Analyst: Enterprise IT Transition Powering Data Center Growth

June 18, 2018
At Datacloud Europe, Credit Suisse senior analyst Sami Badri outlined how the ongoing shift to cloud technologies holds benefits for the data center providers that build the facilities housing those clouds.

MONTE CARLO, Monaco – Demand from enterprise companies seeking to “cloudify” their IT operations will support solid growth for the multi-tenant data center sector in coming years, a leading securities analyst told attendees at Datacloud Europe.

In a presentation titled “The Cloud Has Four Walls,” Credit Suisse senior analyst Sami Badry outlined how the ongoing shift to cloud technologies has benefits for the data center providers that build and lease the facilities that host those clouds. Badri projects that enterprise business will lead to an average 9 percent annual growth for multi-tenant data center companies through 2021.

“There are two significant shifts going on,” said Badri, who said some enterprises are adopting cloud to improve the latency of their applications, while others are seeking to modernize their IT stack and workloads to take advantage of more efficient cloud strategies.

“What enterprises are trying to do is become public clouds, but internally,” said Badri. “It’s hard to do. Clouds are materially more economical than traditional IT. As good as enterprises want to get, they will never be as productive or powerful as public clouds.”

Enterprise Architecture Shifts

Although huge hyperscale leases have generated headlines, the demand supporting the data center industry extends beyond the large cloud platforms and social networks. Enterprise demand is a growing facet of cloud adoption, as we noted in our projections for 2018.

“Make no mistake: Enterprises are getting religion about moving workloads off-premises,” we wrote in 8 Trends That Will Shape the Data Center Industry in 2018. “The trend accelerated in 2017, and will continue in earnest in 2018, creating sustained business for IT infrastructure providers.”

Badri said this architecture will create several opportunities for data center providers. First, it will create demand for space to house IT equipment, particularly as enterprises adopt cloud technologies that require higher density and better networks. Enterprises will also be seeking technical assistance in making the transition, generating business for consultants and service providers with managed services expertise.

“Strategic partnerships have played a very significant role (in the enterprise cloud transition),” Badri said. “This is a unique feature that will accelerate the process.”

The Cloud Changes the Network

A key factor in enterprise adoption is the changing nature of networks – both the networks that feed traffic into the cloud, and the traffic that moves through enterprise applications.

Historically data has moved from enterprise data centers to the Internet – known as vertical or “North-South” traffic. Cloud architectures employ more distributed data flows among devices and other networks, creating demand for more horizontal or “East-West” traffic. As a result, many enterprise networks require updating to handle these new data traffic patterns. (For more on this, see New Network Standards Will Require Network Upgrades.)

Cloud “on-ramps” that provide direct connectivity to cloud services will play a key role in the transition, said Badri, who highlighted the role played by SDN virtual interconnect specialists such as Megaport and PacketFabric.

Finding Your Niche Among Many Models

Badri wasn’t alone at Datacloud Europe in projecting robust growth for service providers. Steve Wallage, the Managing Director at BroadGroup Consulting, presented an overview of the European market, saying colocation supply is expected to grow 15 percent a year through the next five years.

“This is still a very strong marketplace,” said Wallage. “We can be a lot more confident now about how this market is doing.”

Although overall demand is expected to remain strong, Wallage noted that returns vary across product types and customer sets, with pricing ranging from as low as 65 Euro per kW for hyperscale wholesale deals up to 460 Euro per kW for premium retail colocation.

“What’s important is having the right business model,” said Wallage. “There’s more than one successful model, and you must find the one that’s right for you.”

About the Author

Rich Miller

I write about the places where the Internet lives, telling the story of data centers and the people who build them. I founded Data Center Knowledge, the data center industry's leading news site. Now I'm exploring the future of cloud computing at Data Center Frontier.

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