The Coming Colo Crunch: Why Demand for Data Center Colocation Could Exceed Supply

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December 21, 2011

Data-center colocation is one of the few areas in IT where prices go up year after year—the classic explanation for which is that demand exceeds supply. But is this true? Validating this hypotheses looking at demand and supply independently, is a nontrivial challenge. On the supply side, the market is fragmented, with a small group of large providers making up 60% of the market and hundreds to thousands of smaller companies making up the rest. Measuring demand is even more challenging, since measuring the appetite for colocation requires looking at both greenfield trending (companies that adopt data center colocation in addition to, or instead of, their in-house data centers) and conversion (companies replacing in-house data centers with colocation). To assess supply, Nemertes relies on traditional primary and secondary market research techniques to assess the current market size and extrapolate growth rates. To measure demand, Nemertes relies on its unique, ongoing benchmarking process, through which we directly collect statistics around data-center usage and deployment. Nemertes also assesses the affect of Infrastructure as a Service (IaaS) adoption on colocation. The key finding: By 2012, we predict a small shortage of colocation space in the U.S., specifically $77 million out of an overall market of roughly $18.5 billion (or 0.41%). But that gap will grow to $869 million out of an overall us market of about $31.2 billion in 2015 (or 2.8%). This equates to a $1.9 billion missed opportunity over three years. We therefore anticipate that colocation providers will accelerate growth rates to address this market gap.

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