There is a robust data center colocation and outsourcing industry driven by the growing mass adoption of computing (see Welcome to the Era of Mass Computing). That business promises to stay robust for the foreseeable future. As businesses build out their IT infrastructures many opt to place or host their racks or apps with data center service providers, streamlining costs while sharing specialized facilities.
As infrastructures grew larger, some enterprises have grown their way into wholesale data centers as a way of further reducing costs while maintaining ownership and operating control of the IT assets within the building. Rather than sharing space in a row of racks, these organizations might instead lease entire buildings or massive modules within them. Wholesale is usually considered to be above 500kW.
Thanks to companies like Digital Realty Trust (DLR), Dupont Fabros (DFT), CoreSite (COR) and private player Vantage Data Centers (my employer) there has been robust interest in the emerging wholesale data center category. Digital Realty’s stock performance, for example, has been strong compared to NASDAQ stocks overall:
The wholesale data center players are, however, in an interesting predicament, especially considering Facebook’s recently announced Open Compute Project which promises to increase the rate of innovation in data center design. An increasing rate of innovation could accelerate the obsolescence of older facilities, and depending on the inventory mix, one wholesale provider could have more opportunity than others. According to IDC the average data center is 9 years old. Those with older data centers are at a competitive disadvantage as power and cooling costs rise.
The Bigger Pie
Yet the biggest issue for the wholesale data center space is really education. Most enterprises have no idea that the space (option to lease a more efficient data center) exists, despite the presence of three public companies with valuations totaling more than $6 billion.
First and foremost, enterprise IT and operations pros need to realize what a difference leasing a more efficient building could make compared to owning an older building (that is wasting increasing amounts of power and cooling every year as power demands increase). And a recent Ars Technica article revealed, data center energy costs are outpacing hardware costs. When you buy that server, the hardware may be cheaper than your cost to power and cool it:
“Uptime’s Kenneth Brill told the audience that, currently, the four-year cost of a server’s electricity is typically the same as the cost for the server itself, while John Haas of Intel said that 2010 is likely to be the point where the electricity costs of a server over its lifetime will pass the price of the hardware.”
Innovations in data center design and construction are delivering buildings which can make a material difference to company bottom lines as well as the overall energy supply in the community. They make that server cheaper over its lifetime, similar to innovations in virtualization introduced by VMware, Microsoft and Citrix:
“For example, a 20k square foot space in an advanced data center can reduce power and cooling by more than $1 million per year versus a standard data center.” –Jeff Rose, Vantage Data Centers
As innovation increases the economic gap between an old building (and its rack and stacks) and new widens, delivering increasing competitive advantage to the company which can deliver IT services with millions per year in energy (power and cooling) advantages. Hence, while the Facebook-inspired Open Compute Project may be seen as a niche effort aimed at enterprises with unusually massive data centers, the net effect may be to spur increasing innovations in leased or even smaller facilities.
There are signs that the growing realization may be making its way out to enterprise IT and data center pros, at least according to a recent Pike Research report:
“By 2015, global investment in energy efficient data center technologies will represent 28 percent of the $150 billion data center infrastructure market.” – Pike Research, 2011
In a recent Data Center Knowledge thought leadership perspective, Vantage Tech Strategist Jeff Rose described the new set of innovations likely to accelerate obsolescence, including vertical scalability and efficiency. Per the quote cited earlier, efficient data center space can mean millions in savings over its lifetime.
As the more realty-centric developers continue to sell commodity space by the foot, the Open Compute Project and Vantage are both talking about accelerating the pace of innovation. As mentioned in mass computing, the wholesale players who design more advanced buildings will not only deliver more benefits to customers (especially competitive operating advantage), but will likely have portfolios which hold their (economic) value longer.
Vertically scalable data centers, for example, can maintain their value for longer than the traditional, because as IT infrastructure grows within the walls operating expenses decline. The high efficiency, scalable building can in essence deliver the power and cooling of a second building… without the tenant having to move or tear down walls (or try to evict other tenants sharing a space).
The wholesale data center battle then shifts from the mere accumulation of space to the engineering of that space for optimum outcomes (positioned for growth, minimizing operating costs, etc). What Facebook has done is to force the issue, and prod the incumbents to innovate or face the specter of accelerated obsolescence.
The Green Lining is a Win/Win
From a global perspective this is a material issue. The IT industry represents a material amount of carbon emissions with data centers being the fastest growing part, per Pike Research:
The IT industry is responsible for around 2% of the world’s carbon emissions and data centers are the fastest growing part of that footprint. The need to address data center energy efficiency is made more urgent by the rising demand for IT capacity across the world.
As enterprises reduce IT operating costs the community also benefits. Note the upcoming Earth Day data center event sponsored by the likes of GE, Fujitsu, Toshiba, Rosendin Electric, IBIS, Vantage Data Centers and Sustainable Silicon Valley.
Back to Reality
Ironically the wholesale players with building experience and the ability to form tech partnership with innovative equipment suppliers (and the capital efficient lease) are best positioned to accelerate the pace of data center innovation; yet their reputation has hardly been assuring. Many have tended to build data centers as fast as they can with little flexibility or innovation. This is no doubt why companies like Google, Microsoft, Yahoo, Apple and others have felt compelled to build their own thus far.
Yet obsolescence and rising operating costs forces customers to upgrade, and tilts the playing field to those who can deliver more (applications, platforms, and other IT services) for less. And with increasing pressure for cost savings and growing power and cooling expense, the pace of innovation promises to quicken. If the wholesale players can keep up with the opex demands and build a better data center then enterprises will be more profitable and their communities will be better places to live.