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 percent annually through 2013. Yet the percentage of that space that the enterprises own themselves -- versus leasing from another provider -- will decrease, from 70 percent to 64 percent, during that time. "A pretty hefty swing," Stadtmueller says.
Technology research firm Info-Tech Research Group backs that up. Some 64 percent of organizations engage in some form of data center colocation services, including hosting, but over 77 percent of them do not outsource the entire data center, according to a survey of 78 customers conducted in late 2010.
Most organizations begin thinking about adding a data center as soon as their existing facility starts maxing out its physical space and/or support resources, Stadtmueller says. "Once you see you're beginning to run out of space, run out of server capacity, [or] when you're looking to add or upgrade an application, that's when you begin to look outside."
Sometimes the push comes in the form of a business need -- a new direction that requires a lot of extra capacity ASAP, or enough that it would push your existing data center over the edge of its existing power usage, for instance. Power is usually the gating factor in many older data centers these days, meaning that enterprises run out of power options long before they run out of space.
Livin' la vida colo
When looking for a colocation vendor, customers should search for players that have an established presence in the market, Info-Tech senior analyst Darin Stahl advises. "This designation isn't about capability or quality," he says, "but rather about their influence on the market. If they stomp on the ground, does the earth shake?"
Tier 1 vendors have a broad range of offerings and are the trend-setters, with major data centers that sport all the bells and whistles. A handful of vendors fall into this category, Stahl says, including Savvis, IBM, Hewlett-Packard, Rackspace, Terremark (now owned by Verizon) and a few more. These firms typically have global reach.
The next category -- Tier 2 -- is made up of vendors that have a little less market influence but are still large in their respective areas. Telecom vendors Verizon and Qwest and geographic-specific players, including Peak10 in the Mid-Atlantic sector, fall into this category, Stahl explains. "These are generally a good ride for most of our midsize customers," he says.
The last tier is "everyone else," including a large number of vendors that don't own their own buildings but are tenants looking to sublet the space out to customers. The problem with this scenario is if a vendor doesn't own the facility, it can't offer a meaningful service-level agreement, Stahl says. "Any SLA you see from them says 'with the exception of anything outside our control' " -- and not much is actually in their control. The only real advantage with this type of vendor is price.