The colocation services market revenue will grow by 6.2% this year, but that's below a previous forecast of 9.2%, according to research by Omdia. Revenue is expected to grow at a 7.1% compound annual growth rate (CAGR) from 2020 through 2024.
Worldwide, colocation service revenue is forecast to rise to $40.3 billion in 2024, up from $28.6 billionlast year, as reported by Omdia’s Cloud and Colocation Services for IT Infrastructure and Applications Market Tracker.
Omdia also reported that many colocation service providers said they had seen an uptick in customer demand as a result of the pandemic. Due to remote learning by students and remote workforces in homes, there was an increased demand for interconnection, which in turn spurred the need for more colocation space and information technology (IT) equipment to handle that demand, according to Omdia.
To date, some public colocation companies have said that requests for rent concessions have been limited, and their exposure to high-risk enterprises, such as the travel, hospitality, and energy verticals, is low. While a large number of them have adjusted their 2020 revenue growth guidance down for the year, overall revenue growth remains up over 2019.
Omdia said the downward guidance adjustments were based primarily on the assumptions that some rent concessions will become an issue later in 2020. Omdia also said some customer deployments could be postponed while colocation service providers continue to incur extra pandemic related expenses.
"The silver lining for colocation service providers is that the industry is very recession-resistant, with the business weathering the 2008 financial crisis rather well,” said Omdia's Alan Howard, principal analyst, cloud and data center research practice, in a statement. “Colo providers should remain in pretty good shape because they cater to larger businesses and high-credit tenants, which represent a more stable customer base.
"Furthermore, colocation facilities are benefitting from the fact that they don’t just link businesses; they also connect the millions of at-home workers and learners to critical content and services—including the cloud—which allow much of the world to keep operating despite the pandemic restrictions.”
Omdia said the CAGR from 2019 through 2024 for physical facilities is expected to total 6.6% while the CAGR for interconnection during the same period will total 12.1%. By 2024, Omdia expects interconnect to account for 12% of colocation market revenue, up from 9.5% last year.
Colocation facilities are taking on added importance as enterprises embark on their digital transformations. Enterprises and service providers are moving into colocation facilities so they can connect to the cloud, to IoT applications and services, and to other enterprises and service providers.
A colocation site 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.
One of the trends related to the coronavirus pandemic is that businesses have accelerated their digital transformations in order to move more of their workloads and data into the cloud for home-based employees.
Interconnection market share separates the pack
Omdia said revenue growth for the interconnection sector was outpacing physical facility power and space revenue growth, which indicated a shift in customer focus towards multiple options for low-latency connectivity.
"Now more than ever before, interconnection is an important service requirement for customers, supporting global network low-latency access to the multi-cloud, edge locations, customers and business partners," according to Omdia.
Among the top-five providers for interconnection revenue share, it's no surprise that Equinix leads the pack with close to 33% revenue share at $894 million, followed by Digital Realty at almost 10%, China Telecom at close to 4% percent, Switch at 3%, and Coresite and Cyxtera tied at 2.8 percent each.
Equinix, which announced on Monday that its buying 13 data centers in Canada from BCE, built up its brand around its interconnection services long before the terms multi-cloud, edge compute, and COVID-19 pandemic entered the vocabulary, according to Omdia.
Omdia said interconnect was an interesting piece of the revenue pie because its high margins flow to the bottom line.
"Installing a physical cross-connect is not terribly expensive, requires little maintenance and produces monthly recurring revenue," according to Omdia. "Virtual cross-connects don’t require any installation costs, notwithstanding the upfront cost of putting the provisioning mechanism in place. While its overall revenue contribution is relatively low compared to power and space revenue, it’s mostly a profit contribution to the bottom line."