Colocation providers key for running cloud, internet in the future, report says

Colocation providers will play a bigger role in the cloud and internet, according to a recent report. (650 Group)

With the advent of 5G and IoT, colocation (colo) providers are poised to play a much bigger role for the cloud and internet, according to a report.

The report issued Monday by 650 Group found that colocation revenue grew 26% year over year in the first quarter while capex declined by 11% over the same time frame. The largest colocation vendors in the first quarter of this year are, in order, Equinix, Digital Realty, China Telecom and China Unicom.

"China has a different regulation structure in terms of where you can put servers," said Alan Weckel, founding analyst for 650 Group, in an interview with FierceTelecom. "Basically it has to be in a telco provider versus your own data center so that's why China Unicom and China Telecom are so large. They're the de facto only place that you or I or any company could put a server in China."

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Weckel said there are several major trends playing out in the colocation space.

"So smaller companies can be regionally-focused, like in the West Coast U.S. or the East Coast U.S.," Weckel said. "They'll be able to grow that way. Then the medium companies will have international growth aspirations. They'll expand into Europe either organically or through acquisition. This colocation space is actually going to be fairly active. You'll see Equinix and Digital Realty continue to be large and expand, but you'll also see the smaller vendors underneath do, I'd say, creative things in order to get economies of scale or to be niche players.

"I think it's going to be interesting how that plays out because if you look at Amazon as an example, about two-thirds of their servers actually sit in colocation versus in their own data centers"

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Weckel said the second major trend was that colo providers would evolve to be the location where the cloud and internet run. While this transition could be 10 years in the making, enterprise and residential customers won't know that the evolution of colocation providers was taking place. However, both will know if they aren't getting the quality experience they need for services such as IoT and 5G, and applications such as virtual reality.

"Colocation will change where and how the internet is served to the consumer and to the business," Weckel said. "The end users might not know the underlying technology sits in colo, but the user experience will be there. This will be especially important around things like IoT that are really latency sensitive.

"IoT for certain things requires low latency and virtual reality is the best example. If your latency is bad, humans vomit. It's not a sexy thing, but that's the reality. Latency there becomes very important."

Weckel said that enterprises sit in colo facilities so they can connect to the cloud, to IoT applications and services, and to other enterprises. A colo is a data center facility where a business can rent space for servers and other computing hardware. Most colocations include the building, cooling, power, bandwidth and physical security while the customer provides servers and storage.

"It's all changing behind the scenes as you get more and more edge computing," Weckel said. "Again, that will be served by colocation providers. You get data from Europe to the U.S. with undersea cables and the end points of that will be colocation facilities.

"There is very much going to be a huge battle colocation in terms of who serves the cloud and who serves telco in that space. That will allow the large vendors, like Equinix and Digital Realty to grow while the niche vendors that are focused in regions or countries to serve that part of the market."

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