Colocation Providers to Benefit from Multi-cloud Adoption, IHS Markit Says

Enterprises are expanding their use of multi-cloud to support their organizations’ increasing need for varied cloud-based applications and IT infrastructure.


In IHS Markit’s recent Cloud Service Strategies & Leadership North American Enterprise Survey - 2018, respondents indicated they would increase the number of cloud providers by 42 percent for SaaS and 30 percent for infrastructure as a service (IaaS), cloud as a service (CaaS), and platform as a service (PaaS) between 2018 and 2020."

The adoption of multi-cloud strategies by enterprise colocation customers is driving additional interconnection service revenue for colocation providers. Interconnection will remain an important focus because of its low-cost of installation and maintenance which drives its high margin to the bottom line,” said Alan Howard, senior analyst, IHS Markit. “Enterprise requirements to obtain low-latency and high-bandwidth connectivity to many CSPs in a multi-cloud world is a new opportunity for colocation service providers.”

Through 2023, interconnection revenue is expected to grow at a five-year CAGR of 12 percent, and physical facility revenue at a five-year CAGR of 8 percent.

The global colocation service market is forecast to grow at a five-year compound annual growth rate (CAGR) of 8.4 percent, reaching $38.8 billion in 2023, up from $25.9 billion in 2018.

Colocation providers are paying attention: In May 2019, Digital Realty Trust achieved the AWS Direct Connect service delivery designation, which allows it to provision the new AWS Direct Connect Hosted Connections service with capacities greater than 500 Mbps.

Equinix announced its 2019 plans include 12 new international business exchange (IBX) data centers and 23 expansion projects globally, enabling more enterprises to directly interconnect with cloud service provider data centers. Equinix now has 341,000 interconnections for its 9,800 customers.

Interconnect revenue continues to grow as more colocation providers realize the potential revenue contribution and attractive margin it provides.  

Full-year interconnect revenue in 2018 grew 12 percent, driven by the increased need of CSPs, enterprises, and telcos to interconnect with each other and also with additional global providers.

Colocation service providers continue to be a needed source for reliable physical infrastructure and interconnect. CSPs, telcos and enterprises will rely on these services driving sustained revenue growth over the forecast period.

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