Why IT Co-location Centers Will See a Boom in 2009 Despite the Macroeconomy

 
 
By Chris Preimesberger  |  Posted 2008-12-29
 
 
 

Why IT Co-location Centers Will See a Boom in 2009 Despite the Macroeconomy


It wasn't what anyone would consider a major IT news story when it broke earlier in December, but it was an important clue to how the IT co-location business can be expected to play out in 2009 and beyond.

i/o Data Centers, which serves as the physical home for about 150 small- and midsize-business IT systems, announced on Dec. 10 that it has secured a whopping $56 million in  venture capital from Sterling Partners.

In this slumping macroeconomy, that's a bonanza not unlike scoring the tie-breaking goal in the last minute of a World Cup championship.

i/o Data Centers' servers and routers have quickly filled to capacity its first facility: a 125,000-square-foot, next-generation secure building that the company opened two years ago in Scottsdale, Ariz. With its fresh new capital and a psychological head of steam, i/o Data Centers is now planning to open two more data centers: one in Phoenix and another in Northern California, Colorado or New Jersey. And it's certainly not the only company taking advantage of this huge market.

IT co-location is the provision of space, bandwidth, and power in a data center, with the customer being required to provide and manage the computing hardware. Data centers that provide this service are called co-location centers; most are independently owned and operated.

In general, most analysts and industry insiders believe that the co-location and Web hosting businesses will thrive in 2009, despite the weakening macroeconomy. This is because as companies look to economize in their IT budgets, they are beginning to look more closely at hosted services as a way to avoid capital expenditures that include new servers, switches, software, and affiliated licenses and services.

Dramatic Expansion of Services' Expected}

"Web hosters in the small business area [in 2009] will see a dramatic expansion of their services away from just Web hosting and domain names to software and services," Rob Lovell, director of


itle='Dramatic Expansion of Services' Expected}

"Web hosters in the small business area [in 2009] will see a dramatic expansion of their services away from just Web hosting and domain names to software and services," Rob Lovell, director of the Worldwide Partnership Program of Web hosting software provider Parallels, and former CEO of Hostway, said in a recent keynote address at his company's Vision conference.

"Low-attrition services are required for companies to continue to grow rapidly in the industry, and with hosting companies already having a huge network of customers, they can simply add on services to suit," Lovell said. "Web site hosting for the consumer will continue to consolidate and commoditize. The big few really are now established, and entrances to the market from Yahoo, Google and Microsoft will impact the lower end of the hosting market considerably."

There are a number of types of hosting services that range from traditional online subscription-type  services to the rental or leasing of data center space within a stand-alone building, in which enterprises utilize the provider's secure space and power draw.

On the site rental side, for example, is 365 Main, which provides infrastructure but no Web services. Located in downtown San Francisco, 365 Main serves as home to Charles Schwab Financial Services, Craigslist.com, RedEnvelope.com, a substantial part of the Sun Microsystems grid system and a number of other sites.

365 Main sold out its space months ago and is expanding to new centers in Oakland and Los Angeles.

Why IT Co-location Centers Will See a Boom in 2009 Despite the Macroeconomy


title=ThePlanet.com in Its Own Orbit}

An example of a next-generation hosting site is ThePlanet.com Internet Services, based in Plano, Texas. This is a privately held, dedicated Web hosting company that provides an option of services, space rental or both. It is now building its seventh co-location center.

The Planet already hosts IT services for about 22,000 SMBs and houses about 6.7 million Web sites. The company recently announced installation of its first Green Chilled Water Energy System, which is  included in the environmentally friendly new 86,000-square-foot data center addition being built at its headquarters facility.

The facility will use new modular cooling technology from Turbine Air Systems and will accommodate a major expansion of its co-location services, its private racks and its Planet Northstar Managed Hosting services. The addition to the center will bring the total data center raised-floor footprint to 214,500 square feet.

VC money is now being channeled to co-location companies. In addition to the $56 million announced by i/o Data Centers, for example, DuPont Fabros ponied up a cool $22 million to purchase a 17-acre site in Santa Clara, Calif., in December 2007. The plans called for a pair of 300,000-square-foot data center buildings with a power capacity of 72.8 megawatts.

To put that into perspective, 365 Main's huge two-story, city-block-sized location in downtown San Francisco-built at the base of the Bay Bridge on solid bedrock-has a ceiling power draw of about 34 megawatts.

Why IT Co-location Centers Will See a Boom in 2009 Despite the Macroeconomy


title=Cloud Computing Will Rely on Co-location Services in 2009}

Co-location centers around the world certainly benefit from the continued growth in so-called cloud computing.

Startups and other small businesses that don't have the capital for building and supplying their own data centers are subscribing to pay-as-you-go "cloud" services that are offered by service providers and housed in co-location centers such as ThePlanet.com, 365 Main and i/o Data Centers.

Cloud, or utility, computing serves up computing power, data storage or applications from one data center location over a grid to thousands or millions of users on a subscription basis. This general kind of cloud-for example, services provided online by Amazon EC2, Google Apps and Salesforce.com-is known as a "public" cloud, because any business or individual can subscribe.

Private cloud computing is a different take on the mainstream version in which smaller, cloudlike IT systems within a firewall offer similar services, but to a closed internal network. This network may include corporate or division offices, other companies that are also business partners, raw-material suppliers, resellers, production-chain entities and other organizations intimately connected with a corporate mother ship.

The bottom line is that co-location centers are going up all over the continental United States, South America, Europe, the Far East and Australia. The World Wide Web is fast becoming the World Wide Grid.

But that's another story for another time. We'll look more closely at that topic soon.

Rocket Fuel