Google Moving Out, Small Businesses Moving In

By David Gross

David Chernicoff over at ZDNet has a good article out on data center planning, where he notes that many of the small to mid-size businesses he's spoken to are planning to outsource some of their operations.   This is similar to the experience Lisa and I have had talking to data center managers who run internal centers, and are hitting capacity limits.   It also is an important point for investors to consider, many of whom are still fretting about the data center services industry with Google, Facebook, and other brand name tenants investing so heavily in their own buildings.

One of the factors to consider with this developing market segment is that these small businesses are not going to be buying a powered base building sort of service, nor are they likely to hit up Equinix for a few cabinets.  More realistically, they'll go to IBM, Horizon Data Centers, a hosting provider, or even someone like Rackspace, and start handing over applications slowly.   Additionally, connectivity is a major concern once these small businesses move beyond simple e-mail outsourcing, and a data center that has dedicated links to other facilities closer to the customer will allow that customer to cross-connect closer to the office, and avoid high dedicated circuit costs from a telco.

Economically, an internal data center for Google, Apple, or Facebook produces a financial return by turning an operating cost for a building lease into a capital cost, while an outsourcing arrangement for a small business turns a capital cost for servers into an operating cost.   As a result, the heaviest users are hitting a point where outsourcing makes less sense, while the lightest users are hitting a point where outsourcing makes more sense.   The result is that the public data center of the future will have a tenant roster that looks less like what you might find in an office building in Santa Clara, and more like what you'd see in a typical suburban office park.