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Data Center Experts Discuss the Growth of the Colocation Market and Its Future

By: Kaylie Gyarmathy on April 1, 2019

Colocation data centers have become a popular choice for companies looking to expand their capacity and scale their operations. Whether they’re launching a new application or simply need to increase their power and storage, organizations across a variety of industries have found colocation data centers to be ideal partners for their existing and future needs.

There are plenty of signs that colocation strategies will continue to gain strength in the years to come. A recent IDG survey, which consisted of 100 companies with an average size of 5,600 employees, found that nearly two-thirds of respondents already store data in a third-party colocation data center. And this multi-data center strategy wasn’t only part of a redundancy plan: more than half of these colocation facilities were used to support mission-critical projects or entire departments.

More importantly in terms of growth, 71 percent of companies relying exclusively on on-premise solutions today are planning to incorporate colocation into their strategy in the near future. These results align with BCC Research’s predictions that the global colocation market will grow by about 15 percent from 2016 to 2020, when the market is expected to be worth nearly $55 billion.

4 Technology Trends Driving Colocation Market Growth

Internet Usage

Internet access and usage have grown significantly over the last twenty years. According to data from Pew Research Center, only a little over half of US adults used the internet in 2000, but that number grew to 89 percent by 2018. Narrowing the focus down by age group, 97 percent of people between 18 and 49 are regular internet users. Overall, 77 percent of Americans go online on a daily basis, with 26 percent reporting that they’re online “almost constantly.”

All of this activity generates massive amounts of data every day, creating the need for more data centers to collect and manage unstructured data that could inform strategic decisions once it’s analyzed. “The Fourth Industrial Revolution is about data,” says Paul Appleby, CEO at Kinetica. “Success in every industry depends on recognizing data as the most valuable corporate asset.”

Of course, the algorithms that sort through this trove require plenty of raw processing power, much of which is driven by cloud computing servers located in colocation data centers around the world.

Lex Boost, CEO of Leaseweb USA, sees both challenge and opportunity in these trends:

Data centers need to adapt to this growth and need. Development of data centers isn’t a ‘quick’ build — it takes time, resources, and geographical readiness. Data center developers therefore need to be ahead of the game and invest in this growth before it catches them in order to be successful for the future.

Edge Computing

Network architecture is undergoing a major shift to account for an ever-changing colocation market. With more customers demanding low-latency streaming content and companies working to streamline their data gathering processes, edge computing has emerged as an ideal solution. By relocating substantial processing workloads to devices and edge data centers on the outer edges of the network, companies can deliver faster services and free up valuable bandwidth for other tasks performed closer to the network’s core.

Colocation allows companies to take advantage of the very latest developments in edge computing architecture. Edge data centers can position services and content closer to end users to combat latency and reduce downtime risks.

“Traditional enterprise data centers, centralized and siloed from the many outside IT services being consumed in the modern marketplace, simply aren’t suitable to meet this need,” says Tony Bishop, VP of Global Vertical Strategy and Marketing at Equinix. “Companies are beginning to adjust to this by re-architecting their corporate IT infrastructures in favor of global colocation and interconnection points of presence.”

The Internet of Things

It’s difficult to talk about edge computing without bringing up the rapid adoption of internet of things (IoT) devices. Loosely defined as any device capable of connecting to the internet, Gartner research predicts that over 20 billion such devices will exist by 2020. With their ability to gather data typically beyond the reach conventional networks and extend services with WiFi and cellular connections, IoT edge devices have incredible potential across multiple industries.

But all of that functionality still needs a backbone of infrastructure to operate effectively. Edge data centers optimized for IoT edge devices and strategically located in key growth markets are critical to reducing latency and enhancing performance. Bishop expects this trend to continue:

Businesses need to be proximate to employees, partners, and customers out at the edge to deliver a higher quality of experience. And traditional enterprise data centers, centralized and siloed from the many outside IT services being consumed in the modern marketplace, simply aren’t suitable to meet this need.

Telecom Innovation

The modern colocation data center is a hub of connectivity, allowing customers to plug directly into the services they need over a single cross-connect or even through a blazing fast and highly secure direct connection (like Microsoft’s Azure ExpressRoute). As telecom providers roll out the first wave of 5G services, data centers can help network service providers (NSPs) to expand their reach more quickly with colocation services.

Delivering reliable 5G services will require more data center infrastructure than many NSPs currently have at their disposal. As internet usage continues to increase and companies face greater data demands, colocation services will become a more attractive and cost-effective solution. Most companies simply cannot afford to expand capacity by building a private data center or expanding their existing on-premises solution. By partnering with an experienced colocation provider, they can get all the benefits of a state-of-the-art facility without the significant capital investments needed to build one.

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