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Three new colocation market trends for IT pros to tap into

Competition is surging in the colocation market, and providers are adding new features to differentiate. IT pros should look for new services around cloud connections, green energy and more.

More companies are turning to colocation instead of building their own data center from the ground up. Colocation facilities can cut costs, reduce the stress that accompanies data center operations and round out an enterprise disaster recovery plan.

As such, the colocation market is surging -- 2015 was a record year, with colocation services bringing in $27 billion in revenue, according to data from 451 Research.

The U.S. market is particularly competitive and highly saturated in the five busiest regions: Silicon Valley, Dallas, Chicago, New York/New Jersey and Northern Virginia, according to Jabez Tan, research director of data center and cloud market intelligence at Structure Research Ltd., based in Toronto.

The increased level of acquisitions and mergers is a natural evolution for a maturing industry, Tan said. Among other recent market movement, for example, CenturyLink plans to sell its entire data center portfolio to help fund its acquisition of Level 3 Communications.

"You want to have a dynamic where you have maybe 20 core providers that are acquiring at a healthy rate, because then they can provide the geographical scale to support a lot of these customer requirements," he said.

Amid heavy competition and activity, colocation companies are finding new ways to differentiate beyond traditional hosting. One way to attract new users is to add new capabilities and services. Here are three, in particular, to look out for.

Green and renewable energy

Rising awareness and concerns around climate change means colocation customers can expect green and renewable energy to become a higher priority for facilities, especially where such natural resources are available and abundant. In 2017, the industry will see more of an emphasis on green energy, as enterprises demand sustainability as a part of their requests for proposal, predicted Kelly Quinn, research manager for data center trends and strategies at IDC.

You want to have a dynamic where you have maybe 20 core providers that are acquiring at a healthy rate, because then they can provide the geographical scale to support a lot of these customer requirements.
Jabez Tanresearch director of data center and cloud market intelligence at Structure Research Ltd.

In Sweden last year, colocation company Hydro66 opened the first hydropowered data center to cut costs and increase scalability. And in Scotland, a completely renewably powered data center is underway.

When it comes to colocation, green energy began appearing around 2014, "about a year after Hurricane Sandy hit New York City and decimated both the electrical grid and any opportunity for diesel supply fuel for data centers in and around New York," Quinn said. Hyperscale players, such as Microsoft and Amazon, pioneered the movement toward renewable energy, as the companies implemented their own green data center systems, particularly with hydropower in the Pacific Northwest.

"Providers do want to be conscientious about their carbon footprint," Tan said. "[Publicly traded customers] want to be seen in the light of having associations with providers that are moving toward a green strategy for their IT footprint."

At the micro level, green energy can help colocation customers with green initiatives to meet their internal requirements. At a macro level, the renewable energy trend provides alternatives to the U.S. electrical grid, Quinn said.

"It's providing opportunities for data center operators to maintain availability and uptime even when the electrical grid goes down," Quinn said. "And, in some instances, they're offering lower rates than the electrical grid."

Interconnection environments

As many colocation users move toward a hybrid environment, with only a portion of their IT infrastructure housed on premises, the ability to burst into the public cloud for extra compute capacity becomes more crucial. If a retail company expects increased compute capacity for a limited period -- during Black Friday, for example -- it may require burst capacity for that week, while IT supports the remaining day-to-day activities in a colocation facility, Tan said.

Due to this shift, colocation facilities are making interconnectivity a higher priority, providing dedicated connections to the public cloud that bypass the public internet with high performance and security. Interconnectivity to public cloud platforms is emerging as a service in colocation facilities, such as Equinix and Digital Realty -- and this feature is making or breaking colocation providers. Equinix, the market leader in both wholesale and retail colocation, has "built [its] entire platform on [interconnectivity]," Quinn said.

"It's easy to connect to whichever service provider or carrier that you do business with, so a colocation footprint in itself is essentially useless, because you can't connect to the people that you want to connect with," Tan said, comparing the situation to a smartphone without the ability to connect to apps such as Facebook and Instagram.

Whether a customer's requirements include a managed service provider, a cloud security provider or a distributed denial-of-service provider, they can access the services through interconnection.

Additionally, it could mitigate the threat of public cloud to colocation services in the long term -- an "unintended benefit," according to Quinn.

Marketplace offerings

As an extension of the interconnectivity trend, major colocation facilities, such as Equinix and Digital Realty, offer marketplaces to help enterprises find other colocation or third-party services that fit their needs.

In Digital Realty's case, this was made possible through its acquisition of Telx, a retail colocation company. Its new feature, MarketplacePORTAL, is a type of LinkedIn service that acts a liaison for customers' potential business relationships.

"It enhances the customer relationship because it deepens the level of engagement and interaction that the customer has with the provider," Tan said. "If it's purely a wholesale provider, then you're essentially providing space, power, cooling and some form of connectivity. But the moment you layer on an interconnection platform, you're essentially rooting your customer even deeper to your platform."

In addition to increasing customer retention, the service increases engagement -- users benefit from an ability "to have access to a wide variety of options through one or two data center providers."

In some cases, vendors can offer discounts on their services to marketplace members, according to Quinn.

"One of the really big benefits is the ability to connect to other vendors within the same colocation facility," Quinn said, "which really helps with issues such as latency and downtime."

Next Steps

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