Market Insight

Colocation services in North America expected to reach $25.5 billion in 2018

December 13, 2018

Liz Cruz Liz Cruz Associate Director, Data Centers, Cloud & IT Infrastructure
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Highlights

  • The market for colocation services is forecast to reach $25.5 billion, by the end of 2018.
     
  • There is a growing need for data center IT capacity for medium and large enterprises, with an increasing share going to colocation data centers.
     
  • IT decision makers expect an average of 33 percent growth in total data center capacity (as measured in IT racks), from 2018 to 2019. More than half (58 percent) of IT racks are expected to be placed in colocation data centers in 2019, up from 49 percent in 2018.
     
  • More than one-third (37 percent) of IT budgets will be spent on colocation services in 2019, up from 31 percent in 2018.

Our analysis

Using a panel of qualified IT decision-makers, IHS Markit conducted a web-based survey with 114 North American organizations using colocation services. Colocation services are defined as the leasing of data center space, power, connectivity, security, and environmental controls.

The survey revealed that enterprises are driven to adopt colocation services to increase their application performance, improve speed of deployment into new data center space, and decrease operational costs. Respondents expect to grow their overall data center
capacity and to increase adoption of colocation services in 2019.

A key consideration for all data center planning and deployment is how to address edge computing requirements. In general, a variety of methods are being assessed to ensure low latency connections to users across the globe, but colocation services ranked highest among respondents as a key means to address this issue. These findings suggest a new surge of growth coming from this use case. In addition to colocation, micro data centers (a previously niche offering) was highly ranked to support processing and storage needs across dispersed geographies.

Barriers to colocation adoption do exist, with outage concerns, compliance and regulatory issues, and concerns around changes to internal procedures topping the list. However, many of these are surmountable for providers with a bit of education and proof points provided, especially for outage concerns, given that most colocation data centers have better uptime metrics than enterprise data centers.

In evaluating colocation service providers, security was clearly the most important criterion for selection. Because colocation data centers are inherently more trafficked than enterprises’ on-premises data centers, assurance of security is important with on-site guards, video surveillance, multi-point access control including physical and biometric barriers, and cabinet/cage level locks as examples of features offered.

Colocation will continue to play an important role in the increasingly hybrid approach enterprises take toward deploying data center capacity. At present, medium and large enterprises still lean toward operating on-premises data centers. But over the next year, we expect these same enterprises to move more to cloud and colocation services, causing an increased use of off-premises versus on-premises data centers.

Colocation Service and Leadership Strategies – North American Enterprise Survey

This survey addresses the state of colocation adoption by medium to large enterprises and how it will change over the next two years. The report analyzes the drivers, barriers, and selection criteria for choosing colocation providers. Respondent organizations hail from a variety of industry verticals, with the largest portion coming from the IT services industry, which includes companies offering cloud and colocation services and other technical support services that require a large data center presence.

Research by Market
Enterprise & IT
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