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The future is in the cloud─and the cloud is in a colo

Enterprises worldwide are moving their data center operations to colocation providers, reshaping enterprise computing and the future of the Internet.

Travelers on their way to Dulles International Airport might wonder at the sea of hotel and office-like buildings that punctuate the landscape for miles across the ribboning green hills of Northern Virginia. But if they detoured to visit any one of these buildings, they most likely would find it without a single bed, couch, chair, or any other typical piece of furniture inside.

This is Data Center Alley, the largest single concentration of corporate data centers on the face of the earth. Inside these buildings are the fleets of servers that carry an estimated 70 percent of the world's Internet traffic.

The largest single tenant of this massive cloud cluster is Amazon Web Services, but lacing in and out of the AWS data infrastructure housing the AWS U.S.-East cloud region are a maze of colocation data centers, or colos, each offering private cloud services for hundreds, if not thousands of enterprise organizations.

"They're like hotel chains," says Malcom Ferguson, distinguished technologist for hybrid IT at Hewlett Packard Enterprise. "They're like a Hilton or a Marriot, but all they can provide is a secure room with air conditioning, electricity, and a fire suppression system. They're not furnished. There's not even soap or shampoo. Because as a real estate investment trust (REIT), they're not legally allowed to put any of that in a room without jeopardizing their tax status."

So, what are colos and what's going on with them?

Colos and the public cloud

A colo is a data center facility in which an organization can rent space for servers and other hardware. The term is a literal one, derived from the fact that customers are colocated in the same physical location. Around the globe, colos are like data center pilot fish living in an organic symbiotic relationship literally right next door to the largest public cloud providers, like AWS, Google Cloud Platform, and Microsoft Azure.

"Their location is no accident," says Ferguson. "They're located right next to public cloud installations, so they virtually offer the zero or super-low latency connectivity that this proximity gives them—as little as less than 1 millisecond."

Colos have become the preferred choice for enterprises to host their data centers versus building and maintaining their own. There are many reasons for this. But almost all of them come down to the simple fact that enterprises want to get out of the data center business because it's costing them a fortune and hindering their own digital transformations. Instead of the enterprise being responsible for maintaining all the hardware, power, HVAC, property management, and other systems connected to operating data center facilities, colos do that for them.

Colos offer an attractive business model for enterprises: Instead of being responsible for the costs associated with collating and storing the rapidly increasing terabytes and even zettabytes of data being accumulated by their organizations, colos provide a consumption, subscription-based model that allows enterprises to pay for the data they use—and not for the data they simply store.

Please read: Why colo makes sense

Colos are the only real viable alternative for enterprises that don't want to move most of their data center workloads and applications into public cloud. "Enterprises want their own private infrastructure versus being in a public pool of infrastructure, but they don't want to be responsible for maintaining that private infrastructure," says Ferguson. "They've learned through painful experience what the technical and financial challenges are that make such an investment increasingly problematic at best."

He adds, "About 15 years ago, we retrofitted and built a combination of six data centers. We spent billions. Today, they're pretty much worthless because the infrastructure now is so dense and requires such power cooling density that data centers built 15 to 20 years ago were not designed to accommodate. It's a far better investment to move into a new space with better equipment and connectivity to large public cloud providers."

Colos, REITs, and enterprise advantages

According to Ferguson, among the many drivers of this trend is the fact that many enterprises simply don't have the expertise, facilities, or people to maintain their own data centers. "They have a beautiful choice now," he says, "because real estate investment trust companies like CyrusOneEquinix, and Digital Realty are building brand new data centers that have the high-speed connectivity to all of the cloud providers built right into the facilities."

REITs have unique tax advantages that make them ideal for purchasing, developing, and leasing properties for data centers. The principal one is that REITs are considered pass-through entities, like limited liability corporations (LLCs), which means they don't pay any corporate tax on their profits though investors do pay taxes on dividends that are disbursed. "Financially, they can survive building and maintaining data centers. The other corporations of the world can't," says Ferguson. So, for enterprises moving into colos, "it's a money thing, number one."

Compliance issues are another principal driver of the migration to colos. As Ferguson says, "To maintain the compliance on a 15- or 20-year-old data center, good luck with that!" Many organizations are finding that there are just not a whole lot of people who know the certification status and the processes to keep the compliance up to date and up to speed. And why bother? "Why go build your own hotel when I can go stay in a hotel that's brand new down the road?" Ferguson says. "It has all the fire certifications, the compliance, the people who know how to run a hotel."

Yet another advantage to colos is their low-latency connectivity to the largest public cloud providers. "For a company like Zoom, after COVID hit and everybody everywhere started doing Zoom calls, that's a big deal," Ferguson says. In a colo environment, enterprises get the connectivity and speed of public cloud without the expense.

"Zoom was paying $11 million a month for connectivity in and out of their public cloud environment," he says. "It was a loser financially." It's also a story that's not unique. Getting out of the data center business and moving to colos can save any enterprise millions of dollars a year in hardware, maintenance, connectivity, and other costs.

Colos also let enterprises choose where they want to put their data center or private cloud. That capability ensures the enterprise that it can place its workloads where needed to comply with federal or local state data proximity, governance, and sovereignty requirements.

Dark fiber, real DR, and business resilience

Another draw for enterprises is that colos offer substantial disaster recovery (DR) and business resilience benefits. All the leading colos have facilities in multiple countries and continents. The colos also maintain their own private networks, exchanges, and connectivity among these facilities.

Colos use what's known as dark fiber for this connectivity. Dark fiber is essentially dormant or unused fiber-optic cable. It allows colos to offer enterprises private dark fiber networks to connect multiple data centers and cost-effectively maintain completely redundant data centers over 100 gigabit network connections. Organizations can stream and sync their data from their primary data center to a backup data center in a colo located hundreds or even thousands of miles away.

This is something that was rarely possible for enterprises before. They just didn't have the resources for a private dark fiber network between two different data centers to operate a dedicated backup data center. This setup allows for real DR, as a fully functioning twin of the primary data center can be up and running within as little as 20 to 30 minutes of a major power outage or crisis-level situation at the primary data center.

Colos also offer substantial sustainability benefits. Shutting down thousands of independent, on-premises data centers and consolidating them in new, modern infrastructure can result in a dramatic reduction of an organization's carbon footprint. Ferguson estimates that in one enterprise move he is familiar with, "the electrical consumption alone was cut by 70 percent. That is the equivalent of taking nearly 420 cars off the road per year."

And perhaps just as significantly is the fact that colos facilitate the enterprise trend of exiting the data center business altogether. Colos enable infrastructure-as-a-service (IaaS) vendors like HPE GreenLake to manage and maintain enterprise data centers on a subscription and consumption basis. To extend Ferguson's analogy that a colo is basically a hotel, with an IaaS vendor, colos become a fully furnished hotel with all the furniture the customer could ever need.

Land banking and the future in colo

COVID and the urgency to accelerate digital transformation to meet increasing consumer needs are pushing demands for even higher bandwidth and faster data processing. The adoption of 5G is expected to boost colo construction even further as organizations race to deploy new services and extend 5G services to remote locations.

According to Grand View Research, a firm that tracks the data infrastructure marketplace, the global data center colocation market size was valued at nearly $45 billion in 2020. The colocation market is expected to grow at an annual growth rate of more than 13 percent from 2021 to 2028, reaching nearly $118 billion.

And this may only be the beginning. Across the U.S. and around the globe, a frenzy of real estate purchases is lighting up the landscapes around major airports in a land rush without precedent. The largest public cloud providers, leading colos, and their real estate development partners are quietly buying land—a practice called land banking—for future data center development.

To cite just one example, AWS is seeking to add 2.5 million square feet of cloud capacity at just one of five potential AWS sites in a new cloud corridor near Dulles International Airport.

And where AWS—or any new massive public cloud installation—is being planned, new colos are sure to follow.

This article/content was written by the individual writer identified and does not necessarily reflect the view of Hewlett Packard Enterprise Company.