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Industry Insights

CI: Data Center Trend #4: Why Build When Someone Else Can Manage?

Wednesday, August 24, 2016 | by Justin Baillargeon

The fourth trend in our series will be looking at the proliferation of multi-tenant data centers (MTDC), including colocation and cloud, and the shift from wholly-owned enterprise data centers to those managed by others. It’s impossible to ignore the rapid growth multi-tenant data centers have seen over the recent years with over $115 million in revenue being generated in 2015 alone.

IHS believes that this growth comes as businesses look to reduce their capital expenditures (CapEx) that come with constructing and maintaining their own data center. Moving the data center from a wholly-owned building to a multi-tenant data center provider allows it to become operational expenditures (OpEx). This also relates to the ability of businesses to grow their data center space as needed, when needed without having to build entirely new data centers. Although even this is somewhat of a heated topic, something which CIO.com discusses in their article, How to Break Down the OpEx vs. CapEx Cloud Computing Debate.

The cost benefits realized are compelling businesses to place more thought into their data center strategy. Forrester estimated the 10-year cost of a company building their own data center versus the cost of renting space from a colocation provider, with a 32% cost savings realized when deploying within a colocation facility.

There are a number of other benefits that make colocation or cloud service providers attractive to businesses, including freeing up internal IT resources, allowing for capacity to be added or removed as needed and having access to state-of-the-art infrastructure within the rented facilities. These MTDC providers are in a highly competitive environment and must offer compelling services and infrastructure to potential clients if they would like to secure a sale. This competition has led some major multi-tenant companies, including Equinix and Digital Realty to begin investing in Open Compute designs, something which we will talk about in more depth as another trend further along in this series.

The same two multi-tenant giants, Equinix and Digital Realty, also offer interconnection or cross-connect services to their tenants, allowing them to directly connect with other clients and services within the same data center. In 2015 IHS estimated that 10% of all MTDC revenue has come from the fees associated with cross-connects with Equinix alone having over 145,000 cross-connects.

We are witnessing a shift from the need for enterprises to construct their own data centers to those same enterprises “outsourcing” their data center to providers who are able to offer more expertise and services in relation to the operation and maintenance of a data center.