When we started to construct our first European Data Centre Survey at the end of 2008, the look and feel of the world was a little different. Barack Obama was about to be inaugurated as the first African American President, Tesla unveiled the Roadster, its first electric car, and Amazon was just a couple of years into the re-launch of its AWS public platform. However, irresponsible levels of lending by US banks in the form of subprime mortgages saw large-scale mortgage defaults, tanking house prices and the decimation in value of mortgage-backed securities which banks across the globe were heavily invested in. Economically, the world was suffering from a global financial crisis caused by this credit crunch and paralysis amongst banks causing many big-named casualties either wiping out shareholder value through emergency M&A activity or in the case of Lehman Brothers, bankruptcy.
Despite the economic fallout, the European data centre industry was in relatively good health, having recovered from the destruction at the start of the millennium due to the dotcom crash. 2008/9 witnessed a sustained level of positive sentiment towards the sector, with carrier-neutral colocation providers, integrators and carriers all providing evidence of optimism surrounding demand. In terms of markets, there were four clear Tier 1 centres across Europe that dominated colocation data centre stock, according to international real estate services company, CBRE; Frankfurt, London, Amsterdam and Paris (FLAP) which were estimated to provide around 400 MW of power over 6 million square feet of technical footprint available for colocation.
Roll on a decade and Trump is two years into a presidency that can at the very least claim to have changed the face of US politics (and its use of Twitter!), Tesla have produced nearly 400,000 electric cars (including one that was fired into space to orbit Mars) and as an indication of how cloud has grown across the globe, AWS now has a turnover of around £18 billion and is only the second company in history to be valued at over US$1 trillion. It is undeniable that the world has seen a huge swing towards automation through integration of digital technologies into all aspects of our lives, helping to change business models and provide new revenue opportunities.
Indeed, there is no better illustration of this than looking at the market capitalisation of the top four tech giants (Google, Amazon, Microsoft and Facebook) which has rocketed from a combined US$250 billion to over US$3.3 trillion in the last decade, replacing the likes of Exxon Mobil, PetroChina , Walmart and Industrial and Commercial Bank of China by market capitalisation as four of top five largest companies on the planet. Apple is number one, which also plays in the online services markets, as well as selling consumer electronics that have been at the forefront of driving the exponential growth in consumer appetite for digital services.
CBRE estimate that the colocation footprint in FLAP has now increased three-fold to over 1200MW, but the industry has also seen the drive into regional markets underpinned by a number of factors. First, the sheer bulk of data centre storage and processing power has seen bigger data centres developed to take advantage of economies of scale, searching for cheaper and resilient power sources as well as lower land/build costs. By definition these areas are away from the tier 1 cities and has resulted in data centre development growth in areas such as Scandinavia and Iceland, where power supply is plentiful and resilient, and natural cooling helps keep operational costs down.
Second, exponential growth in the Internet of Things (IoT), mobile data, video and streaming media have seen the push for facilities in second and third tier cities that bring data closer to the end users and the connected devices sending or consuming it. These strategically placed Edge data centres help underpin greater network efficiencies with real-time processing and streamlined data pathways reducing latency which is vital to delivering the next- generation technologies and services.
So this spread of data centre development across markets in Europe has been driven by IT necessity, and has arguably promoted colocation and cloud to businesses in cities that previously haven’t had many options when it comes to local services, excluded from tier 1 data centres by price or proximity. The last ten years has seen availability to easily accessed and cost-effective IT solutions grow, which has helped to drive digitalisation. Indeed, according to Gartner around 10% of global enterprise-generated data is created and processed outside a traditional centralised data centre or cloud, but by 2022 this figure is expected to reach 50%. In addition, those who are running, and utilising IT services are a generation that consider cloud solutions as the new normal. Indeed, according to our survey, those expecting to increase their third-party managed data centre portfolio has more than doubled in the last ten years to around 40% of respondents.
NEXT 10 YEARS.
When looking at issues that will influence the data centre industry over the coming ten years, there are numerous areas to focus on; starting at the physical build-out, sourcing the power, fit-out and operations, even before you get to the IT stack and technology layers that could aid man’s pursuit for a faster more efficient IT ecosystem. But its hard to imagine that there will be anything more important or have more of an influence on the industry than Artificial Intelligence (AI) both in terms of driving demand for storage or compute space, and its use to drive efficiencies through automation into the data centre environment.
AI is already prevalent in all parts of our lives. Deep learning — a method that uses layered machine-learning algorithms to extract structured information from massive data sets — has driven progress in AI and the tech industry. It powers Google Search, Facebook News Feed and speech-to-text algorithms for example. We use deep learning to detect natural disasters, model the spread of diseases and even alert our protective forces to suspicious behaviour in our cities.
The sheer volume of data collection and processing that is needed to drive all parts of AI development is hard to imagine. One of the most far-reaching uses of AI is the move towards Autonomous Vehicles. Whilst there are many ethical and moral debates around this subject (just Google “The Trolley Problem” to start) from a data-set point of view, the proliferation of driverless cars is estimated to generate the equivalent current data footprint of 3000 people per hour of driving. Just one million AVs driven for one hour a day would be the same as an additional 3 billion people’s daily data footprint, or 40% of the world’s population. And that’s just Autonomous Vehicles. There are literally thousands of other areas where AI is being developed and will likely become the norm, even before self-drive cars finally become mainstream.
So demand for data centre space is likely to continue its buoyant path over the next ten years, with the market set to benefit from the unrelenting desire for digitalisation throughout our lives. It is hard to see any technological breakthrough reducing our thirst for power and cooling that would make us re-think the environments we are building in a drastic way. Indeed, any efficiencies through technology that could take pressure off the power and cooling conundrum are likely to be back-filled by the continued exponential increase in compute and storage needed.
But that is not to say that technology advances, and in particular the use of AI to run data centres, are not going to influence the industry. Indeed, there are plenty of competitive, commercial and environmental advantages in maximising facility efficiency.
And this holds true further up the IT stack. For instance, advancements in SSD technology and lower price points are driving broader SSD adoption making it a ubiquitous storage technology. This can have a very positive impact on data centre design allowing consolidation of racks of traditional spinning disks into just a few units within a rack.
Gartner recently pointed out that the public cloud services market has risen from US$55 billion in 2009 to nearly US$190 billion now, with more than US$1 trillion in IT spending directly or indirectly affected by the shift to cloud in the next five years. The market for cloud services continues to grow making it one of the most disruptive forces in IT spending and drivers of data centre development. As IT leaders reassess their data centre infrastructures traditional legacy environments may simply become unable to meet the performance demands of the next wave of innovation, particularly compared to the cloud offerings. Will this lead to obsolescence, refurbishment or rebuild? All are opportunities in the data centre market.
One thing is for sure, such a dramatic increase in data and compute power related to Internet of Things and a growing infiltration across industries of AI, robotics and virtual reality tools will continue to see the European data centre industry prosper over the next ten years. Indeed, such are the growth expectations that some of the more alarming research suggests that the sector could be using 20% of all available electricity in the world by 2025 and emit up to 5.5% of the world’s carbon emissions.
The structure of the sector has evolved and is increasingly reflective of a maturing industry following a wave of merger and acquisition activity amongst providers which has seen the emergence of several truly global players. Pressures from outside of the industry will ensure that it continues to improve and innovate to remain accountable and responsible moving forward, not only to ensure that the supply and demand relationship remains positively balanced and avoid repeats of the aftermath of the dotcom crash, but also to be accountable in the wider context for its influence on environmental pressures around the globe.
Jonathan Heap
Managing Director, iXConsulting
