While the data center colocation industry is forecasted to grow from a $25B global market (451 Research) to a $50B global market within four years (MarketsandMarkets), CEOs of data center colocation firms face some rough challenges.
In this post, we’ll outline 10 of the biggest hurdles:
- Capital market conditions – Since the colocation business model is so real estate-centric, it should come as no surprise that it’s a very capital-intensive business. While an IT security company, for example, may have to pay much higher salaries to build its team, relatively few sectors of the IT industry have such high barriers to entry as colocation data centers. So colo CEOs must stay abreast of capital market conditions as part of their non-stop need to attract capital – including venture capital -- from real estate investment trusts (REITs), bankers, and investors.
- Changing nature of the data center – Whether we’re talking about increasing density, shrinking data footprint, or shrinking hardware size, it’s clear that change is in the air for colo data centers.
- Climate change – No matter where a CEO stands on the politics of climate change, for a business model that consumes so much water and energy, leaders of colocation firms must be able to discuss climate change with various stakeholders, in various contexts.
- Competition – Management consultants would argue that a business with competition is healthy. Or the converse: a business without competition may lack a market. Either way, it’s safe to say most colocation CEOs have to contend with competition on a variety of fronts: especially from cloud service providers (CSPs), wholesale providers, and managed service providers (MSPs).
- Expansion --- Most CEOs seem to always be in some state of expansion or space planning – whether it’s building out more space, adding another building on a current property, seeking funding for expansion, or scouting for new locations. In the data center industry, it almost seems like CEOs that are failing to expand are on borrowed time or just waiting to be acquisition targets.
- Federal and state regulations – Whether you’re discussing data center energy efficiency legislation, federal data center consolidation, or the outrage among environmental activists over the water usage at the Utah Data Center, colocation CEOs need to be prepared to juggle various federal and state regulations that impact data centers at the facility level.
- Market oversupply – As density increases and hardware shrinks in size, some speakers at regional data center industry conferences have debated whether specific regions have market oversupply issues to contend with.
- Security – As the world faces increased instability, CEOs of colo firms need to keep a watchful eye on staying proactive on security. Granted, colo CEOs are rarely the security gurus themselves and instead rely on teams anchored by direct reports such as Chief Technology Officers (CTOs).
- Site selection (locations) – Building a data center colocation facility is so capital intensive and involves so many interrelated issues – many introduced in this post – selecting the right location can make or break the future of the company and the CEO’s career. While bandwidth today, in many respects, can make location less important to the end user client, location selection can have major implications for taxes, energy consumption, business continuity, labor costs, and the ability to satisfy client requirements.
- Standards –Colo CEOs that struggle to keep ahead of changing standards often find the content of and peer networking at industry conferences – such as 7x24 Exchange, Datacenter Dynamics, Data Center Boom, Data Center Forums, Data Center Summits, and Data Center World – quite valuable.
In this post, we’ve outlined 10 major challenges faced by CEOs of data center colocation firms.
As the CEO of a colo firm, or someone who reports to one, which of these 10 areas are most challenging to you? And is there an 11th or 12th challenge that’s been overlooked on this list? Let us know in the Comments.
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