Will the last computer leaving the corporate data center please turn out the light?

Cloud computing is upending the traditional approach to IT in many ways, but here's a risk I’ll bet you didn't see coming.

Bare lightbulb
WxMom (Creative Commons BY or BY-SA)

Cloud computing is upending the traditional approach to IT in many ways, but here's a heads up to a risk I’ll bet you didn't see coming. Its driven by the fact that we're reaching an inflection point in large enterprise adoption of cloud computing. Big companies like Johnson & Johnson, Coca Cola, GE and more are moving their systems into the cloud. This is no longer the toe-in-the-water approach of “let’s try out some development there” or “well OK, we can house our website with a cloud provider.”

This is big time. Coke plans to move 90% of its systems to three leading cloud service providers. Johnson & Johnson plans to move 85% to the cloud, and GE indicates it will close 34 data centers, consolidating what is left into just four. Media companies are moving even more aggressively. Conde Nast doesn’t even have a data center anymore since it moved all of its systems to Amazon Web Services (AWS).

The move to cloud computing has driven the market for the very large data centers needed to house web scale or hyperscale cloud deployments into a genuine land grab. It has also been a bonanza for the real estate investment trusts (REIT) building these data centers. The REITs' stocks are ironically outperforming those of the cloud vendors whose systems are housed in the data centers the REITs build. We're used to hearing some pretty spectacular numbers in connection with the financial performance of cloud service providers like AWS, but take a peek at one of the REITs, QTS Realty Trust (NYSE: QTS). Its share price has risen 160% since its IPO in 2013.

However, there is a side effect to this increasing move to the cloud that may expose you to an unforeseen risk. What do you do with your former corporate data center when you don’t need it anymore? Mostly, you put it up for sale, as Coke recently did with its 90,000-sq.-ft. Atlanta data center. But, this begs the ultimate question: Eventually, will there be no buyers for this kind of property. If many large enterprises are intent on moving most of their systems into the cloud, why do they need big data centers? Will anyone buy them? Or will they become stranded assets?

The good news is there may be some hope in the near term, as a second tier of data center providers has emerged to serve secondary markets. Privately owned TierPoint is a good example of one that has quietly built a successful offering of niche cloud, hosting and collocation services around data centers the size of Coca Cola's. The question is, how long will the window on this kind of opportunity remain open?

The Uptime Institute's latest survey of the data center industry shows that the move to the cloud is taking place faster than anticipated. While collocation providers have experienced significant growth in the past five years, flat overall IT budgets and shrinking capital budgets portend potential softening demand for their services -- and the data centers that house them.

Isn’t this a weird situation? On one hand, the success of cloud computing has meant that the demand for monster-size data centers is bigger than ever. But on the other hand, this translates into enterprises shedding their data centers, which can't compete with the hyper-efficient data centers of the cloud providers. And while we might have a near-term solution to soak up some of that less-attractive excess capacity, it appears we may be heading for a glut of this kind of undesirable asset. Who would have guessed it?

What does this mean to you? An “all-in” move to the cloud takes many years. Where are you in that cycle? Could it be that your plans, or the lack thereof, could leave you stuck with a white elephant data center that no one wants?

Copyright © 2016 IDG Communications, Inc.

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