Does CenturyLink’s Colocation Business Sale Herald a Shift in Data Centers?

CenturyLink’s divestiture of its colocation services and Verizon’s deal with Equinix would both seem to indicate the move of telecommunications carriers to purchase data centers may have been a losing bet. While Zayo presents a more complete offering with its ubiquitous transport network plus data center services through zColo, others like CenturyLink may have found the trend of potential customers choosing cloud services as opposed to colocation has changed the model of the traditional data center sale.

Apparently, the group that bought CL has other IT businesses including cyber security they’re planning to roll into the colocation business they’ve acquired through CL. This seems to confirm the trend in IT to look for comprehensive solutions rather than knitting together disparate parts and having to manage the myriad details of multiple environments and vendors.

As businesses realize the benefits of cloud systems for non-mission critical uses like development environments, storage, archiving, etc., and leverage software-as-a-service applications to conduct their daily business, they’re focusing less on buying data center space and more on choosing the right cloud solution. This shift in business IT environments doesn’t mean data centers go away, it just means that the clientele of data centers changes from single companies to cloud providers encompassing the IT of multiple companies. It also means data centers must look to other ancillary services to stay competitive, relying on everything from peering opportunities to cyber security and DDoS protection to self-contained “mini” data centers or even data center-as-a-service (DCaaS) offerings.

Data centers enjoyed quite a heyday not too long ago, but the growing popularity of the cloud is causing colocation providers to rethink their business. The acceptance of the cloud service model for IT versus the owned physical infrastructure paradigm means more companies will leverage the pooled resources of cloud providers versus investing the CapEx in their own equipment hosted in a pricey data center. CenturyLink may have seen the handwriting on the wall and realized their colocation business wasn’t going to evolve fast enough to win.

Key Takeaways from CenturyLink’s Sale:

  • Despite titillating headlines, consolidation in the colocation space is not new news.
  • The trend of carriers getting out of data centers has been spiking for some time, as evidenced by sales from Verizon, Windstream and now CenturyLink.
  • Data centers are evolving. As a result, many telecom carriers are challenged to modernize their legacy data centers.
  • The prospect of the cloud has driven many enterprise customers to focus on cloud computing solutions or more advanced data centers. A byproduct of this shift is carriers are placing less emphasis on data centers as part of their own product set.
  • Selling off data centers may illustrate a more complex and strategic approach for carriers, where data center sales are being leveraged into investments in new markets like wireless. Time will tell if this strategy pays off in the long run.
  • Data center sales also illustrate a paradigm shift in the enterprise space. Large enterprises are moving away from owning their own data centers in favor of managed services models.

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