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Grow your data center with colocation

It's quicker and a lot less expensive than building your own

By John Edwards
July 11, 2011 06:00 AM ET

Computerworld - Brian Burch knew the moment had arrived. Two of his data center's key services -- availability and business continuity -- needed fast and dramatic improvement. Design and location limitations meant that his company's existing data center couldn't be upgraded to the levels necessary to provide the required function and performance gains.

So Burch, senior worldwide infrastructure director of Kemet, a capacitor manufacturer headquartered in Simpsonville, S.C., decided last year that it was time for his data center to split.

Even in today's challenging economy, enterprises are facing rising internal and external demands for IT services. When an existing data center can no longer shoulder an enterprise's IT burden alone, or when it becomes necessary to establish a secondary site to provide enhanced business continuity or regional network support, an important decision point has been reached.

Colo 101

By one analyst's count, there are more than 400 providers of colocation services -- known as colo for short -- offering a huge range of options and price points.

Colocation is different from traditional hosting, which IT folks may be more familiar with. In a hosting situation, usually the service provider owns the hardware and software and other infrastructure that serve up your applications. Providers can specialize in different types of services -- application hosting, website hosting, database hosting and the like.

In contrast, colocation customers own their servers, routers and other hardware and often tend to this gear with their own employees (although customers can pay for "remote hands" services for the vendor to, say, restart a server so their IT staffers don't need to travel to the vendor's location just to do that).

Some colo providers specialize by going after SMBs, financial services firms or other categories of customers.

There are two general types of colocation providers: wholesale and retail. Wholesale colocation providers deal with large spaces -- a 10,000-square-foot data center, for example. Except for the power and cooling infrastructure, it's essentially empty space. The customer, or tenant, does the work of rolling in the servers and racks, cabling up the gear and making sure it all works.

On the retail side, spaces are usually smaller -- down to individual servers or "cages" -- and there is more setup help available, for a price. In general, says Jeff Paschke, senior analyst at Tier1 Research, expect to pay more for retail colocation than wholesale space.

Also, be on the lookout for the ever-present upsell. Darin Stahl, senior analyst at Info-Tech Research Group, says that many vendors are eschewing "straight" colo and will provide only managed services, where the vendors service and support the customer's equipment. The reason is a margin of "at least" 25% in managed services, Stahl explains.

If you're not ready for that kind of thing, make sure to look for a colo partner that's going to give you what you want -- no more and no less. -- Johanna Ambrosio

For a number of enterprises, the obvious solution is to add another data center, and for many of those it means partnering with a colocation facility. (For a definition of "colocation," see the sidebar at right.)

If you're considering this option, it doesn't just pay to do your homework, experts say; it's essential.

"You absolutely need to do the buy-vs.-build analysis," says Jeff Paschke, senior analyst at Tier1 Research. That said, "I am a former enterprise data center manager, and from what I know now, more should be using [colo] than they do," he added.

The No. 1 reason to consider colocation comes down to financials. "Do you want to go to your board and ask for $50 million in capex [capital expenditures] for another data center?" Paschke asks. "The alternative is to go to a provider and use opex [operating expenses] and not have to spend money upfront," he says.

Given the massive costs and time demands required to build a traditional data center, "fewer organizations are deciding to build their own satellite data centers," says Lynda Stadtmueller, a data center analyst at technology research company Frost & Sullivan.

Especially for enterprises that have latency-sensitive applications that require local presence, there is a trend toward leasing space from a colo or hosting provider rather than building and managing their own data centers, she explains.

A Frost & Sullivan study conducted a year ago showed that total data center space used by enterprises will increase by almost 15% annually through 2013. Yet the percentage of that space that the enterprises own themselves -- versus leasing from another provider -- will decrease, from 70% to 64%, during that time. "A pretty hefty swing," Stadtmueller says.

Technology research firm Info-Tech Research Group backs that up. Some 64% of organizations engage in some form of data center colocation services, including hosting, but over 77% of them do not outsource the entire data center, according to a survey of 78 customers conducted in late 2010.