Many colocation providers believe they have something special which sets them apart from the competition; whether it’s thanks to their customer service, marble foyers, swish meeting rooms, or being near the bright lights of London or Manhattan. To these providers I say, sorry, but you’re in a state of denial. The only way the vast majority of data centers is different to anyone else’s is through what re-investments are hiding in the closet, and how much your margin will drop as the competition gets more efficient.

marble office foyer thinkstock photos ichaoshu
Do your customers need this? – Thinkstock / ichaoshu

Customers don’t care

Most customers don’t care whether IT is entirely in-house, collocated or provided as a service. They only care about whether they are getting the service level they need; whether they are meeting their compliance obligations; and whether they are doing this for the best possible cost. For instance, why would customers need dedicated servers in a data center when increasingly commoditized cloud services can provide everything they need more efficiently? Nobody is immune to being squeezed by commoditization: even giants such as Rackspace now have to adapt, driving more revenue through service contracts rather than simple hosting.

If colocation providers can’t adapt to this new world, the situation will be dire. Customers will simply vote with their feet and move to a competitor who can provide the level of service and low prices they demand. The “uniqueness” of the data center won’t factor in at all.

There will be some exceptions to this, there always are. For example, customers running high frequency trading platforms will be prepared to pay well over market rate to be a few milliseconds closer to the stock exchange. However, in general the only way that colocation providers can survive is by having a clear understanding of what their customers will want that can’t be provided by the cloud along with then squeezing as much value out of their facilities as possible.

In the long run, where compute is ultimately hosted will be dictated by resource brokers in a market which has no interest in what your data center looks like, how nice your staff are or anything much else beyond cost, jurisdiction and service level.