Has cheap colocation come to an end?

Colocation space is now more affordable than it’s ever been – but today’s prices are unlikely to last.

It’s no secret that we have a glut of data centre providers in the market. As demand for cost-effective cloud hosting grew, so did the number of operators looking to cash in, which quickly led to over investment in capacity and plummeting prices. But with colocation costs at the lowest they’ve been in years, most data centre providers are now putting plans to expand capacity on the backburner.

That effectively puts a cap on data centre supply for at least the next 18 months, particularly for prime locations with sufficient power to scale to enterprise needs. And with data centre expenditure expected to remain consistent despite economic headwinds, it’s unlikely that demand for that supply will disappear anytime soon. As more and more businesses snatch up that remaining data centre space, prices will only go in one direction: up.

Even if we've hit the bottom of the colocation price curve, businesses need to be careful about how they choose data centres to invest their dollars and workloads in.

Here are 3 things to look out for when buying up colocation

1. The price of power.

Many data centres offer extremely attractive upfront rates without disclosing the add-on costs that come with extra usage. Amongst these, power costs often prove to be the most (to pardon the pun) shocking. Certain data centre providers will charge businesses not only for excess power usage, but also if energy prices rise during the term of contract – which can negate any cost savings made upfront. Look for data centre providers which hedge their power contracts and use energy-efficient cooling systems to minimise potential jolts to your budget.

2.       Flexible design.

Every business is different, but many data centre providers still insist on extremely rigid packages that offer little room for customisation or agility. Avoid long contract lock-ins or penalties for variations that could reduce the speed and cost-efficiency of adopting a colocation solution. When approaching a data centre provider, inquire about month-to-month contracts and other flexible operational models that can keep your IT agile. Flexibility should also extend to other critical areas of operation including securitydisaster recovery, and even the timing of migrations.

3.      A commitment to grow.

On the face of it, this might sound like a bit of a contradiction. After all, aren’t low prices curtailing data centres’ expansion plans? While providers may be holding back on short-term growth, they should also have concrete solutions to scale up if customers need the excess capacity. We’ve already seen several instances where data centre providers have run out of space due to a lack of contingency planning – leaving their existing customers without the option to scale because all excess capacity’s been sold off. If you have growth plans for your business (and who doesn’t?), ensure that you have access to future capacity covered in your contract at a reasonable price.

Today’s colocation market offers low-cost opportunities to invest in the cloud that are unlikely to be repeated anytime soon. Whether it’s to migrate on-premise workloads for greater efficiencies or to prepare for future growth, the cloud should have businesses asking themselves: if not now, then when?

If you’re keen to know more about how to prudently invest in colocation space, contact us today for advice and information about our special 15-year anniversary packages

NTT TarquinBellinger
Author Name: Tarquin Bellinger

Tarquin Bellinger is the Chief Operating Officer (COO) of NTT Communications ICT Solutions (NTT ICT). NTT ICT provide organisations the secure ICT infrastructure foundation that enables smooth IT operations combined with the flexibility and innovation to transform their IT for the future.

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Added 16 June 2016

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