Why Hosting Providers are Opting for Higher Quality Data Centres


By: Jelle Frank van der Zwet

Service providers are in a transitional phase between traditional hosting and cloud services, influenced by a change in customer demand. This is in turn causing a fundamental shift in how service providers source and operate their data centres. Where in the past service providers opted for tier 1 or 2 data centres to optimise margins, we see an increasing trend towards the use of higher quality data centres. 

Looking at the options for sourcing IT infrastructure (defined as data centres, networks and hardware) available to service providers, essentially there are three main models: first ‘DIY’, secondly DIY in a third party data centre, and finally using a service-based platform from a local or global public cloud platform.

Our recent survey of 400+ European hosting and cloud providers, shows that service providers still have a clear preference to run their own IT infrastructure, either in their own data centre or within a third party colocation facility. In fact, 76 percent of service providers use a data centre as their primary or secondary site and two thirds of this group actually run two redundant data centres. 24 percent of our respondents indicate that they are using a cloud-based platform as their single hosting platform. The biggest factor explaining this preference for using physical data centres, may be that infrastructure is their core business, and control and governance are therefore extremely important.

Turning to the changing customer demand referenced before; while the results of our survey demonstrate that cloud revenues represent a relatively small share of hosting providers’ revenues today (12 percent), the survey also shows that future customer demand is shifting to cloud services within the next few years. This finding is supported by analyst forecasts predicting the enterprise cloud services market to attain a 24.8 percent CAGR through 2018. 

The shift in service providers’ data centre requirements is caused by this changing customer demand. As hosting providers migrate both existing and new customers to cloud-based platforms, the demands placed on the data centres they operate is changing fundamentally. Where in the past price was often the deciding factor (to maintain margins), we currently see a trend to deploy the cloud platforms in data centres that can deliver on 99.999 availability SLAs as well as excellent connectivity through a direct connection to the local Internet exchange and local and international networks. This requirement is driven by the fact that connectivity requirements and availability SLAs on a shared, service-based platform are typically defined by the most demanding customers.

Cloud and carrier-neutral, tier-3+ equivalent facilities, such as Interxion’s, facilitate these changing requirement by offering extensive connectivity options,  five nines availability, ability to support high-density requirements, scalable growth models, and 24/7 support. In addition, neutral data centre operators naturally work together with hosting providers, as the service models complement each other, which means service providers can generate new business opportunities at colocation facilities. 

A final trend which is changing the data centre requirements of European service providers that we haven’t yet mentioned, is the growing requirement from enterprises to keep data within a native country. Gartner forecasts that service providers that are able to maintain in-country control of customer data will be better equipped to assuage security concerns that customers have. As hosting providers have traditionally focused on national or regional business, they are in a strong position to leverage this trend. As a result, we expect hosting providers to continue to opt for locally operated data centres. However, they will require local data centres with excellent connectivity options which are designed to support the stringent SLA requirement of increasingly demanding customers.