Event Recap
RECAP | ROUNDTABLE | Data Center Economics and Trends
We all know data centers are expensive to design, build, and operate. There seems to be no end in the number of data centers being deployed. However, enterprises seem to be bucking this trend, extending the life of their facilities, and following a hybrid strategy to meet their compute needs.
Ryan Orr, VP Topology Services for Uptime Institute, joined the roundtable where members interacted on the economics and drivers of their data center strategy.
What are the primary cost determinants for data centers and what are the top ones you are most concerned about?
Ryan kicked it off by saying it seems like we’re at an interesting crossroads point in the industry. First, the pandemic shined a brighter light and showed the importance of the data center industry, driving demand for higher resiliency and more compute capacity. Thirst for capacity is there and they can’t build it fast enough. Second, there’s obviously hiring challenges, in construction and operations. Uptime Institute has done a lot of coverage on hiring and staffing availability. It’s safe to say the job market is highly competitive. Third, there’s a ground swell in the industry about sustainability and the need to burn less carbon.
An attendee chimed in to add recent supply-chain issues are concerning because of how it is adding time and cost to projects. Also, from a leasing perspective, hyperscalers are not leasing smaller chunks of data center space, but much bigger chunks. The attendee indicated in agreement on the hiring issue, and in the renewed focus and awareness around sustainability to the point where it can’t ignore and now is engrained.
The group then elaborated more on the supply-chain. Supply-chain issues are adversely impacting construction schedules and increasing cost, in some cases doubling costs. As an example, in some cases construction crews are being removed from sites while waiting for materials and equipment. There is also a supply-chain ripple effect in regard to parts issues for equipment, delaying delivery, and the quality is not the same. An attendee commented what they are seeing now appears to be the start of the issue from a supply-chain perspective, and it could easily take another year before we get back to normal.
Ryan commented economic pressures are also changing procurement strategies. Corporate is saying you can’t single source, which for a lot of folks is a change and caused by the economics now occurring. This is impacting innovation and operational savings (PUE) because of a potential proprietary solution they would otherwise prefer. E-auctions was an approach one attendee mentioned as a procurement and sourcing strategy companies are now utilizing.
An attendee added that investors are finding it is safer to purchase data centers and data center companies in this economic environment than other real estate. These newly created big financed data center companies can ride the wave and offer some really lower lease points, then sell off 3-4 years later. This is driving leasing costs down below market rates, which is drastically impacting the leasing and business strategy for the other colocation companies as they try to stay competitive.
Other potential cost determinants for data centers that were not mentioned:
• Energy (power, water, natural gas, fuel, renewables), which impacts sustainability
• Site location – land, climate, government (incentives on sales & property taxes)
• Connectivity – fiber, improving latency
• Efficiency and optimization of facility and IT equipment, which also impacts sustainability
What trends could drastically impact data center economics?
Ryan indicated he thinks the biggest one is going to be sustainability. It’s not going away. Sustainability impacts cost for energy, capital equipment to improve efficiency and sustainability, and adds cost to overall operations. Some municipalities have put moratoriums on data center construction sighting sustainability reasons (e.g., no more engine-generators), which will drive up demand costs in those areas. One attendee pointed out the cost of refrigerant is as an example of how sustainability is drastically impacting operating costs.
The supply-chain issues were mentioned as a trend that in the short term will have an impact, but over time should improve.
An attendee highlighted staffing diversity and how there will be a greater increase of women in the industry, gender diversity, and greater company focus on DEI (diversity, equity and inclusion). The attendee also mentioned a trend toward colocations providing a global digital platform assisting in a company’s digital transformation, providing a global reach, sort of like an edge presence, with centers of data and more of a web of interconnection.
Ryan highlighted a surprising lack of standardization as a trend. The data center industry seems to be only mildly interested in standardization. We continue to see snowflake designs and customization. The lack of interest is delaying the improvement and cost savings from standardizing. One attendee commented they find a lot of customers not really all that sophisticated to take advantage of standardization.
Other potential trends that could impact data center economics that were not mentioned:
• Big data driving the accelerated need for more capacity
• The cost impacts from IT optimization
• More sophisticated data center management - automation/AI/machine learning, remote monitoring, DCIM, which enables more optimization and the potential for lights-out data centers
• Hybrid IT - strategy decisions around Enterprise, Colo, Cloud, and Edge (distributed infrastructure)
• Increased implementation of edge data centers specifically
• Data center support challenges
Ryan Orr, VP Topology Services for Uptime Institute, joined the roundtable where members interacted on the economics and drivers of their data center strategy.
What are the primary cost determinants for data centers and what are the top ones you are most concerned about?
Ryan kicked it off by saying it seems like we’re at an interesting crossroads point in the industry. First, the pandemic shined a brighter light and showed the importance of the data center industry, driving demand for higher resiliency and more compute capacity. Thirst for capacity is there and they can’t build it fast enough. Second, there’s obviously hiring challenges, in construction and operations. Uptime Institute has done a lot of coverage on hiring and staffing availability. It’s safe to say the job market is highly competitive. Third, there’s a ground swell in the industry about sustainability and the need to burn less carbon.
An attendee chimed in to add recent supply-chain issues are concerning because of how it is adding time and cost to projects. Also, from a leasing perspective, hyperscalers are not leasing smaller chunks of data center space, but much bigger chunks. The attendee indicated in agreement on the hiring issue, and in the renewed focus and awareness around sustainability to the point where it can’t ignore and now is engrained.
The group then elaborated more on the supply-chain. Supply-chain issues are adversely impacting construction schedules and increasing cost, in some cases doubling costs. As an example, in some cases construction crews are being removed from sites while waiting for materials and equipment. There is also a supply-chain ripple effect in regard to parts issues for equipment, delaying delivery, and the quality is not the same. An attendee commented what they are seeing now appears to be the start of the issue from a supply-chain perspective, and it could easily take another year before we get back to normal.
Ryan commented economic pressures are also changing procurement strategies. Corporate is saying you can’t single source, which for a lot of folks is a change and caused by the economics now occurring. This is impacting innovation and operational savings (PUE) because of a potential proprietary solution they would otherwise prefer. E-auctions was an approach one attendee mentioned as a procurement and sourcing strategy companies are now utilizing.
An attendee added that investors are finding it is safer to purchase data centers and data center companies in this economic environment than other real estate. These newly created big financed data center companies can ride the wave and offer some really lower lease points, then sell off 3-4 years later. This is driving leasing costs down below market rates, which is drastically impacting the leasing and business strategy for the other colocation companies as they try to stay competitive.
Other potential cost determinants for data centers that were not mentioned:
• Energy (power, water, natural gas, fuel, renewables), which impacts sustainability
• Site location – land, climate, government (incentives on sales & property taxes)
• Connectivity – fiber, improving latency
• Efficiency and optimization of facility and IT equipment, which also impacts sustainability
What trends could drastically impact data center economics?
Ryan indicated he thinks the biggest one is going to be sustainability. It’s not going away. Sustainability impacts cost for energy, capital equipment to improve efficiency and sustainability, and adds cost to overall operations. Some municipalities have put moratoriums on data center construction sighting sustainability reasons (e.g., no more engine-generators), which will drive up demand costs in those areas. One attendee pointed out the cost of refrigerant is as an example of how sustainability is drastically impacting operating costs.
The supply-chain issues were mentioned as a trend that in the short term will have an impact, but over time should improve.
An attendee highlighted staffing diversity and how there will be a greater increase of women in the industry, gender diversity, and greater company focus on DEI (diversity, equity and inclusion). The attendee also mentioned a trend toward colocations providing a global digital platform assisting in a company’s digital transformation, providing a global reach, sort of like an edge presence, with centers of data and more of a web of interconnection.
Ryan highlighted a surprising lack of standardization as a trend. The data center industry seems to be only mildly interested in standardization. We continue to see snowflake designs and customization. The lack of interest is delaying the improvement and cost savings from standardizing. One attendee commented they find a lot of customers not really all that sophisticated to take advantage of standardization.
Other potential trends that could impact data center economics that were not mentioned:
• Big data driving the accelerated need for more capacity
• The cost impacts from IT optimization
• More sophisticated data center management - automation/AI/machine learning, remote monitoring, DCIM, which enables more optimization and the potential for lights-out data centers
• Hybrid IT - strategy decisions around Enterprise, Colo, Cloud, and Edge (distributed infrastructure)
• Increased implementation of edge data centers specifically
• Data center support challenges
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