How Does Economic Recession Affect Colocation?

As a recession seems increasingly likely, companies across industries are bracing. For some sectors, though, the way forward is a little hazy. Some tout data storage as recession-proof, but with little precedence to learn from, what will a recession look like for colocation?

Data storage and cloud companies are some of the few to enjoy impressive growth over the past few years. But now, with a recession looming, you may question whether those pandemic-era wins will last. One the one hand, data is just as important as ever, but on the other, IT spending may be among the first to drop in an economic downturn.

Moving Away From On-Prem Solutions

Remote data storage facilities like colocation centers have one notable advantage for a recession: they’re cost-effective. As budgets grow tighter, businesses will look to cut costs wherever they can. Moving away from expensive on-premise solutions in favor of more scalable, affordable colocation centers is a straightforward way to do so.

Embracing digital tools is a proven way to improve agility and manage costs, but data is expensive. With data storage units nearing $15 per unit, on-prem data centers aren’t an economical way to boost digital transformation. Colocation provides a cheaper alternative, so these facilities could see rising business amid a recession.

In light of these growing data needs and cost concerns, a recession may not spell the end for colocation. Facilities that hone in on their savings advantages over on-prem solutions may even see growth amid the downturn. However, you should keep in mind that rising prices in rent and utilities will still affect colocation.

Driving Improvements

Another impact a recession could have on colocation is a push toward process and equipment improvements. While the need for lower costs may drive some businesses to colocation, rising prices still affect these data centers. Those expenses may provide the stimulus they need to embrace efficiency, though.

Energy consumption, one of data centers’ highest ongoing costs, will likely be the first process to improve. As electricity prices rise, more colocation facilities and their occupants may move toward more energy-efficient technologies. Cost savings are the factor that convinces two-thirds of enterprises to switch to processes like direct liquid cooling.

These upgrades could cause some upfront disruption, but they’re a net positive. While cost pressures aren’t ideal in any situation, that could be what it takes to make the industry more efficient. As more colocation centers make these changes, they’ll be able to offer more to their customers.

Colocation vs. Public Cloud

Of course, not everything about a recession is sunny for colocation. While a dropping economy could drive improvements and push more customers to the practice, it may drive others to different solutions. How colocation will compete with the public cloud remains uncertain.

Public clouds offer similar cost-saving benefits compared to on-prem solutions. They also provide managed services, reducing the administrative burden on users. In the face of rising regulations around the cloud and dwindling staff numbers, some companies may find that hard to pass on.

At the same time, colocation provides more control and transparency, which those same regulations may make more appealing. Before the recession, trends leaned that way, with 58% of data center users moving away from the public cloud in favor of colocation. So, rising pressures could either drive more people to this practice or send them elsewhere. For now, it’s too soon to know for sure which way it’ll go.

Colocation Faces an Uncertain Future

How exactly colocation will fare in a recession is still relatively uncertain, especially in light of the public cloud. However, it’s safe to say that an economic downturn will not end the practice. Data is too valuable and the need for reducing IT sprawl is too significant.

Even if colocation doesn’t emerge as the most popular data storage technology in a recession, it could still see marked success compared to other sectors. Colocation centers may need to prepare for difficult times, but they won’t likely suffer dramatic losses. At the end of the day, colocation is here to stay.