Revenue from co-location services increased by almost 17% during 2013 and accounted for about 69 percent of total market revenue. Managed hosting services revenue grew by 18%.
Analyst group Frost & Sullivan's ‘Australian Data Centre Services Market 2014’ report says there was just over 230,000 square metres of outsourced data centre space in Australia at the end of 2013.
This is an increase of 16% from that available at the end of 2012. But Frost & Sullivan estimate that Australia still accounts for less than 1% of total global data centre space.
“Given that Australian organisations prefer on-shore data centre services, there is certainly significant growth potential in the Australian data centre market,” says Frost & Sullivan’s Phil Harpur.
To some extent Australia's data centre outsourcing levels are catching up with developed markets such as the USA, which has over 40 times the amount of outsourced data centre space currently available in Australia. “A growing proportion of Australian companies are outsourcing their data centre requirements, so both co-location and managed hosting services are expected to grow strongly over the next few years,” says Harpur.
Australia's data centre services market is expected to grow at 13.9% per year from 2013 to 2020, to reach $1,737 million by 2020. Frost & Sullivan's latest survey of IT decision makers in Australia revealed that over three-quarters of organisations that utilise a data centre are using an outsourced provider to some extent - 51% use an outsourced provider, 24% an in-house facility and 25% use a combination of both.
“Organisations outsource data centre hosting for a number of reasons,” says Harpur, “mainly because they believe that an outsourced facility has better security features, as well as hosting not being their core competency, superior disaster recovery, better availability and lower operating costs from outsourcing.
“The most significant challenge faced by Australian organisations running their own data centres are the lack of IT manpower or lack of skills or resources internally.
“Factors compelling demand for data centre services include increased adoption of high-bandwidth consumer applications such as social media and high definition video, greater consumption of cloud-based solutions, the increasing number of cloud service providers and the complexity in managing IT environments and end-points which is a barrier to organisations operating in-house captive data centres,” says Harpur.
Strong local demand for data centres has attracted investments from both local and global service providers, with significant new builds over the past few years in Australia. This additional capacity has pressured prices downward, further stimulating take-up of outsourced services.
“This is particularly so for wholesale and co-location services, and is predominantly impacting the Sydney market, where there is a higher proportion of wholesale customers. However, over the next six to 12 months, there will be a slowdown in the addition of data centre capacity, and occupancy rates are likely to increase.”
The report found that the main reason users chooses data centre outsurcng is security (62%) – way ahead of cost (44%), which was only in fifth place. Frost & Sullivan predicts data centre services revenue growth in Australia will be strong over the next three to five years. Customers typically begin with co-location services, and then slowly migrate to managed hosting. The addition of capacity will be strong in 2014 and 2015. The total amount of outsourced data centre space available may approach 500,000 square metres by 2020.
Older data centres with legacy IT architecture and low power densities will struggle to remain competitive, and will need to refit their older facilities to meet current and future customer requirements. Smaller data centres will continue to consolidate, while larger, more efficient data centres will be built.
“A growing trend is for telcos and managed IT service providers to acquire data centre space in carrier neutral providers to supplement their existing data centres,” says Harpur. “The main carrier neutral data centre service providers, especially NextDC, Global Switch, Equinix and Digital Realty, will be key drivers of growth.
“All major carrier neutral providers have established a strong presence across Australia by acquiring prime real-estate in and around CBD areas. Large, multinational cloud providers are typically able to negotiate lower pricing leasing deals than smaller providers.
“But carrier neutral providers can generally offset lower prices by attracting a significant number of additional smaller customers who will sign up for smaller but higher margin deals for rack space.”