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Cloud is upending the traditional approach to information technology in so many ways, but here is a heads up to a risk I’ll bet you did not see coming. You may own a white elephant. Its driven by reaching an inflexion point in the large enterprise adoption of cloud computing. Big firms like Johnson & Johnson, Coca-Cola, GE and more are moving their IT into the cloud. This is no longer the toe-in-the-water approach of “let’s try out some development there”, or “well OK, we can house our web-site with a cloud provider”.

This is big time. Coke plans to move 90% of its IT into three leading cloud service providers. Johnson & Johnson plans to move 85% to the cloud and GE indicates it will close 34 data centers, consolidating what is left into just four. Firms in the media are moving even more aggressively. Conde Nast doesn’t even have a data center anymore since it moved all its work to AWS (Amazon Web Services).

This move to cloud computing has driven the market for the very large data centers needed to house web scale or hyperscale cloud deployments into a genuine land grab. It has also made a bonanza for the REIT’s building these data centers whose stock values are ironically out performing the cloud companies they house. We are used to hearing some pretty spectacular numbers around cloud service providers like AWS but take a peek at one of the REIT’s, QTS Realty Trust (NYSE: QTS). Its shares have grown 160% since its IPO in 2013.

However, there is a side effect of this increasing move to the cloud that may expose you to an unforeseen risk. What do you do with your former corporate data center when you don’t need it anymore? Mostly, you put it up for sale as Coke recently did with its 90,000 square foot Atlanta data center. But, this begs the ultimate question. Eventually, will there be no buyers for this kind of property. If many large enterprises are intent on moving much of their IT into the cloud, why do they need a data center like that? Who will be a buyer or will these become stranded assets?

The good news is there may be some hope in the near term, as a second tier of data center providers has emerged serving secondary markets. Privately owned TierPoint is a good example of one who has quietly built a successful offering of niche cloud, hosting and colo around data centers in the Coca-Cola size range. The question is how long will the window on this kind of opportunity remain open?

The Uptime Institute latest survey of the data center industry shows that the move to cloud is taking place faster than anticipated. While Colo providers have experienced significant growth in the last five years, flat over all IT budgets and shrinking capital budgets portend potential softening demand for their services and hence the data centers that house them.

Isn’t this a weird situation? On one hand, the success of cloud has meant that the demand for monster sized data centers is bigger than ever. Yet, on the other, this translates into enterprises shedding their data centers, which in no way can compete with the hyper-efficiency of those cloud data centers. And, while we might have a near-term solution to soak up some of that less attractive excess capacity, it appears we may be heading for a glut of this kind of undesirable asset. Who would have guessed it?

What does this mean to you? An “all-in” move to the cloud takes many years. Where are you in that cycle? Could it be that your plans, or the lack thereof, could leave you stuck with a white elephant data center that no one wants?

 

First published in CIO.com as: “Will the Last Computer Leaving the Data Center Please Turn Off the Light”

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