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Monday, January 05, 2015

Global Colocation Services Market Reaches $25 Billion

Multinational company CEOs have approved large investments in regional data centers, because they were told it was a requirement. This is what a typical legacy IT organization does with their budget -- they build, operate and maintain facilities that house computing systems.

These CEOs believe that data center facilities are wise investments. They're convinced there are compelling reasons why owning these expensive assets is beneficial to their business goals and objectives. There are some industries where this practice is commonplace.

Meanwhile, other senior executives have followed the guidance of forward-thinking CIOs or IT managers that choose to house some or all of their corporate computing systems within the shared facilities of service providers. Collectively, these providers have built numerous colocation centers around the globe.

As more companies review their IT investment strategies and follow the path to adopting colocation facilities, several key tends have emerged -- both on the supply-side and the demand-side of the market development activity.

The global colocation market has surpassed a run-rate of $25 billion in revenue, with six percent of these data center facility owners accounting for more than half of the total global revenue, according to the latest worldwide study by 451 Research.

Their database of providers includes 3,685 individual data centers from 1,086 data center companies serving North America, EMEA, APAC and LATAM markets.

Trend data from their market study reveals a pattern of concentration -- with very large providers at the top of the value-chain, and a long list of providers at the bottom of the global colocation market.

Moreover, it's important to note that these colocation service providers will continue to co-exist with the public cloud computing service providers, since they serve different needs in the marketplace.


The top ten service providers account for 28 percent of the $25 billion in revenue and the top sixty providers accounting for 52 percent of the total revenue.

According to the 451 Research assessment, even after the recent M&A activity in the sector, more than 1,000 additional companies -- many of them strong regional players -- generate the remaining 48 percent of the colocation services revenue.

"At its heart, the multi-tenant datacenter business is a regional business," said Greg Zwakman, research director at 451 Research. "So despite active consolidation and some concentration at the
top, much of the market remains highly fragmented, with a mix of national and local players."

According to 451 Research, over the past 10 years, much of the investment to build multi-tenant data centers has been made in large markets where there are many potential tenants. However, they are seeing growing interest in markets outside of those top few cities.

This is for several reasons, such as to reduce latency, to target medium-sized local businesses, or because operating costs are lower. Therefore, they expect to see strong growth in several of these secondary markets over the next few years.

451 Research data also details 176 known facility expansions and 134 new builds globally, with key regions such as New York City and London leading in square footage/power coming online over the next couple of years.

Currently, a little over 60 percent of planned expansions and new builds are concentrated in North America, but APAC and EMEA are both posting strong expansion rates as well.

LATAM data centers are increasingly catching up to their counterparts in other regions in terms of average revenue per facility, representing 4.5 percent of the 3,685 data centers tracked by 451 Research and 5 percent of global sales.