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Is Wholesale Colocation Causing Market Oversupply?

Is Wholesale Colocation Causing Market Oversupply?The simple answer to this question is to first look at supply and then at demand. However, without digging deeper into both aspects, you might well come to the wrong conclusion.

While it is true that data center capacity gluts sometimes make the headlines (in the specialized press, at least), we need to know more. Answers to the following questions can help make a definitive statement about wholesale colocation and its effect on the market:

  • Which different solutions compete in this market? Which factors affect it?
  • How are colocation resources provided – in a continual stream or one mega data center at a time?
  • Who wants to buy data center capacity?
  • Which channels are available for selling data center capacity?

Moore’s Law Still Rules

Processor speeds continue to increase, data generated and stored continues to rise, and the appetite for more compute power at all levels is healthy.

Overall, it seems that data center capacity is being led by demand, rather than outstripping it.

Hiccups come when leasers of large data centers build their own facilities and existing DC capacity then arrives again on the market, often as wholesale colocation capacity. As supply goes up, prices tend to come down, unless sellers find additional sales channels for their wares.

Large and Lumpy, or Small and Smooth?

Monolithic, mega data centers mean large chunks of capacity arriving at once on the market.

Availability of existing data centers such as the one vacated by Facebook when it built its own DC has a regional impact. However, if new data centers use modular construction, customers will be able to buy smaller portions, or acquire large one-tenant solutions as required.

Market oversupply, if it exists today, would tend to diminish tomorrow as the supply curve for data center capacity becomes smoother and stays closer to the demand curve. This includes purpose-built colocation facilities.

“History is Bunk” (Maybe)

Henry Ford said this and went on to build an automotive giant.

In the data center market, however, there is a strong hint from bygone IT eras of what will happen in future.

When computing first started, it was with mainframes. Marketers at IBM saw no more than a handful of sales opportunities at the start. Then mainframe sales multiplied and timesharing arrived, followed by servers and PCs.

As technology becomes more accessible and affordable, the mass market develops.

This holds for data centers too. Colocation can address an additional market, making the whole demand pie bigger. 

Retailing Colocation Rack by Rack

The last piece of the jigsaw is a sales channel to get colocation capacity out to customers in the new mass market.

Colocation service providers already see new demand for a hundred-kilowatt-level rental that they can satisfy by carving up megawatt-capacity.

Retailers can help bring colocation sales down to rack level. This meets the demand of small and mid-size enterprises looking for solutions that save on capital expenditure and that are robust (for business continuity) into the bargain.

The Future is a Continuum

Before, the high-end and low-end DC facilities markets were separate.

Now demand and facilities exist to allow customers to grow from a rack of colocation to occupying an entire data center.

Data center builders are now too smart to believe they can simply “build it and they will come”. They stay closer to their customers. Market oversupply may never completely go away for the reasons above, but it will become less and less of an issue.


How much modularity would you look for in a data center destined for wholesale colocation? Share your opinion by leaving a comment in the space below.


And if you are in wholesale colo or face competition from it, be sure to download our free eBook on “Lead Generation Best Practices for Colocation Data Centers.”

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