Are small data centers on the way of becoming extinct?

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Daniel Golding, vice president and senior analyst at Tier 1 Research, a New York-based firm, envisions a day when only the 50 largest global businesses - mainly in financial and Internet services - build their own data centers while everyone else outsources the task. He doesn't offer a specific time frame, but makes clear that an increase in data center outsourcing is on the horizon.

Why? As IT has grown, data centers have become ever more complex animals that require lots of care and feeding. Increasingly, many organizations have determined that building and maintaining a data center is too burdensome and have opted to offload the task instead.

Why data center outsourcing is on the rise?

Data center hosting companies have encountered "increasing penetration," and Golding estimates that demand for data center services will increase at 13% a year. Research firm IDC predicts that the IT leasing and financing market is growing at about 8% a year. This includes two kinds of services: managed-hosting services, in which a third party provides all the equipment and services, and colocation, in which the client company provides the IT equipment while a third party provides power and cooling services.

What's driving the data center outsourcing trend? Simple: the purse strings.

"It's hard for a CIO to go to the board of directors and say, 'I need $200 million to build a new data center,'" said Golding. "That's a tough one." And the costs of building a data center are steep: about $1,300 a square foot, according to Golding; and the price tag often increases as a data center becomes more densely packed. A modern data center usually includes some level of equipment redundancy, from servers and other IT equipment to the facility's power equipment, such as uninterruptible power supplies and generators.

Further, many businesses now have a need for a backup data center, and not one that's just a few miles away from the primary facility. The two data centers need to be far away from one another, have lights-out capabilities and be capable of handling the entire data center load in case one goes kaput. They can't be "fate sharing," said Golding.

"Building a new data center today is much more complex than it was in the '70s or '80s," he said. "It's not the core competency for any enterprise that I've ever seen. Once you get outside the financial companies, very few businesses know how to run data centers of their own."

Golding also dismisses the security concerns posed by outsourcing, saying that it's a lack of discipline that causes breaches, not physical distance. If you decide to outsource your data center, what's next? Golding advises going through a typical request-for-proposal process to find the third-party data center that best suits your needs.

Data center outsourcing not always the best answer

Golding acknowledges, however, that some companies are better off building their own data centers. Even the largest companies that opt to outsource go with a hybrid approach: They host some data remotely, even if it's just for the direct networking with other companies that a provider like Equinix Inc. offers and then build a massive data center, as Google Inc. has done in The Dalles, Ore., for example.

Now companies are starting to catch on... But even if demand increases at 8% or even at 13% a year, the transition will take time. Further, companies turn to data center outsourcing when their own becomes obsolete, said Golding. Some start the data center outsourcing trend with their backup data centers while still holding onto their primary facility.