Silver Linings

Is colocation making a comeback? At least one consultancy thinks so, and a survey of service providers suggests that optimism is growing among industry insiders. An article Monday on Light Reading summarizes projections that colo may be poised to rebound in Europe.

The new research from Frost & Sullivan says the European colo market "can realistically achieve and maintain profitability, albeit at a vastly reduced pace than previous industry estimates implied" due to consolidation and cost-cutting efforts of surviving providers.

The study comes complete with a bar chart showing the familiar "hockey stick" upward growth curve that we saw on so many research reports during the boom years. Frost & Sullivan analyst Marina Martin predicts "steady increments in growth of around 30 per cent from the year 2005."

Regular readers know that I'm skeptical of these kind of projections. We report them, to be sure. But technology research firms were all too willing to fan the flames of irrational exuberance when the market was hot. Just like Wall Street stock analysts, they have to live with their track records.

The other piece of data that emerged this week was the November Service Provider Confidence Index from Sage Research, which was more intriguing and merits a closer look. The survey found that while inudstry professionals see business conditions deteriorating further, they are becoming more optimistic about the future. That hopefulness may be based on a trend found within the numbers. Sage's survey of 125 North American service providers found significant upticks in current conditions in two key categories - capital spending and current revenues.

"The continued upward trend shows a remarkable streak of optimism among service providers, despite the ever-worsening current conditions," says Chris Neal, a research director at Sage Research, Inc. "The fact that both the current conditions and expectations indices for capital spending and revenues are up sharply is a large part of the reason service provider see tomorrow's blue skies behind today's clouds."

Punditry is great, but experience is better. The bottom line seems to be that as the consolidation accelerates, the providers that have survived have no illusions about industry conditions, but feel better about the prospect that their endurance and tenacity will result in a long-term payoff.