IT execs turn to leasing data centers instead of building their own

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Some organizations are using hosted space as a stop-gap measure until their own designs and builds get back on track, says Gartner analyst Dave Cappuccio. Others are using leased facilities to host entire data center operations.

In the past decade, Peter Gross, vice president at HP Critical Facilities Services, which primarily designs data centers and doesn't lease space, has seen a big change in how large corporations view leased services. "The 'co-lo' model has gained a lot of acceptance since the dot-com days. Even financial institutions are not afraid to use them," he says.

Online brokerage Scottrade, Inc. is one such financial firm. CIO Ian Patterson worked with a third-party facility provider, which he declined to name, to host a new data center in Scottsdale, Ariz. The facility will switch between functioning as a backup disaster recovery site and the primary data center that handles the business' performance- and bandwidth- intensive online trading activity. The vendor provides the facility; Scottrade installed and manages its own data center equipment.

The site will initially function as a backup data center. "Our working plans are to flip over to it in the June/July timeframe in 2010. Every six months we'll flip facilities to run them hot," Patterson says.

Given those kinds of opportunities, it's not surprising that the financial market's purse strings have loosened for the stronger co-location players. Data center facilities provider Dupont Fabros temporarily halted construction on building out new data centers last year, but has since secured funding to move forward. And this month Digital Realty Trust sold more than $600 million in unsecured notes to fund operations and continue adding capacity.

For now, however, the demand for space continues to outstrip the supply, and that has left many businesses with few choices for enterprise-class data center space.

Some businesses still prefer to do it themselves. Thin client terminal manufacturer Wyse Technology is setting up a private cloud in its data center in India and is planning for a possible expansion. "The funding is there and available," says Chief Innovation Officer Henry Fieglein. Wyse has enough cash on hand to fund it internally -- and management that is willing to commit the resources.

But Wyse is the exception. Fieglein, who says he's consulted with many enterprise IT executives over the past year, acknowledges as much. "Yes, the money is being freed up, but I haven't seen anyone purchase the land and everything else to build a data center," he says.

Going forward, the recession may permanently change how many organizations think about how they approach the build-out of new data centers. Certainly, service providers are banking on CFOs to drive a big increase in business their way. But whether the current high demand for data-center space and managed data center services is a bubble or a permanent trend won't be clear until the economic recovery begins in earnest. In the data center market, Gross doesn't expect to see that happen for at least another six months. Stay tuned.

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Robert L. Mitchell writes technology-focused features for Computerworld. Follow Rob on Twitter at, send e-mail to or subscribe to his RSS feed.

Copyright © 2010 IDG Communications, Inc.

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