IHS Markit forecast internet connectable devices to grow from 27.5 billion in 2017 to 45.4 billion in 2021; a 65% increase in just four years. What does this mean for the colocation market? Well first, it’s certainly a positive driver for colocation revenue growth; however, it’s not the 1:1 ratio many industry enthusiasts once thought. Second, it’s giving colocation service providers a new opportunity to assist with the aggregation and connectivity of new end-points and data sources.

Good news for colocation revenue growth

First, let’s talk about how these devices will drive colocation service revenues, which IHS Markit forecasts to grow from $23 million in 2017 to $32 million in 2021; a 40% increase over the same four-year period. Data center growth is correlated with general data growth. The more data transmitted via connected devices; the more data centers are needed to store, transfer, and analyze this data. In the specific case of the Internet of Things, there’s a need for geographically distributed data centers that can provide low-latency connections to certain connected devices. There are applications, like autonomous vehicles or virtual reality, which are going to require local data centers to manage much of the data processing required to operate. Most enterprises will not have the means or the business case to build new data centers in every nook and cranny of the globe, so they will need to turn to colocations to provide quickly scalable, low capital-intensive options for geographically distributed data centers.

IoT and data center growth not arm in arm, as once thought

But 65% growth in internet connectable devices does not translate into 65% growth in the data center market. Shawn Panchacharam, CEO of Citadel Data Centers, has thought a lot about the impact of the Internet of Things on colocations and data centers, “It’s becoming widely understood that it’s no longer about the number of devices, but instead about the amount of data being transmitted by the device.” And thanks to local analytics on devices, and the use of machine learning, a lot of data will never need to leave the device. Which is good news for the network infrastructure of the world that is not yet capable of handling a 65% increase in data traffic, given the inevitable proliferation of devices.

Sean Iraca, VP of Service Enablement at Digital Realty, uses airplanes as the perfect illustration of just how much “IoT data” will never make it back to data centers. A single airplane can have around 10,000 sensors across the plane and generate a total of about 2.5TB of data per day. By comparison, 1TB of data is equivalent to streaming 500 hours of video. With 10,000 planes in the air at any given time, that’s a ton of data. But not all that gets to go home to a data center. Instead, analytics and machine learning takes place via compute on the airplane that can make decisions on its safety and whether it can immediately fly again. Only certain conclusions reached from the algorithms on the device need to be saved and sent to a centralized server for trend information. Much of the remaining data can be discarded.

Need for a unified platform; colocation service providers poised to deliver

Second, let’s talk about how all these connected devices will change the business model of colocations. It’s now clear that IoT has a positive (though somewhat tempered) impact on absolute growth, but the most interesting part is the role colocations will have in this new connected world. There will be data coming in from various data points, traveling through multiple networks, residing in various cloud data centers and so what will be needed is a unified platform at which to aggregate, analyze, and make decisions around the data. Iraca says this is Digital Realty’s focus: “We're spending a lot of time thinking how we’ll evolve our platform to be able to accommodate all this, to be able to provide that kind of seamless, flexible interaction of data so that customers don't have to manage multiple types of network on multiple types of contract.” One could envision a future where users can log into one single portal and manage all the network, cloud, and colocation providers at once. Colocation service providers are well positioned to be the central management location for these various streams of data, with many already dipping their toes into the water with switching fabrics, which provide direct access to cloud providers.

Bottom line

The growth in internet connectable devices, or the Internet of Things, is having a positive impact on the colocation market, and some of the real opportunities for the industry are yet to be realized. There’s a need for a unified platform and colocation service providers are ready to deliver.