Comedian Rodney Dangerfield coined a famous catchphrase, “I don’t get no respect.” The same could be said for colocation providers. While they continue to add data centers at record levels, it is the hyperscalers that gain all the media attention.

It’s easy to see why. According to Synergy Research Group, public cloud providers spent $120 billion on building, leasing and equipping data center infrastructure in 2022. That’s up 13% from the previous year. Microsoft, Google and Amazon Web Services (AWS) all experienced almost 30% revenue growth in their Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS) offerings. Their combined data center numbers grew by another 15% in 2022, which boosted their overall data center capacity by 18%.

Meanwhile Amazon, Google, Meta/Facebook and Microsoft spent $94 billion on data center capital expenditures in 2022, according to IT research firm Omdia. And they are destined to grow even further. The number of operational hyperscale data centers is set to jump by 50% between 2022 and 2026, according to Synergy.

How Colos Are Thriving

But no matter how rapidly the hyperscalers build, they can’t get data centers operational fast enough. They rely heavily on colos to take up the slack. Without colos, hyperscaler expansion would stall. After all, Omdia reports that colos own 37% of total data center building capacity compared to 33% by cloud service providers (primarily hyperscalers). They deserve plenty of respect.

Colos added a staggering 4.6 million square feet of new data center capacity in the second half of 2022, according to Omdia. Almost three quarters of that capacity was brought to market by a handful of colocation firms. Chindata, QTS, Digital Realty, Iron Mountain, Equinix, DataBank, Flexential and NextDC each managed to bring 200,000 or more square feet to market for the year. Chindata stole the show with 986,000 square feet. The hyperscalers may earn all the plaudits for their cutting-edge designs, but it is the colos who know the business of bringing a new facility online rapidly.

“Colo service providers typically bring new capacity online within 12 months of an announcement as they have fine-tuned their construction processes and supply chains to achieve accelerated time-to-market,” said Alan Howard, Principal Analyst for Cloud & Colocation Services at Omdia. “Repeatable processes, reusable designs, standardized and modular infrastructure, and a close working relationship with their infrastructure equipment supply chains drive just-in-time capacity delivery.”

Colos Underpin Hyperscaler Expansion

Synergy reports that hyperscale providers are nearing 900 operational data centers in the world between them. It’s a little-known fact that about half of their hyperscale capacity is in leased facilities from colos. With worldwide spending on cloud infrastructure services rising by $10 billion per quarter over the 2022 figures, the year-on-year growth rate is in the 18% to 20% range despite a less than optimum economic climate.

Ten years ago, enterprises were spending over $80 billion per year on IT hardware and software for their own data centers, while spending well under $10 billion on cloud infrastructure services, according to Synergy. Now, data center hardware and software spending has only grown by an average 2% per year, while spending on cloud services has been growing at 42% per year and reached $227 billion in 2022. A lot of this spending has been driven by colos and hyperscaler expansion.

2023 Forecast

Both hyperscalers and colocation providers are expected to continue their headlong rush to put data centers everywhere. Omdia estimates 26 million more square feet of capacity will come online in 2023 when you tally up the projects in progress by hyperscalers, telcos, and colocation service providers. Colos will bring about 40% of that total online.

“Increasing macro-economic challenges coupled with massive high-tech layoffs are inhibiting data center growth with some hyperscalers tapping the brakes on construction and expansion,” said Howard. “Despite this, Capex spending plans remain robust.”

Part of the reason for continued expansion in the face of recessionary concerns is dog-eat-dog competition. 30 new cloud regions and associated zones are under development or planned by the hyperscalers. To win out over their competitors, they need to offer more cloud services in more places at lower latency and higher performance than ever.

“No matter how good the network infrastructure is, the further the end user is from the cloud application, the greater the delay and the poorer the end-user experience,” said Owen Rogers, an analyst for Uptime Institute.

To satisfy their demanding customers, hyperscalers need more data centers situated as close as possible to key markets. They are building their own centers, but they often rely on the presence of colos in key markets to stay ahead of their competitors.

Equinix, for example, owns and operates a network of around 250 data centers across the globe, spanning more than 70 major metro areas and 32 nations. Many more are on the way. Other big colos like Digital Reality, CyrusOne, Stack Infrastructure and QTS Realty Trust are also building out their networks and providing key support to hyperscaler expansion.

No End in Sight for Growth

The colocation community is rising to the challenge by building bigger data centers at a more rapid pace. The average capacity per data center building is now up to 137,000 square feet for colocation companies. Expect that number to rise even further in the years ahead.

“Increased enterprise adoption of cloud and colo services continues to drive data center capacity growth in all regions,” said Howard.