Data centers have been the backbones of business operations for as long as most of us can remember. While technology vendors have long predicted their death at the hands of cloud computing or some other paradigm shift, they are still alive and kicking. Indeed, partially driven by the rise of artificial intelligence (AI), high-performance computing (HPC), and edge computing, analysts expect data centers to continue adding significant capacity. Last year alone, data center construction hit an all-time high of 3,077.8 MW in North American markets, up 46% from 2022, according to CBRE.

Data centers have shown fantastic resilience despite doomsday prophecies. But that doesn’t mean they aren’t changing. In fact, for several years, companies have been moving toward colocation facilities, where they store a portion of their hardware, software, and digital information in owned data centers but rent space in third-party facilities for most other operations. This allows them to reduce capital expenditure and offload time-consuming IT management responsibilities.

Because of these benefits, the colocation industry has been going strong for a while now and is expected to be worth $65.2 billion in 2027, with a 5-year CAGR of 9.4%, according to OMDIA. But how did we get here? What led to the emergence of this new-fangled business model?

To understand its rise, it helps to examine the data center's origins and subsequent history.

Mainframe Era: The Birth of Data Centers

Data centers emerged in the 1960s with the advent of mainframe computers. Before this era, large-scale data processing was more of a fantasy than a reality. However, the rise of mainframes created an urgent need for secure, centralized, and cooled locations to house them. Early data centers, or "computer rooms," were meticulously designed to manage temperature and humidity to protect the sensitive equipment from overheating. Over the years, these rooms have adapted to new technologies and requirements.

Mainframes were essential across industries, handling enormous amounts of data with remarkable speed and reliability. They were the central hub for critical business applications like payroll, customer databases, and enterprise resource planning. Banks used them to manage extensive transaction databases, airlines for booking systems, and insurance companies for complex calculations. Despite their bulk, these machines provided unmatched efficiency and reliability. The legacy of mainframes lives on in today’s sophisticated data centers, where powerful yet compact servers continue to drive sectors that demand high-volume data processing and impeccable reliability.

The Shift to On-Premises Data Centers

As technology advanced, the rise of personal computing and networked systems in the late 20th century allowed for a decentralization of computing power. The mainframe-centric model slowly gave way to distributed systems comprising smaller, less expensive servers. This shift led organizations to build on-premises data centers to house the servers. Located within an organization’s premises, data centers offered greater control, customization, and security for data. While mainframes were still utilized for tasks requiring vast processing power, the flexibility, and scalability of on-premises data centers made them a more attractive option for businesses and paved the way for what we now call cloud computing.

Colocation: A Game Changer

The dot-com boom of the late 1990s brought a surge in digital operations, creating immense demand for secure and efficient data management. Many legacy on-premises solutions were outdated and inefficient, lacking the necessary infrastructure for emerging internet applications. Enter colocation providers.

Colocation providers offered businesses a new way to manage IT infrastructure by providing access to secure, high-availability data centers designed for optimal performance. This allowed companies to maintain a solid online presence without the hefty investment of building their own data centers.

Initially, colocation services were limited to offering space for single servers or racks. However, as digital needs grew, providers expanded their offerings to accommodate entire IT infrastructures. This evolution made colocation accessible to businesses of all sizes, transforming it from a niche service for large corporations into a democratic solution for data management.

Scalability and Redundancy: The Twin Pillars

Today's businesses face increasing data volumes and complex management needs. Scalability and redundancy offered by colocation providers are essential. Scalability allows companies to adjust IT capacity as needed, ensuring cost-effectiveness by paying only for what they use. Redundancy guarantees continuity and reliability through multiple backup systems, safeguarding against potential failures or disasters.

The importance of these features has grown with the rise of cloud technologies. While the cloud offers numerous advantages, it also poses risks, such as becoming a single point of failure. Colocation data centers provide a redundant environment that ensures the continuity of cloud-based applications, balancing the cloud's flexibility with the reliability of dedicated infrastructure.

The Edge Computing Revolution

Edge computing, which brings processing and data storage closer to end users, creates new colocation opportunities. By reducing latency and saving bandwidth, edge computing enhances performance, particularly for real-time applications and IoT devices. Colocation providers like Centersquare, with geographically dispersed data centers, are ideally positioned to support edge computing networks, offering the proximity needed for low-latency, high-speed connections. This synergy highlights the adaptability of colocation providers to emerging tech trends and underscores their crucial role in the future of IT infrastructure.

The Future of Colocation

Looking ahead, the future of colocation is bright. As reliance on cloud computing grows, colocation providers will continue to be vital, merging the benefits of cloud with the security and control of dedicated infrastructure. With multiple data center locations across North America, Centersquare offers comprehensive colocation services that enhance operational resilience and flexibility. Our carrier-neutral, connectivity-rich environments, backed by numerous redundancies, ensure continuous uptime. Whether you're migrating existing assets, leasing servers, or building a customized annex, Centersquare’s experts are here to help you deploy the optimal solution for your business.

As we navigate the ever-evolving digital landscape, colocation will remain a cornerstone of IT strategy, providing the robust, scalable, and reliable infrastructure businesses need to thrive.