The pendulum swings back: colocation as a cost control strategy

The evolution of public cloud over the past few years has been remarkable. Digital transformation, remote work, and AI have created breakneck growth.  

Back in 2018, before anyone uttered the words COVID or ChatGPT, there were already big drivers for public cloud. The global digital transformation market size was valued at $320 billion, and set for 18% annual growth, to reach a projected $695 billion by 2025. 

The global pandemic lockdowns then put a jet engine on the bullet train. More than two-thirds of boards accelerated digital business initiatives because of COVID . 63% of leaders said the pandemic prompted them to embrace digital transformation sooner than originally planned.  Research from IBM found that for 93% of businesses, COVID accelerated their digital transformation by an average of 5.3 years .

The world had barely drawn breath from this impact when artificial intelligence (AI) went mainstream, creating a market potentially able to sustain annual growth in excess of 40% to reach $1.3 trillion by 2033 . And that was on top of a global Internet of Things (IoT) sector well on its way to an estimated $336bn .

Against the backdrop of these relentless forces, businesses have scrambled for infrastructure resources. It is hardly surprising that the global public cloud computing market is estimated to reach $679bn in 2024. 

A new context

But the economic outlook has shifted.  Even amidst the incredible growth of AI and rapidly maturing IoT use cases, organisations have reconsidered their approach.  As the threats of recession loom, businesses have re-prioritised profitability.

The subsequent investigations into infrastructure have exposed hidden risks – and costs. The incredible urgency caused by digital transformation, COVID and AI, led to poor procurement decisions. The lessons of avoiding vendor lock-in – learnt so painfully around issues such as Y2K - were forgotten.

Businesses now face the consequences of these ‘all-in’ pushes to the public cloud or fully on-premise data centres.

Being locked into public cloud can expose a business to costs around excessive consumption, expensive and scarce management talent, data egress and increased security. 

By comparison, the recent years have been an abject lesson that unpredictable energy prices, difficulties in scaling and increased costs of security can threaten the returns of a proprietary data centre. 

Colocation resurgent

It is these sobering realisations that have led to an increased interest in colocation. Businesses want to combine the flexibility and scalability from cloud, with the cost control of owned infrastructure. This has been summarised as ‘putting the right workload in the right place’. 

Typically, this is now driven by a need for increased efficiency to improve profitability.  The warnings of Gartner to beware of cloud washing and aim for a ‘cloud-smart’, as opposed to ‘cloud-first’ approach , have been embraced in this new context.   

To be cloud-smart, businesses need infrastructure partners that can offer comprehensive options to enable them to run lean, resilient IT operations. It is no longer about just space and power in a colocation data centre – especially in an age of AI workloads that will push hardware to its limits. 

The imperative is enabling customers to focus on their core business, not just IT management. Colocation success is about strategic business capabilities being developed.  This begins even before stepping inside a datacentre. It starts where that facility is located. 

One of the crucial issues with centralised, hyperscale cloud facilities has been that businesses do not have control and access to their technology. Regional data centres, such as our twelve locations across the UK, put businesses closer to their data.

This not only means better control – it improves performance and reduces support costs, especially in the event of maintenance or unexpected downtime. 

The benefits of partnership

To then go one step further, a colocation partner will not only minimise disruption or outage, but also ensure that assets perform at their optimal level. Resilience and performance are not the same thing, and a true partner recognises how both impact profitability. 

To improve return, a colocation partner – as opposed to provider – will offer managed services. The most compelling rationale for any form of outsourcing is to enable a business to offload non-critical tasks.  Digital infrastructure is no different. 

There is little return for a business to manage its own hardware installation, maintenance, security updates, performance optimization, monitoring or troubleshooting. 

By comparison, freeing IT teams to focus strategic improvement is at the heart of achieving a return on digital transformation investment.  Though it is difficult to offer a consistent figure to quantify this, research suggests that successful deployment of managed services can increase operational efficiency by 45-65% .

Conclusion

After periods of innovation and adaptation, the pendulum has swung back and the goal for businesses in 2024 is profitability. Organisations once again need to focus on how to optimize infrastructure costs. In this respect, colocation provides the best of both worlds – cloud versatility and scalability, whilst maintaining on-premise control. 

But providers must expand their focus and deliver more than space and power. They need to offer comprehensive solutions to help enterprises build resilient, lean foundations that drive the bottom line.  Likewise, businesses looking to explore colocation need to integrate it into a comprehensive infrastructure designed to control cost and deliver substantial return.