The emergence of cloud is influencing data centre delivery models that respond to a need for flexibility in demand as much as business agility. In Europe, where only 13% of data centre space* is currently outsourced, cloud represents a significant opportunity although it also holds challenges for traditional wholesale models.

What is the link between cloud computing and data centre requirement? Initially, the view was that cloud represented a threat to the industry – requiring less space and in less secure and more diverse locations. Indeed, some observers still hold to this view and the 'death of the data centre' argument can still be heard.

However, many in the industry now see cloud as at least giving rise to major new opportunities, if not central to driving demand.

Part of the debate is around the definition of cloud. One view is that increasingly 'cloud = IT' and effectively it will become so enshrined in all forms of IT and thinking around IT, that the term cloud will disappear.

In this way of thinking, 'cloud demand = broader IT demand' and data centre demand drivers can be seen as anything from e-commerce usage to compliance and regulation to ongoing IT and application demand. And that, helped by virtualization and consolidation, data centre managers have managed to 'make do' with existing facilities. A recent Digital Realty survey of US corporates found that 85% of data centre managers were looking to increase their data centre usage in 2011, compared with just 67% who had done the same in both 2009 and 2010.

Mobile is particularly interesting in this. Equinix have already hailed 2011 as the year they will see mobile data driving usage at their facilities. Cisco research suggests mobile data usage is growing far more quickly than fixed Internet at a similar stage of its development. The term 'mobile cloud' to describe some of the future applications seems increasingly commonplace.

But looking at this another way, how new and different is cloud nowadays. Another recent survey, from AFCOM, found that 36.6% of their members had already implemented cloud computing in the data centre, compared with 14.9% in the same survey a year ago. So cloud is very real already today for many enterprises. Indeed, Equinix already claims over 200 cloud providers as customers.

There is a different way to look at cloud which is at the business impact. While one can argue about how to define cloud, one way to think of it is in terms of a much more flexible, on-demand, business-led usage of compute resources. More specifically, it brings the data centre into business and IT thinking in a way that few organizations had previously done. And that starts corporations fundamentally looking at questions around outsourcing, future data centre requirements, location issues and deployment strategies.

On the question of outsourcing, BroadGroup research has found that only 13% of European data centre space is currently outsourced. In a number of European countries, there is little understanding of concepts such as carrier neutrality or different types of outsourcing options. This market is now maturing.

From the demand side, the traditional benefits of outsourcing (risk mitigation, capex vs opex, flexibility and so on) are now being applied more intelligently to data centre procurement. Indeed, data centre procurement has historically often had as much involvement from the property and facilities management groups as the IT side.

From the supply side, the providers are getting larger, stronger and better equipped to meet the needs of corporates. Companies are getting larger, buoyed by IPO (such as Interxion in the US) or other fund raising (such as recent Global Switch €600m bond). New entrants are fast entering, particularly in Central and Eastern European markets. We are also seeing the emergence of pan-regional players such as CE Colo and LinxDatacenter.

Corporates who had considered outsourcing their data centre requirements were often disappointed by the choice, quality and expertise of their options. While some observers might add price to that list, the discussions often never got to that point, as users need to see security and reliability needs met before they even consider pricing.

For the more developed markets, there is also the need to look at the broader corporate market. The initial 'telco and ISP wave' is still strong in emerging markets and for highly connected providers such as TeleCity. For others, it is the next wave – the 'cloud wave' that will determine their success.

What does this mean in practice? Different things to different verticals, and we are seeing data centre operators increasingly develop specialized vertical offerings, such as Platform Equinix.

But it also means that data centre managers will no longer be the ones ensuring that the facility carries on running, yet not knowing what it is running. Or the ones making 'tweaks' to cut power usage, without even knowing the cost of the power bill. Or the ones waiting to see annual processing requirement estimates from IT departments, yet with no involvement in broader IT strategy.

Thus the data centre providers will need far more engagement with IT groups and a different conversation, not just about Tiers and specifications, with a more empowered data centre managers. And, starting with the banks, corporates will increasingly know the data centre requirements (from geography to latency to specification and so on) of every existing and planned application.

For co-location providers, they will benefit from their often urban locations and barriers to entry in replicating their model. They will need to be more flexible in meeting the needs of a more meshed, customized set of customer requirements.

However, the traditional wholesale offering – the 10,000+ft2, 12-15 year deal, strict contract and so on – is clearly threatened by cloud. Many wholesale deals in Europe in 2010 were closer to high-end co-location, and this will continue. However, it does not suit most wholesale players to try and morph into co-location players. Sometimes they are their key clients (major Digital Realty customers include Savvis, Equinix, TelX and Level 3) so it creates account management challenges. But more broadly, if you are operating on a real estate model and seeking to fill a data centre with 1-4 clients on long-term contracts, trying to work with 400-600 clients on short-term contracts requiring some operational support, hardly makes sense. Instead, flexibility can come in better adapting to client needs, and we are already seeing this flexibility from the potential of modular build at the customer's own site, such as COLT, to more 'pay-as-you-grow' models.

While there are a raft of legal, auditing, regulatory and business/cultural reasons, that encourage corporates to retain data centres in the country of operation, wholesale providers also need to increasingly look to add locations with cheap, green and high availability of power.

*Data Centres Europe III, published October 2010