Blog

April 3, 2015
COLOCATION & CLOUD CAPITAL EXPENDITURE TRENDS

With eight of the largest, publicly-listed European and U.S. data centre operators having reported Q4 results and provided guidance on capital expenditures for 2015, it is clear that the spending boom in colocation data centres may have peaked even as spending by cloud operators on their facilities is accelerating. These 8 firms are (in alphabetical order):

  • CoreSite
  • Digital Realty Trust
  • DuPont Fabros
  • Equinix (and historic Switch & Data)
  • Internap Network Services
  • Interxion
  • QTS Realty Trust
  • Telecity Group

These numbers seem to identify several trends in relation to the very largest, scaled-up, traditional colocation providers (i.e. facilities wherein customers install and manage their own servers relying on these firms for facilities and infrastructure management):

  • A cautious and client-drive approach to capital expenditures. By far the predominant bucket of capital expenditure by the public colocation players is devoted to expanding existing facilities to meet growing demand from existing customers.
  • The second largest bucket of capital expenditure is related on expansion into new markets around existing customers.
  • The smallest bucket is capital allocated to fund expansion into a new market anchored around a new customer. Expansion into new markets on a speculative basis is rare indeed, and more often left to smaller players or to providers of managed services.
  • Also of note is the increasing importance of cloud intermediaries as customers (i.e. specialist providers of cloud-based services becoming colocation customers in the most robust Tier III and Tier IV facilities of these Big 8 firms).
  • Overall, these eight firms display consistency and discipline regarding capital allocation

Yet it is interesting to note that – despite their prominence in analyst reports – these 8 firms are not longer the leading edge in terms of investment flows in the broad data centre/hosting/cloud industry.

If one were to add in CyrusOne, Savvis Terremark, IBM and Rackspace (to add two major hosting names to the mix to make for an even dozen),  the sum total of capital expenditure would not approach the numbers being posted by the major cloud and social networking players.

Our list of six major cloud providers is: Amazon (AWS), Google (GCE), Microsoft (Azure), Box, DropBox and Facebook.

Based on recent filings, Google is spending approximately $2.5 billion a quarter on data centres (some internally some for cloud clients). Google + Microsoft together dwarf the dozen largest colocation and hosting providers, and that is before the cloud juggernaut Amazon AWS is added to the calculation.

The major cloud providers are now spending about 12x the capital expenditure of the major colocation players. Even deducting spending on non-data centre projects as well as the cost of computing (servers and storage) it is reasonable to suggest that “big cloud” CapEx is at least 6x “big colo” CapEx, and the gap seems to be accelerating.

As colocation CapEx Stabilises Cloud Provider CapEx Soars:

Big 8 Cap Ex Cloud 6 Cap Ex April 2015