Just like selling popcorn and other junk food is as important in running a successful movie-theater business as showing movies, things like managed services or some version of cloud services are becoming essential to running a multi-tenant data center. There is increasingly less room in the market for “pure-play” colocation or wholesale providers.

“That pure-play mentality, I think, is breaking down a bit, especially for more middle-market operators,” Steve Lee, managing director at Bank Street Group, says. Bank Street provides financial and strategic advice to companies in the data center and telecommunications sectors. Lee was one of the speakers at last week's DatacenterDynamics Converged conference in New York City.

More and more customers, when looking for a cage or a rack in a colo, will also ask what kind of options are available for, say, Infrastructure-as-a-Service. They're interested in something similar Amazon Web Services or another major public-cloud provider can give them, but may prefer to get that service from a data center provider they already have a relationship with or who has good reputation in a local market.

Many ways to get into cloud

There have been many examples recently where a company known mostly for colocation services either teamed up with a cloud-services provider or developed the capability in-house. Large players, like Equinix and Telx, have deliberately created conditions to attract a variety of cloud-services providers to their data centers, so that they have an answer for their colo tenants looking for cloud.

Telx, Equinix and European player TelecityGroup have also connected their data centers directly to Amazon's public cloud, so their clients have the option to go with the giant if that is what they want. CoreSite, a US wholesale player, has done the same.

CyrusOne, the Texas-based provider that has recently gone public, used to pride itself on its pure-play-colo business model. Those days are gone. The company is now screaming at the top of its lungs that it is also a network-interconnection provider. It has also taken the partner-with-cloud-provider route. In one deal, CyrusOne agreed to jointly market and sell cloud-storage services provided by its tenant Nirvanix.

As Lee says, you don't have to reinvent the wheel. In other words, data center companies do not have to now hire a bunch of software engineers and IT experts with cloud-infrastructure chops to add a cloud offering. There are plenty of quicker and easier ways to do it.

“They don't have to invest significantly in people to become smart about a specific software platform,” he says.

There is now a whole new market for cloud-enabling technology to data center service providers, where vendors like VMware, HP and many others are having a lot of success. This market has also seen the advent of “white-label” cloud-infrastructure services, where a provider can buy systems to deliver cloud services using their own brand.

Capital players drop pure-play religion

The pure-play orthodoxy is breaking down among the companies that fund data center businesses as well. “There used to be strong religion, depending on who you spoke to,” among private-equity firms and lenders about only getting into wholesale data center companies and not getting into managed services, or vice versa, Lee Says.

Pure-play data services – the story used to go – were a pure commodity, which meant the price would eventually go down, and it did not make for a good long-term business plan. The argument against managed services, on the other hand, was that the overhead was too high and margins were too low, compared to the business of simply providing data center space, power and cooling.

“Today, most people are cognizant of the pros and cons of each,” Lee says. Capital players are seeing that there are no hard rules that apply across the board. More than anything, today, these players are looking for good sales teams.

“They want to see a company that can execute on their business plan, so showing year-over-year growth is very important. Showing that pipeline is very important.” The basics remain the basics.

The data center market is changing by the minute and the convictions many held – successfully – five years ago, may no longer apply. A diverse business model, consisting of a broad variety of services, is important today. But there are many ways to fatten your service portfolio without having to build new offerings from scratch. This means a company that is very good at providing the most cost-efficient power, cooling and real estate, can continue doing what it does best, while delegating the cloud-services portion of its portfolio to someone who already knows how to do it.