After interviewing approximately 500 mid-market businesses, the Yankee Group found that 17 percent already use colocation services, with an additional 17 percent planning to purchase these services by the end of 2003. According to the survey, the need for business continuity is the driving force behind colocation purchases.

The findings showed that approximately 70 percent of surveyed businesses chose redundancy/survivability as the reason they use colocation services. Secondary motives included staff costs, the high cost of downtime, and insufficient space and resources. In choosing a provider, the top three selection criteria were price, the availability of robust service-level agreements and the financial viability of the provider.

The Yankee Group said it was not surprised to find that financial viability figured so prominently, considering the current state of the telecom market. Results showed that 57 percent of current colocation service users were concerned about the financial stability of their providers.

The primacy reason companies cited for not planning to purchase colocation services, the survey showed, was to retain the control of an in-house solution (64 percent). Other top reasons included justifying cost and benefits to management and the perception that outsourced colocation is too expensive.

Less than 20 percent of the respondents indicated they would consider colocation services if they could secure a 10 percent cost reduction over an in-house solution. This number rose to more than 40 percent if the cost reduction increased to 20 percent.

Based in Boston, The Yankee Group is a technology research and consulting firm covering communications, IT products and services.