Why Data Center Providers Can’t Afford to Offer Just Colocation

December 1, 2015

Partnerships Are Transforming How We Do Business

The Data Center Service Approach: What’s Driving the Change?

The Old School argument: Data Center providers should stick with what they know—power, cooling and space. Colocation providers shouldn’t be come generalists in the managed services arena. Just give customers 4 walls, power and cooling. Let them go to others for services. Why fix what isn’t broken?

The New School argument: Data Center providers should offer customers a full service approach. They have the engineers and are recruiting talent with expertise in Managed Services to provide value beyond colocation to help differentiate themselves in the competitive colocation market.

Customers Want to Be More Efficient

To meet an ever-increasing portfolio of customer needs, Data Center providers have morphed from the role of service provider to something closer to partner.

Customers only need to make one phone call to get what they need.

The rapidly increasing demand for Cloud and Managed Services has Data Centers expanding their own services to meet the demand. Customers now seek a full range of ancillary services and are willing to jump ship to get them.

Going Global Means A Bigger Presence

The global economy has increased the need for companies to have a presence across the world. Data Center providers with a global footprint can give seamless connectivity to their customers, again, with one phone call.

“To compete in the global marketplace,” says PWC Advisory, “organizations need to innovate products and services. They need to innovate rapidly and they need to do it cost-effectively.”

The Recent Mergers

Some Data Center providers are merging with other companies that provide a larger footprint globally and/or complementary services. The recent Equinix/Telecity merger increases Equinix’s European presence. The $1.89 billion Digital Realty/Telx merger is another example of the trend toward offering more services, by nearly doubling the size of DR’s retail collocation business. The Dell/EMC merger gives Dell capabilities in cloud, mobile and security.

What Do Customers Want?

451 Research compiled the results of a survey tracking 4,600+ Data Centers and 1,225 service providers to see the trends in customer needs, and the reasons they switch providers.

62% Said Cost Savings

The 451 Research Report shows that 62% of those surveyed said cost was a reason they switched collocation providers. BUT, it doesn’t mean that cost is the most important thing a customer considers.

That’s because the market has become commoditized, and prices fall because of competition.

Companies may be paying over-market rates and looking to be more efficient.

But, it’s a huge project to switch colocation vendors. And it’s expensive. Companies tend to keep things as they are for as long as they can.

When a company begins to look for other options, it’s because they want a combined solution. Cost may be a factor, but it’s not everything.

32% Said Cloud is a Factor

Cloud is a hot button issue. It’s sexy. Everyone wants to talk about it. It’s big and people want to do it in-house—whether hybrid cloud or a full cloud solution.

The in-house piece is huge. That’s Private Cloud or Community Cloud and the move to more secure forms of Cloud is prevalent across the industry.

30% Say Uptime and Latency

These 2 factors together accounted for 30% of what customers want. Staying connected and moving data quickly are always a priority for customers.

20% Want Greater Capacity

Companies always want to plan for potential growth.

Our own team says, “I don’t think anyone goes into business and says: we’re good after a year. We don’t need any more room for expansion.”

Capacity isn’t the highest priority issue in terms of switching colocation vendors, because if a company needs to expand, they can keep everything they have and then just go somewhere else to add more.

18% Want More Features

It’s the one phone call approach here. Efficiency is a driver to choosing a Data Center provider. They need to have it all.

9% Want Higher Security

You can’t be in the Data Center space without the highest levels of Security. This is becoming more and more important.

Where Data Center Services Are Increasing

Traditional Data Center Services

Network services – which includes Peering
Colocation
Remote Hands
Powered Shell / Wholesale

In addition to standard Data Center services, customers are looking for:

Cloud and Virtualized Services:

Managed OS
Managed Security
Storage and Backups
Hosting
Cloud

It’s the ancillary services that make the move worthwhile.

Conclusion

This evolution in Data Center technology is a result of a savvy industry and a competitive marketplace. To move into full operation, we are seeing more partners merging with service providers who have a wider array of services and technologies.

This is easier and more efficient than DC providers reinventing the wheel from scratch, they also benefit from acquiring existing customers and a marketing infrastructure with a merger or acquisition.

Customers want a complete array of technologies, and they’ll switch providers to find them.