The global outlook of the data center colocation market has exhibited a revolutionary shift in the last half a decade or so, with decision-making retaining dependency on efficient management and data processing. Data center colocation has quite discernibly emerged as an indispensable support for businesses to expand, by offering services to help them centralize their IT systems and enabling reliable business continuity solutions. Similar to any part of a business development, building and maintaining of a data center needs considerable planning and cost allocations, but data centers guarantee a vast amount of spending than some other enterprise components.
Experts suggest that building a mid-size enterprise data center, one which could span about 5,000 square feet and be highly efficient in power utility and cooling, may warrant an investment of nearly US$38 million. To put that in perspective, one of Google’s data center sites, located in Oregon, U.S., has a total area of over 352,000 square feet with an investment of more than US$1.2 billion made at the site over the years.
Enterprises can realize considerable cost savings by outsourcing to data center providers and benefit from highly skilled, certified experts handling data security and services. Gradual development of edge computing technologies will also augment the demand for data centers to ensure the availability of enormous computing power and scalability, driving businesses towards colocation providers. According to a report released by Global Market Insights, Inc., the data center colocation market is anticipated to surpass US$90 billion valuation by 2024.
Shifting the perspective from IT giants like Google and Facebook who can spend billions on advanced data centers, most SMEs, financial institutions, healthcare firms and certainly startups around the world do not have that capacity and even expertise. Subsequently, in order to keep pace with the constantly evolving digital infrastructure and increased adoption of IoT devices throughout organizations, the data center colocation industry could become the key to unlocking a digital future for startups, small and medium enterprises along with banking, financial services and insurance (BFSI) companies.
Shifting trends in the BSFI sector driving the data center colocation industry growth
Traditionally, software, telecommunications, banking and retail segments had probably been the major reason for expansion of the data center industry, with heavy reliance on data processing, security and the need to easily scale up business operations. In the energy sector, oil and gas companies have also employed data center services for managing remote facilities, predictive maintenance and decision making using real-time information. Most of the above application segments are moving towards colocation services to cut down costs and BFSI players are among the most promising target customers for the data center colocation market. With the need for extremely high security and ease of access, banks maintained in-house data centers when the era of digitization began, incurring sizable expenditure on infrastructure, man power and diversion of business assets.
Lately, these institutions are seeking colocation services to not only save cost but also focus more on their core businesses, leaving IT operations to third-party entities. A notable logic behind these moves could be digital banking trends and the resulting complexity of required data infrastructure. Banks are now able to increase or decrease their data storage space without shelling out large sums of money. Not long ago, IBM had entered in talks with Lloyds to take over the data centers of the UK-based financial company. Lloyds was looking to counter technical issues with the centers along with reducing capital expenses, deciding to outsource its data centers. Earlier this year, Databank confirmed that it has acquired the data center of Pittsburgh’s PNC Bank, which will remain the main tenant of the center and use the colocation services of Databank.
Evidence suggests that these deals do not represent the intention of financial institutions to dispose of data centers, but their effort to lower the cost of running them, while taking advantage of the infrastructure modernization steps undertaken by colocation providers. Following in this trend, when firms require additional space and computing power to meet growing number of digital platform customers in the future, they will undoubtedly stride towards the data center colocation market which comprises of world leading service providers, including Equinix, CenturyLink, Interxion, CyrusOne and Version Communication. Referring to a recent development that demonstrates the impact of BFSI sector on colocation industry, Interxion unveiled its third data center in London urged by the presence of numerous financial services companies in the area.
Transformative technologies to define the future of the data center colocation market
The concept of artificial intelligence (AI) has become the driving force of business operations, technical advancements and development of novel products through the application of machine learning and deep learning. AI facilitates unprecedented data management capabilities and enables the function of modern technologies like image and voice recognition, as well as power modern R&D requirements. With the increasing deployment of AI across vital business processes, there will be a need for enormous computational power which can be gained economically by outsourcing the storage and computing infrastructure. Over the coming years, it is expected that many data center colocation providers would build centers particularly suited for machine and deep learning applications.
AI is also being explored for improving the energy efficiency of data centers, as these buildings consume massive amounts of electricity that ultimately affect the environmental health. Recent studies have shown that AI can help enhance data center efficiency, with Google saying it had achieved a 40% reduction in energy usage by employing deep learning technology. Industry experts have established that if data centers do not implement AI and machine learning capabilities, the centers will become less feasible to operate and sustain in the future. Meeting the fast-changing global standards and tightening energy efficiency mandates, adoption of AI by the data center colocation industry will transform immensely the way data centers are built and operated.
Ever since Bitcoin was introduced, the technology behind cryptocurrency has been explored and applied to a host of other applications. Blockchain is considered to be one of the most important modern innovations to enhance and speed up business transactions, along with offering significant other opportunities to financial institutions. However, the extreme computational power and capacity needed to run blockchain platforms efficiently compels the use of data centers. Colocation providers would soon be constructing centers for accommodating higher traffic and powerful servers to support blockchain and AI operations.
Focusing on security of servers will also be of strategic importance for the centers, as cybersecurity has become a major threat worldwide in conjunction with the rapid adoption of blockchain technology. Optimizing space available within centers will stimulate the use of larger cabinets and new components to offer increased number of servers, bringing about structural revolution in the data center colocation industry. Emergence of several blockchain startups over the last couple of years has only escalated the need for advanced data center capabilities.
The world is patiently awaiting the launch of 5G services and experiencing the immense changes it will bring into the communications, media and banking industries. Data centers would apparently be crucial in enabling access to 5G networks and the tremendous speed it offers, indicating there could be a spurt of new centers all over the globe. Research confirms that transmission rate needs of 5G are hundred times more than 4G networks, which means colocation providers would look to address the requirement of more efficient infrastructure to save energy and associated costs. For gaining an edge in the highly competitive data center colocation market, providers will also need to become 5G-ready before the technology gathers momentum.
With the spate of technological advancements surging by the day and the robust requirement for state-of-the-art infrastructure across a slew of end-use domains, the commercialization graph of data center colocation industry will only serve to depict an exponential growth in the years ahead.
About the Author:
Having worked as an insurance underwriter and a freelancer writer, Pankaj Singh is endowed with widespread experience in the domain of content creation. With a Post Graduate degree in Management, Pankaj has also added value to his portfolio of qualifications with a detailed course in Digital Marketing. Currently working as a full-time content developer, he dabbles in the areas of finance, technology, and the like, penning down articles reflecting his knowledge and experience.