Colocation has become a popular data center deployment option for businesses large and small. Its maturity and high growth splintered the market into two types of services: retail and wholesale. The former focuses on Small and Medium Businesses (SMBs) looking to outsource the bulk of their data center infrastructure to a third party. The latter is suited to technically savvy enterprises, some of whom build managed services on top of the infrastructure. Let’s take a closer look at the two options, so we better understand their similarities and differences. Colocation is a business model where a third party builds a large data center and leases computer infrastructure to multiple tenants. Creating, owning, and running a data center is an expensive, time consuming proposition: construction costs more than $300 per square foot, a price that does not include laying the fiber cabling needed for network connectivity.
A Wide Breadth of Colocation Services
The leased infrastructure ranges in breadth and sophistication. On the low end, customers receive minimal facilities: raised floor space in a building; access to power circuits, the Internet, network connectivity, physical security, and third party systems monitoring. On the high end, they buy a turnkey managed service where the vendor provides servers, storage, network equipment, and application software, oversees the deployment, and manages the infrastructure on an ongoing basis.
The market is large and well established. The global data center colocation market size was valued at $44.42 billion in 2020 and is expected to reach $102.21 in 2028, a compound annual growth rate (CAGR) of 13.3% according to Grand View Research. The client profile ranges from established technology vendors, large enterprises, government agencies, and Managed Service Providers (MSPs), to SMBs.
Retail Colocation Focuses on Corporations with Modest Computing Needs
The market is divided into retail and wholesale sectors although the dividing lines between the two are murky. Retail is the larger segment, with a share of over 72% in 2020. Moving forward, the wholesale segment is expected to grow faster than retail. The industry has been moving away from autonomous corporate data centers to hyperscale services where many corporate data centers run on common large scale infrastructure.
Space, Hardware, and Software
In retail, a customer leases space within a data center, usually a rack, a space within a rack, or a caged-off area. Retail colocation vendors sell space in small increments, say a quarter rack. In many cases, the customer selects the hardware, and the colocation provider buys, deploys, and manages it. In addition to servers, storage, and network equipment, the customer can purchase other amenities from the supplier, as well.
Colocation providers also measure power usage, pricing their services based on rack power densities, power circuits, and usable power. As a general rule, retail service customers require total power densities of less than 100 kilowatts (kW).
When it comes to network services, vendors connect to whatever telecommunication service provider that a customer desires. The only difference is how much bandwidth and how much redundancy they want. Speeds may be as low as 25 Mbps, and the services tied to one carrier, which limits resiliency.
Wholesale Colocation Appeals to the "DIY" Customer
Wholesale colocation is geared towards large enterprises, MSPs, and government agencies. Oftentimes (but not always), the tenant is responsible for handling much of the IT operations, such as deployment and management.
Space, Hardware, and Software
A wholesale colocation client often requires a private cage or even a custom designed data center. Such features mesh with customers in industries, like finance and government, that have strict security requirements.
Wholesale users have lots of computer infrastructure that requires a great deal of electricity to run, typically 100kW is the floor.
Wholesale customers desire faster speeds and more resiliency than retail customers. Their requirements can include special features and build-outs, such as multiple cross connects, dark fiber, and even roof rights.
Retail colocation providers offer bundled services at a flat rate based on infrastructure, power usage, and network complexity. Wholesale vendors usually offer custom pricing under longer term periods.
Does Retail or Wholesale Colocation Fit Your Business?
The right colocation model for your company depends on your IT infrastructure capabilities and needs. Companies with modest requirements and a small IT staff find retail a good fit. Businesses that rely heavily on technology and have large tech teams opt for wholesale services. Interest in colocation services continues to rise, and the services continue to evolve as technology marches forward. To make sure that your businesses’ IT infrastructure isn’t left in the dust, schedule a call with Lightyear to get up to speed on colocation.