Outlook Brightens for Europe's Co-location Market

• By The WHIR, December 30, 2002

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Outlook Brightens for Europe's Co-location Market Adam Eisner, theWHIR.com

December 30, 2002 -- (WEB HOST INDUSTRY REVIEW) -- The past two years have been difficult ones for Europe's co-location market. Most co-location providers across the continent are running below capacity and struggling to fill empty racks as clients continue to fall victim to the telecom downturn - which has led to dwindling revenues and little growth. But as 2003 approaches, there is hope that the sector is poised to right itself and make steady, long-lasting gains for the future.

Europe's co-location market has suffered through problems on several fronts over the past two years. There has been virtually no funding available, as most of it dried up with the onset of the telecom downturn; overcapacity has plagued the hosting industry as a whole, leaving many data centers running at levels that are well below profitable; and falling IT budgets have led to an overall reduction in customer spending.

These problems are expected to continue well in to 2003; however, the good news is that the worst may be over. The uptake of co-location is expected to steadily increase in Europe during the next 36 months, thanks to an expected resurgence in IT budgets, continued industry consolidation, and a renewed interest in co-location services from the enterprise sector.

These factors are expected to be the driving forces behind the overall resurgence of co-location in Europe over the next several years, and will ultimately lead to a significant increase in the amount of space used in Europe's data centers. "[Overcapacity] is a phenomenon that is likely to last in the short-term only, bearing a striking resemblance to the aftermath of the dotcom rush in the late 1990s, which felt the sting of consolidation and failed business models," reads a recent report from research firm Frost & Sullivan on the subject of co-location in Europe.

James Eibisch, IDC's Research Director for Europe's hosting and data center industries, elicited the same belief in an audio report earlier this year, saying that over the next four years, "demand will grow to meet supply" in Europe's co-location market. In fact, Eibisch says that by 2006, around 60% of the total amount of data center space will be taken by paying customers in Europe - twice the amount used today.

Co-location's resurgence, according to Eibisch, will be led by the enterprise sector, which has been slow on the uptake of co-location services to date. However, he does not expect to see any momentum from the enterprise sector until the second half of 2003 as most IT contracts expire and new ones take over, creating what he called a "lag effect".

Of course, the future of Europe's co-location industry is not entirely in the hands of customers; it is also dependent on how well hosting firms can execute their business models in the coming months. One of the biggest challenges for companies hoping to truly penetrate Europe will be their ability to cater to specific geographic areas, a difficult task given the cultural diversity of the continent. "It will be crucial for successful co-location firms "to identify potential business verticals and geographic areas of demand ," according to Frost & Sullivan. It will also depend on how well co-location companies can adapt to individual European modes of business, which is backed up by the trend towards a country specific devolved form of operational management across European sites."

It is important to remember that the upcoming year will likely serve only as a gateway to overall growth; it will take several years for the sector to improve significantly. While 2003 should be a better year for the industry, the real growth is expected in the years following. Therefore, while companies offering co-location services in Europe should be optimistic about future business prospects, they should not get ahead of themselves - empty data centers and consolidation will consider to remain the norm well in to the New Year.

    

Tags:  Europe  Appro  eNom  ETT  IDC  Iona 

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