Australian data centre services revenue to exceed $1.7 billion by 2020

Frost & Sullivan

Tuesday, 24 June, 2014

Australian data centre services revenue to exceed $1.7 billion by 2020

Frost & Sullivan’s Australian Data Centre Services Market 2014 report cites that there was just over 230,000 m2 of outsourced data centre space in Australia at the end of 2013, an increase of 16% from that available at the end of 2012.

However, it is estimated that Australia still accounts for less than 1% of total global data centre space.

“Given that Australian organisations prefer ‘onshore’ data centre services, there is certainly significant growth potential in the Australian data centre market,” says Phil Harpur, Senior Research Manager, Australia & New Zealand ICT Practice.

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,” adds Harpur.

Australia’s data centre services market is expected to grow at a CAGR of 13.9% from 2013 to 2020 to reach $1737m by 2020.

Lack of IT manpower

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, 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.

Older data centres will struggle

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,” says Harpur. “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.”

Data centre services revenue growth 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 m2 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. The main carrier-neutral data centre service providers, especially NextDC, Global Switch, Equinix and Digital Reality, 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.

However, 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.

Image courtesy Dennis van Zuijlekom under CC.

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