Today, operating a data center is more complex than ever. A growing digital footprint, murky financial environment and increasing need to obtain predictability and maintain flexibility have driven unique demands on the enterprise. Easing the burden of designing, building, powering, managing and staffing a data center, third-party colocation providers have become increasingly popular as businesses look to outsource select aspects of data center operations.

Historically, data center service providers have fallen into one of four categories, with each providing specific, and distinct, services for clients:

• Wholesale: Wholesale providers sell power, connectivity, security and space for clients looking for a larger application of space (2000 sq. ft. and above) with minimal services applied.
• Retail Colocation: Retail colocation providers deliver rack or cage space that includes power connectivity and the physical infrastructure on the whitespace floor (IT, security, etc.). The client simply ‘plugs’ server, storage and networking gear into the provider’s racks, PDUs and software. Basic services can be provided.
• Managed services/dedicated hosting: This “a la carte” option is utilized mainly by complex or scalable web app clients who need servers and storage as well as a remote set of hands to do database administration, IT rebooting, troubleshooting, and other services.
• Cloud services: Provides services with super elasticity in the form of IaaS, PaaS (including the server, storage, connectivity and operating system), and SaaS.

For years, data center providers followed these prescribe standards, providing no more and no less than what met the clients’ specific needs. However, emerging digital trends have driven increasing demands for higher computing power and more flexible space – causing customers to look for varying options when choosing providers. At the same time, growing commoditization of data center services  and weakening profit margins have propelled providers into the realm of diversification and differentiation, where many are considering offering numerous services, either a la carte or combined, to decrease costs, increase revenue and adapt to changing client needs.

To do this, data center service providers are engaging in what is referred to as “moving up and down the stack,” a phrase describing movement between the different segments of the market in order to deliver a more blended business model.

For providers looking to move up the stack, a variety of factors must be considered. For the move from wholesale to retail, providers are now tasked with not only delivering power, connectivity and space but racks, cages and PDUs while also managing the client’s whitespace and changeout processes – all of which require personnel with added expertise and competency. Beyond this, wholesale providers moving up the stack to retail must also be cognizant of competing with their own retail clients, who rent wholesale space.

Numerous retail or wholesale providers are also moving toward a blended model that includes managed services. In one such example of a move up the stack, a custom data center and colocation provider based out of the Midwest, recently announced new managed service offerings and DCIM capabilities for one of its Texas locations – enabling the company to respond to customer demand and provide a more holistic solution for clients. For data center providers expanding their offering to included managed services, specialized IT will be necessary. To overcome these obstacles, many wholesale providers have utilized partnerships or acquisitions, which allow them to provide the necessary infrastructure and services quickly, without impacting OPEX.

Moving down the stack of service can often be much less complex. For instance, a cloud service provider who is interested in offering managed services already has the IT staff and capabilities to make this change. Similarly, a managed services provider who is looking to move down the stack to retail will find it relatively easy to buy whitespace for clients. In the case of moving all the way down the stack – i.e. to wholesale provider – the process can be much more cumbersome due to the financial and operational difficulties created by the shift in previously managing only IT to now also operating the physical space, including renting or building a new facility.

Whether looking to blend a business model by moving either up or down the stack, third-party data center manufacturers and service providers with a broad portfolio of solutions, services and software can mitigate challenges associated with this change – helping providers address the growing needs of their own clients quickly and at low cost.