I am regularly asked about the health and size of the data center and IT markets, which is why I was so glad to see two new reports published in the last week. You see, like everyone else, I find that accurate numbers describing the industry are elusive.
Because of these new releases, I now have two ways to answer the question.
1. Do you want to make your own projections based on your own products and services?
2. Do you want to develop your program based on considerable research released by Microsoft’s Christian Belady?
The first of these papers, “Identifying IT Markets and Market Size by Number of Servers” from Applied Computer Research, Inc. provides a methodology for doing it yourself by estimating the size of the market using census data and a variety of known surrogates. The report reads, “In particular, you can use data on number of employees, within various vertical industry groups, as a surrogate for number of servers by understanding how to apply some specific industry averages.” The authors note that the report is mostly useful for the “purpose of market identification, sizing, and planning activities for companies interested in targeting prospective clients based on the number of servers in use.” In short, it is a good way to determine whether a company is a prospective customer for your goods and services, which is what many people really want to know when they ask about market size. This white paper joins a 2010 report from the same company entitled “Defining the Data Center Market and Data Center Market Size” as useful market research tools. Both white papers are available on our web site.
On the other hand, Belady “attempts to ‘size the global market for new datacenter construction’ using recognized industry data, as well as some general observations and sub trends that may actually decrease expected growth rates in the near term.”
Belady looks the drivers and provides some analysis of how the industry has fared. He examines key issues such as how the changing costs of construction may affect data center construction. “In addition, the past year has brought us significant changes in the cost per megawatt (MW) of capacity as a result of broader adoption of airside economization and advances in software resiliency. Today, some estimates claim that datacenter costs are on average about $15 million per MW. This falls right in line with The Uptime Institute’s estimates of datacenter costs ranging in the $10-22 million per MW depending on redundancy. However, new datacenter designs are emerging that are as low as $6 million per MW. How does this shift affect the overall market?” he writes.
I am pleased to report that Belady “expect(s) long term growth in capital spending on datacenters. However, in the short term (next five years), expect some flattening due to the emergence of hyper-efficient datacenter designs.”
More than a market-size projection, Belady’s report is a great analysis of how energy costs, cloud transformations, economizer construction, and other drivers will change not only the costs of data centers but also their function.
Belady’s paper is also available on our web site.
Given Belady’s perspective, it is not surprising that many states continue to compete for new data centers. The March 2011 issue of the Grubb &Ellis National Data Center Practice newsletter takes a look at the taxes and incentives surrounding the national competition for data centers. They note, “In response to budgetary pressures, states are trying to drive additional revenue either by using incentives to attract more data center operations or by collecting more revenue from those they have.”
Grubb and Ellis reports that states find data centers attractive for four reasons:
• Large additions to the tax base
• Few infrastructure demands
• Well paying jobs in a growth industry
• Consistently large demand for electricity
• Environmentally clean operations
The newsletter calls out specific state and federal provisions for examination, including the expiring bonus depreciation provisions of the Reid-McConnell Tax Relief Acto of 2010 and the sunsetting of Washington’s 15-month sales tax exemption on the purchase of equipment and energy for new data centers in rural markets.
Overall, it was an interesting week for investors looking at building new data center facilities.