Service providers find new opportunities in the data center
I'd like call your attention to FierceTelecom's latest eBook, The New Data Center, which we debuted this week.
For the most part, the look of the data center has not changed much over the past ten years. They still are basically large facilities that provide rack space, power, and high security. However, data centers now have taken the central role as the mechanism to deliver cloud services to both large enterprises and small to medium-sized businesses (SMBs).
Today's data center is no longer simply about providing rack space for network equipment and power. It's a place where a business can offload specific applications into a public, private or hybrid data center hosted cloud environment.
A big driver in this new round of data center growth is the ongoing movement by businesses to outsource various IT functions to a third party. According to a recent Gartner Research report, worldwide spending for IT outsourcing services is forecast to reach $251.7 billion this year, up 2.1 percent from 2011.
The landscape of data center industry players is also changing. Traditionally led by specialist players such as Equinix, traditional large telcos--including CenturyLink (NYSE: CTL), Verizon (NYSE: VZ), TDS (NYSE: TDS) and Windstream (Nasdaq: WIN)--are establishing a place in the data center and colocation domains via targeted acquisitions.
These acquisitions, of course, vary widely by size and scope. On one end of the spectrum, Verizon and CenturyLink immediately expanded their respective global data center reach through their acquisitions of Terremark and Savvis.
With all of its legacy data and voice services becoming commoditized, Verizon said that by acquiring Terremark, it can deliver a set of higher margin service it can offer to its enterprise customers.
Fran Shammo, CFO of Verizon, said during the recent 15th Annual Oppenheimer Technology, Internet and Communications Conference in Boston that more businesses are warming up to the idea of putting their applications into their cloud as a way to reduce their IT costs.
"You're not going to move everything to a cloud because there are certain things you want to hold to the vest, but there are other things that are not strategic to your business that you can get a 10-30 percent reduction in cost," he said. "That's the easy piece."
Likewise, CenturyLink, which for much of its hundred-year existence was a small-town telco delivering traditional phone service, immediately became a global player after buying Qwest and later Savvis. In purchasing Savvis, the telco immediately gained a global footprint of data centers that span the United States, Europe, and Asia.
No less compelling are TDS and Windstream. Instead of making one large purchase, these service providers have been stitching together a set of solutions through their acquisitions of other players like Hosted Solutions and Vital Support Systems.
Outside of the top five telcos, smaller regional players, including Cincinnati Bell (NYSE: CBB), have also been active in the data center space. CyrusOne, the data center subsidiary that Cincinnati Bell acquired in 2010, reported $54 million in Q2 2012 revenue, up $9 million or 20 percent from Q2 2011 due to an uptick in data center space sales over the past year. The service provider recently filed an application to take the company public.
While the scope and focus of the services these providers offer differ, traditional service providers are seeing an opportunity to differentiate themselves by offer a host of data center, cloud and managed services solutions that they can tailor to meet an individual business' unique needs.