Business Continuity Fears Favor Growth in Data Center Outsourcing

July, 2023

Our research shows that many IT organizations are shedding infrastructure to “get out of the data center business.” Yet, the data center workload that companies are outsourcing has been volatile, with rather large swings over the past few years. Nevertheless, those swings should lessen in the coming years with the growth of cloud infrastructure as a service (IaaS). Data center outsourcing spiked with the COVID-19 pandemic. However, it is likely that areas where businesses increased their outsourcing in the last three years will return to pre-pandemic outsourcing levels.

Data center service providers tend to have more flexibility, scalability, and improved security in managing IT infrastructure than most organizations can afford on their own. While there has been declining spending on in-house data centers, data center outsourcing is likely trending upward. As data centers become larger and more automated, service providers can leverage expertise and economies of scale to provide attractive alternatives to on-premises data centers.

On the other hand, there are risks involved in turning over data center operations to a provider. Furthermore, service providers in some geographies have a difficult time when a pandemic or other natural disaster requires its personnel to work from home. In such cases, some providers may not be able to live up to current agreements. Despite these risks, the high level of service success, increased trust in cloud services, and the desire of companies to trim the infrastructure burden seem to make it inevitable that data center operations outsourcing will continue on a growth trajectory in the future.

As shown in Figure 2 from the full report, Data Center Operations Outsourcing Trends and Experience, the outsourcing frequency of data center operations has decreased from 63% in 2022 to 54% in 2023. The trendline has not been flat, with decreases to as low as 35% in 2019 and increases to as high as 63% in 2021. One of the major reasons for this is that one type of data center outsourcing, IaaS, is increasing. Use of the cloud in general is increasing quickly and has strong service and cost success. IaaS is also eating into other types of data center outsourcing such as co-location.

Ousourcing Frequency Rb 1030x687 - Business Continuity Fears Favor Growth in Data Center Outsourcing

“Over the next few years, we can expect less volatility and a steady increase in data center outsourcing,” said Waynelle John, research analyst for Computer Economics, a service of Avasant Research, based in Los Angeles. “Long-term growth of IaaS is expected, as the pandemic highlighted the importance of data center outsourcing for business continuity.”

We define data center outsourcing as any service that enables an organization to significantly reduce the number of internal resources devoted to managing servers, storage, and other data center equipment and facilities. Those assets may be owned in whole or in part by the customer or service provider. Under this definition, one could even consider the use of software as a service (SaaS) as a type of data center outsourcing, provided it enables a significant reduction in data center infrastructure. Generally, however, while we consider the use of IaaS as a form of data center outsourcing, we do not consider SaaS as such. We also have a different category for outsourcing network management, which includes outsourcing of the network operations center.

In the full report, we provide IT executives with insight into how broadly their peers are undertaking data center outsourcing as a strategy. We also examine the success rates for organizations in reducing cost and improving service by outsourcing this critical function. Finally, we report on the extent to which IT organization size and sector affect data center outsourcing adoption.

This Research Byte is based on our report on this subject, Data Center Operations Outsourcing Trends and Experience. The full report is available at no charge for Computer Economics clients, or it may be purchased by non-clients directly from our website (click for pricing).