internet services requiring geographical proximity for low latency networking, may be better suited to smaller, local colocation providers rather than bigger but more remote ones.

Much as neighborhood stores continue to compete with large supermarket chains, there are business opportunities for both small and large colocation providers, whichever way the consolidation wind blows.

Also, see Has Data Center Consolidation Peaked?

How is consolidation – in any sense of the word – affecting you as a colocation service provider? Share your experience and opinion with a line or two in the space underneath.

Learn more about Colocation Data Center Providers and Go-to-Market Strategy (GTM) for Growth.