The Data Center Is Dead. Are You Wringing Your Hands Or Shifting Your Business?

The era of the corporate data center will shortly give way to the era of the mega data center, a move with the potential to disrupt that part of the channel whose very life depends on building data center infrastructures.

But it's not a doomsday type of disruption for solution providers. Even as the number of data centers peaks in the near future and then starts dropping, solution providers are busy preparing alternative ways to put their infrastructure skills to good use in solving customers' IT requirements.

In an age where business disruptions cause much wringing of hands and closing of doors, solution providers specializing in implementing data center infrastructures are already anticipating the change and indeed have begun shifting their business models.

Massive Shift In Data Centers Coming

Research firm IDC in November reported that it expects the total number of data centers of all types deployed worldwide to peak at 8.6 million in 2017, after which the number will start to slowly decline.

That decline will come after the number of internal data center server rooms peaks in 2016 while the number of internal server closets peaks in 2017, IDC said.

During that time, the number of data centers owned by service providers actually will show fast growth, according to the research firm.

[Related: Kicking Data Centers To The Curb]

At the same time, the total amount of data center space worldwide is expected to continue to grow, reaching 1.94 billion square feet in 2018 vs. 1.58 billion square feet in 2013 due to the growth of what IDC termed "mega" data centers. These mega data centers are expected to account for 72.6 percent of all service provider data center construction in terms of space worldwide, IDC said.

The shift in data center space coincides with a continuing growth in spending for retail co-location services, according to a November report by Synergy Research Group.

John Dinsdale, chief analyst and managing director at Synergy Research Group, told CRN via email that from 2012 to 2018 the annual retail co-location spend in the U.S. is expected to grow from less than $5 billion to more than $8 billion. However, Dinsdale wrote, the annual growth rate will steadily decline over that period, with an average annual growth rate between 2013 and 2018 of about 5 percent compared with 13 percent between 2009 and 2013.

"One thing to bear in mind is that it is not just enterprises who buy co-location services -- various types of service providers (IT, cloud, telco, content SPs) also buy co-lo services. In fact the SP sector within the retail co-lo market is quite a bit bigger than the enterprise sector and is growing a lot more strongly," Dinsdale wrote.

Synergy Research Group also forecasts that the enterprise sector within the U.S. retail co-location market will peak in 2017 and then start to decline even as the service provider sector of the market continues to grow.

Solution Providers Aren't Surprised

Solution providers with expertise in building and deploying data center IT infrastructures have for the most part already seen the shift away from corporate data centers coming and have started changing the way they do business.

Indeed, many of these solution providers relish the new opportunities presented by the coming decline in data centers.

The shift away from corporate data centers comes as IT staffs continue to move away from being IT managers and toward being IT service brokers, said Mike Davis, vice president of technology at Broadleaf Services, a Billerica, Mass.-based solution provider.

"They're focusing more than ever on delivering IT services to their internal customers with a more flexible, vertical, consumption-based technology," Davis told CRN.

Customers already are saying they no longer want to deal with data center real estate, costs and security, said Dave Wasserman, managing partner at Sovereign Systems, a Norcross, Ga.-based solution provider.

Next: Focusing On Business Development Solutions

CIOs who 10 years ago were focused on various power solutions today are now focused on business development and are more willing to let third parties take care of the infrastructure, Wasserman told CRN.

"We're seeing a large percentage of our customers buying new infrastructure and standing it up in large co-los," he said. "That lets them worry about their business requirements, and not about cooling and power issues."

The number of data centers in which Integrated Archive Systems has been working on actually has been falling for years, said John Woodall, vice president of engineering for the Palo Alto, Calif.-based solution provider.

"I have many customers getting rid of smaller, less sophisticated data centers," Woodall told CRN. "They are consolidating, or moving into co-location. I'm not discounting the threat to my business. But my customers in the data center have a lot of alternatives."

Advanced Systems Group also is seeing customers cut the number of data centers by moving to co-location and managed services over time, said Kent Kellough, Western area vice president at the Denver-based solution provider.

About 80 percent of Advanced Systems Group's customers are discussing what to do about their data centers, Kellough told CRN. However, the shift varies according to customer size. "Larger customers with more efficient data centers want to hang on to them," he said. "They will be the last to go. Smaller companies find it easier to leave."

A lot of companies have data center reduction on their road map, said Dusty Smith, vice president of systems architecture at Advanced Systems Group. "But not now," Smith told CRN. "After a few years."

There are a lot of reasons to migrate data centers, including leases running out or not being able to run enough power into a building, Kellough said.

"We do everything from turnkey data centers to sitting with customers when they're talking to the builders to racking and stacking the gear to rolling in production and getting started," he said.

Eric Hughes, managing partner at Los Angeles-based Komodo Cloud, said the company has made a practice out of helping businesses migrate from their own data center infrastructures to the cloud.

The only reason to not migrate away from a business' own data center is security and compliance concerns, Hughes told CRN.

"So it's a challenge for financial organizations," he said. "But outside of that, if you are a CxO, you absolutely have to evaluate the cloud."

Canada also is seeing a reduction in the number of data centers and a growth in the average data center size, with the new mega data centers typically being run by service providers, said Bradley Brodkin, president and CEO of HighVail Systems, a Toronto-based solution provider. Those mega data centers are being built in part with tax incentives.

"That will mean more opportunities for companies of any size to move into these mega data centers, with new levels of RAS [reliability, availability and serviceability] and cost efficiencies," Brodkin told CRN. "It's almost like the market is saying, 'We'll give you best of breed, but we won't charge you.' "

That's not to say solution providers should feel safe from risk as the number of data centers starts to dip, Integrated Archive Systems' Woodall said.

"You need to be mindful of changes and their possible impacts," he said. "I'm reminded of my first statistics class where the professor said that every summer the amount of ice cream that gets eaten goes up. The number of drownings also goes up. So the amount of ice cream sold leads to an increase in drownings?"

Next: Getting Ready For the Data Center Shift

Getting Ready For the Data Center Shift

Woodall said his company has been taking specific steps toward cloud and services provider offerings.

"For a lot of enterprises, the end goal is to adopt hybrid clouds," he said. "This changes my business from a data center sense, but not in an overall business sense. There will be room to play for us, but it will be different from what we do today."

As many customers' data centers consolidate into co-location, the result is a strong cloud play, one that Woodall's company already is preparing for.

The main issue going forward is finding the right companies with which to partner, he said. "We need to be able to adapt," he said. "But things will be foggy over the next 12 months. The trends are real, but the timing is dicey. 2017 or 2018 could be that inflection point. We're not afraid. Like any company, we need to change to survive."

To prepare for that inflection point and for what follows, Integrated Archive Systems already is taking specific steps, Woodall said.

This includes increasing the number of service provider and cloud provider relationships and increasing the number of software tools to help customers choose the path that makes the best sense for them, he said.

"We've spent the last 18 months evaluating and establishing new partnerships," he said. "Our business is still healthy, but we're putting processes in place to support the business as the changes come. We're trying to decide when to go aggressive with new things. It takes time and people to get started."

At any rate, on-premise IT infrastructure is not going away, Woodall said. "All we have to do is say one word: 'Snowden,' " he said. "Regulatory and security compliance issues, some will be solved in the cloud, and some won't. There will be a decent amount of operations which will stay on-premise."

Advanced Systems Group also is seeing more companies move their production to co-location facilities while keeping their local sites for disaster recovery use, Smith said. "They can keep their existing infrastructure while using the refresh cycle to populate co-lo facilities," he said.

Smith said moving production to co-location is actually a bad way to run IT because of latency issues and other types of disruption. "But it's a stepping stone towards managed services," he said. "A stepping stone to getting rid of power and air conditioning issues. And customers don't want their people at the facility on the weekend fixing a power issue."

HIghVail Systems' Brodkin said it is important that solution providers shift their business from a focus on the box to a focus on services.

"In some areas, we've prepared for this, while in some cases we are using third parties," he said. "And in some areas, we are in the process of transforming by partnering with companies that have the right skill sets."
Wasserman said Sovereign Systems already has made investments in automation and orchestration capabilities, and is now in a position to better focus on business-centric IT.

"We're more aligned with marketing and business teams than ever before," he said. "They don't care what server infrastructure they use. They are concerned about taking the time to ramp up a new customer from 40 hours to four hours."

As companies have looked for ways to better balance their resources, the past five years have seen a boom in the adoption of Software-as-a-Service offerings, Broadleaf Services' Davis said. "We'll see an explosion of growth into Infrastructure-as-a-Service," he said. "We saw that already happening in 2014."

All of that changes the way solution providers do business, Davis said. "We're making a lot of investment in implementation services," he said. "We need to deliver on multiple platforms. This is pushing us to focus on the delivery of appropriately targeted managed services."

In other words, Davis said, do what one does well by delivering it as a service. "If you do VMware well, you'd better learn to do it as a service," he said. "If you do storage well, learn to do it as a service."

By 2020, the idea of having servers on-premise will go away, said Bob Cox, CEO of Nothing But Net, a Phoenix-based managed services provider.

"All our customers will have servers in managed environments," he said. "So we are jumping on this early."

This article originally appeared as an exclusive on the CRN Tech News App for iOS and Windows 8.