Datacenter Dilemma: Build, Buy or… Sink

The digital economy is reshaping the datacenter landscape, according to a study from , a professional services and investment management firm. ‘The industry is finding growth amidst increased rate of “cloud” adoption, massive provider consolidation, coupled with the exodus of major telecommunications companies from the services sector.’

Multi-tenant datacenter providers grew 6.1% last year, and rang up revenues of $115.3 billion, said Bo Bond, Managing Director and JLL’s Data Center Solutions Group Co-Lead. However, the very large telcos, many of whom went out and acquired datacenter companies instead of building the capabilities internally, are now dumping those assets. “They found that the integration wasn’t that easy,” he told IT Trends & Analysis.

So they’re selling off those assets. Other are looking at their real-estate portfolios and deciding that rather than own, why not sell them and lease back the datacenters. The third aspect plaguing the telcos is that they “pay a lot for these businesses and don’t feel they’ve done as well… so they’re getting back to their core business.”

Not that all telcos are taking this path. For instance AT&T is in the process of converting its central offices — telephone switching centers — into cloud datacenters.

“We’re going to use already existing footprint of central offices across the country as kind of a distributed cloud,” said AT&T’s Igal Elbaz, VP of innovation and ecosystem. A “significant number” of central offices will get electrical and mechanical infrastructure upgrades to convert them to data centers, he said.

It’s a different story for enterprises, who don’t have a standalone datacenter business they can sell off, said Bond. For them there are a variety of datacenter deployment options, although from a real-estate optimization perspective, selling the land, if not the center, might make sense.

“There is a wide wide adoption of co-location, cloud services, software as a service… why wouldn’t you hand over the management of facilities to companies like that… the HPs of the world, the IBMs of the world…” said Bond. Service providers have better facilities, they might have better talent, and enterprises might choose to focus on their business, and outsource their IT.

There are far-reaching changes impacting IT, according to a recent IDC study. In the future, 60% to 65% of IT assets will be off-site and the IT staff will need to manage all of it, said Richard Villars, VP of datacenter and cloud at IDC, and one of the authors of the Worldwide Data Center 2016 Predictions report. Datacenter teams will take on new jobs and need to evaluate partners, as well as provide consistent management and security across all internal and external access points, he said.

Convergence and software-defined infrastructure are other datacenter industry trends that will also become “more critical,” and the move toward it must happen faster, Villars said. Some of the new hyper-converged offerings in 2016 and 2017 will drive datacenter consolidation for the datacenter and its staff. Hyper-converged and software-defined infrastructure will accelerate the use of managed services to do basic administration and configuration, as well as shift staff time toward “value-added business services” and managing all the data that is being created.

In other recent datacenter factoids:

-the datacenter colocation market is estimated to grow from $25.70 billion in 2015 to $54.13 Billion by 2020, at a Compound Annual Growth Rate (CAGR) of 16.1%;

-the global datacenter market will grow at a CAGR of 4.51% over the period 2014-2019;

-while the percentage of organizations outsourcing datacenter operations remains relatively low, those that do outsource some or all of their data center generally find it improves IT service levels;

-in the $70 million datacenter infrastructure utilities space in the U.S. and Canada, prices on renegotiated contracts have eroded by about 10.5% in the past 18 months;

-having spent the last 3-4 years moving to the hybrid cloud, many companies will spend the next 3-4 years moving to the hybrid IT world, which will involve diverse assets in an enterprise’s own data center, as well as third-party data centers;

-datacenters are using 30% more coal, despite best intentions to go green; and,

-Microsoft has been exploring putting datacenters under water, including the four-month Project Natick which tested a prototype vessel on the ocean floor last year.

In addition to the telco datacenter sell-off, JLL’s key findings included:

-smaller, tertiary markets are ripe for datacenter expansion as datacenter providers look to subordinate markets for expansion opportunities;

-cost will continue to drive datacenter locations;

-outsourcing and offshoring will become major location drivers; and,

-key markets to watch include Northern Virginia, Canada and Northwest U.S. markets such as Oregon and Washington.

Bond said JLL is seeing connectivity becoming a bigger factor with their customers, pushing datacenters to the edge to be able to “expose themselves to their customer base globally…” This is especially true for media and gaming companies where high volume and low latency are critical.

Costs and the regulatory environment are also impacting datacenter decisions, he said. While the industry continues to grow, “demand greatly outpacing the supply.” One or two datacenters “isn’t the norm anymore,” stated Bond.

Author: Steve Wexler

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