Data Center Outsourcing Surprisingly Drops Near Recent Lows

November, 2018

Our research shows that cloud computing is allowing companies to spend a declining share of their IT budgets on infrastructure. With the opportunity to “get out of the data center business,” we would expect them to turn to service providers to take responsibility for what remains on premises. So it comes as a surprise that data center outsourcing took a fairly large drop this year.

According to Figure 2 from our full study, Data Center Outsourcing Trends and Customer Experience, 35% of companies in our study outsource at least some of their data center operations, compared to 41% in 2017. This is only a tick up from the recent low in 2014 of 34%. 

DataCtr fig 1 - Data Center Outsourcing Surprisingly Drops Near Recent Lows

In this study, we define data center outsourcing as any service that enables an organization to significantly reduce the amount of internal resources devoted to owning or managing servers, storage, and other data center equipment and facilities. However, while we consider the use of IaaS as a form of data center outsourcing, we do not consider SaaS as such.

So if companies are shedding infrastructure why is data center outsourcing dropping?

Our research shows that one type of data center outsourcing, infrastructure as a service (IaaS), is increasing. Use of the cloud in general is increasing quickly and has strong service and cost success. However, IaaS might be eating into other types of data center outsourcing such as co-location. It may be that some companies, especially smaller ones, are skipping over traditional data center outsourcing in favor of cloud infrastructure. Though this may not be the whole story, the high level of service success, increased trust in cloud services, and the desire of companies to trim infrastructure burden seems to make it inevitable that data center operations will continue a growth trajectory.

“We will be watching this trend over the next year to see if growth in the frequency of data center outsourcing, in fact, does return,” said David Wagner, vice president for research, Computer Economics. “Data center service providers do have a good track record, and for many organizations it’s better to let the professional take it over so you can focus on more user-facing support functions.”

The decision to outsource data center operations is an important one for today’s IT executive. As data centers become larger, more automated, virtualized, and complex, service providers can leverage expertise and economies of scale to provide attractive alternatives to on-premises data centers. On the other hand, turning over data center operations to a service provider or moving applications to a hosting site can entail sizable risk. Making the choice to outsource data center operations can free up much-needed infrastructure budget, but when managed incorrectly it can mean disaster.

In our full study, we provide IT executives with insight into how broadly and eagerly their peers are undertaking data center outsourcing as a strategy. We also examine the success rates for organizations in reducing cost and improving service through 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 a brief overview of our report on this subject, Data Center Operations Outsourcing Trends and Customer 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).