North America outsources 16% of data center load; Europe lags

The portion of the information technology (IT) load outsourced to wholesale and retail data centers in North America stood at 16.3% at the end of 2012.


IHS Inc.The portion of the information technology (IT) load outsourced to wholesale and retail data centers in North America stood at 16.3% at the end of 2012 according to a recently released report by IMS Research, now part of IHS Inc.

The new IHS report, which covers the wholesale and retail data center—or colocation—industries, found that outsourcing was more than twice as prevalent in North America compared to Europe. It also projects that the share of outsourced data centers will continue to grow during the next five years.

“IT outsourcing is growing for several reasons,” according Jason dePreaux, an associate director for data center and critical infrastructure at IHS. “First, data centers are increasingly expensive to build and maintain. For many organizations, outsourcing allows companies to shift from having capital-intensive data-center builds to more predicable operating expenses. Second, wholesale and retail data centers are often built with energy-efficient designs and equipment that might not be feasible in smaller in-house facilities. Finally, projecting future capacity is difficult as IT technology evolves and requirements change. Outsourcing provides added flexibility to evolving demand.”

While the fundamental drivers for outsourcing are strong, dePreaux cautions that risks still abound.

“Overcapacity is a major worry for colocation vendors,” he noted. “Excess stock can drive prices down. We are seeing build-outs being done in smaller chunks to more closely match supply with demand.”

Other risks include commoditization as more vendors enter the industry and the ever-present threat of outages, which can seriously damage momentum toward outsourcing.

One reason North America leads in data-center outsourcing over Europe is because of the preponderance of vendors with both wholesale and colocation offers located in North America. The tax-advantaged status of being a real estate investment trust (REIT) in the United States means data center REITs can avoid paying corporate taxes by distributing profits to investors.

IHS forecasts that more than 1.3 GW of leased IT capacity will be added during the next five years between North America and Europe.

“While the wholesale and retail data center industry continues to mature, it has just scratched the surface of the available market,” dePreaux commented.

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