The data center industry has been undergoing massive changes in the last few years caused by pressure not only from regular competition, but also from the tech goliaths who have invaded the commercial data center space and changed its fabric forever.
Cloud computing and commoditization of IT resources has been the main source of the industry transformation and had a tremendous impact on the IT resources consumption from the business and technology perspective.
While the amount of data we produce and store is growing exponentially every year, the way businesses want to store, manipulate and access their data is changing constantly. Business decisions regarding IT solutions are driven by agility, scalability, geo-availability and connectivity while businesses moving to IT resources consumption and OpEx models. At the same time, compliance, security and cost effectiveness are not taking a backseat when it comes to deciding on partnerships with cloud, service or data center providers.
Enterprise data centers are becoming a thing of the past and we see a steady stream of enterprises moving to not only colocation services within multitenant data center facilities, but also to cloud and hybrid cloud environments. Long gone are the days where enterprises wanted to own and manage IT infrastructure; now they just want to consume it. Many large enterprises are consolidating their data center facilities or completely leaving the own and operate scenario as much as compliance allows it. If you had to deal with operating your own data center you will know why this shift is happening in the enterprise world and if you didn’t … keep it that way. Bottom line: if operating a data center is not in your core business best to leave this to someone who does it for a living. Perfect example of this is Uber, which initially purchased a smaller footprint data center facility and now is adding leased space in multitenant data centers.
Telcos, Hosting and Cloud Providers
Telcos have wanted to step out of owning and operating data center facilities business as they are being squeezed out by competition from “native” data center operators, public cloud behemoths and other service providers which no longer use their budgets on facilities but focus on their core business. Windstream sold its data center business; CenturyLink wants to ditch 60 data center facilities, and Verizon and AT&T are also considering selling off their data centers. More and more cloud and IT service providers are going in the same direction and decide against building own facilities and instead lease space at commercial data center facilities avoiding massive CapEx and OpEx costs which are being allocated towards R&D, staff, and marketing to maximize competitive advantage.
The exception is the “Super 7” – this is a name Intel has for it’s 7 special customers (Facebook , Google, Microsoft, Amazon, Baidu, Alibaba and Tencent). These companies have such extraordinary buying power that it not only makes sense for them to build, own and operate data centers, but they actually build their own server hardware. For these companies such strategy is not only sane, but actually profitable. For almost everyone else outside of the data center industry members it makes little sense to own and run their own facilities in today’s market and hence the shifts we have seen..
Multitenant Data Center
The game is different for companies that actually do own and operate data centers for a living. Internet companies, service providers and enterprises are the main customers of today’s multitenant datacenter facilities. Though the internet business is booming data center operators have a ton of competition. In addition to competing with each other, they also have to watch for the likes of Amazon, Microsoft and Google as these companies invade the market with cloud offerings which tap directly into the commercial data center customer market. Enterprises or service providers going with public cloud goliaths are limiting or dropping all together their colo and hosting services, and as this trend continues data center operators must find ways to reposition themselves to compete in the new environment.
Although the market is tough the future looks pretty bright for commercial data centers even as they are competing with the public cloud behemoths. There are several reasons I believe this to be true:
- Internet data and traffic growth: The Internet is forecasted to quadruple in size in the next four years.
- Edge data centers: The need for edge data centers will put many geographically well-placed multi-tenant data center’s “back on the map” as the need for edge locations (near the end users) increases through streaming and the soon to be booming Internet-of-Things (IoT) services.
- Consolidation and hybridization: Many enterprises will make use of hybrid infrastructure models between public cloud and commercial data centers for DR and compliance purposes.
- Cloud and Service Providers: Providers that are not a part of the “Super 7”, or do not base their core business around servicing on that infrastructure, are forming the largest customers base of multitenant data centers and their growth will only increase.
- Compliance: For example, the compliance requirements for geographical locations that exist in certain countries or regions are a great opportunity for local or multi-locational players to service businesses which operate in such regions. This goes for business critical applications as well as for disaster recovery sites.
Chess, not Checkers
Multitenant data center operators need to, if they haven’t already, revisit their business strategies to stay relevant and maintain growth. There are multiple ways that this can be tackled. I partcipated in a panel discussion on this topic just a few months back where I had the pleasure to represent PhoenixNAP in a conversation with representatives from Microsoft, EvoSwitch, Detron, The Next Cloud and AMS-IX at an event regarding the changing role of todays data centers.
The need we see in today’s competitive data center operators is engagement with their tenants. It is no longer sufficient for operators to offer space/power/connectivity and send the customers on their way with little to no other interaction. It’s all about engagement and auxiliary services next to the core data center operational utilities.
Providers who can create business growth environments within their facilities will have the edge of their customers not only achieving own goals quicker, but also keeping a lot of services within the operators facilities and thus lowering the chance of such customers ever shopping around.
Some operators create their own internal marketplaces and allow their tenants to exchange services while others use commercial marketplaces and connect with competitor’s facilities.
Often customers request to connect to massive public clouds (think of services like AWS Direct Connect, Azure Express Route or Google Direct Peering) or access public or private/hybrid cloud solutions within the facility, and this is where the service and smaller cloud providers can really shine, so seeding these connections between the data center tenants is a key factor to future success. Let the cloud be an opportunity and not a disruption to your business. Compliance and DR services are not any less important, especially for verticals like health or financials, and data center operators should make sure they have the certifications that are required in order to facilitate such customers. Going into strategic alliances with your own customers is a safe bet and a perfect symbiosis not to mention allows your tenants to access specialized services provided by companies who do this as core business within your facility.
Bottom line: the data center business is no longer a zero sum game. Help your tenants businesses and they will contribute to your growth at a fraction of the costs of attaining new outside business.
Martin Wielomski is a Manager of Business Development for the EMEA region for PhoenixNAP Global IT Services. He has years of experience in theInformation Technology and Hosting industries and specializes in strategy development and international business, sales leadership and product management. He also writes for several international IT oriented magazines and blogs and advises about technology, management, customer relations, sales and international business expansion while leveraging human connection potential in his corporate strategies. Martin believes in lifelong learning and leadership through engagement, while maintaining realistic and down to earth people approach. He can be reached at: linkedin.com/in/martinwielomski