2019 Industry Recap: How'd We Do?
As the data center industry ushers in 2020, we wanted to take a look back on 2019’s predicted trends to see how we fared.
While 2019 was another banner year for capital investments, mergers and acquisitions, the industry also saw incredible leaps in IT compute densities, applications and more. So before we dive into the year ahead of us, let’s take a look at the industry’s 2019 report card.
Increased demand for hyperscale
The data center industry has seen continued hyperscale growth driven mainly by cloud computing. The U.S primary data center markets recorded 171 MW of wholesale turnkey colocation absorption in H1 2019, according to CBRE’s Data Center Solutions Team, representing 57% of the full-year record level in 2018.
This growth has been concentrated in Tier I markets like Northern Virginia, the Midwest, and Silicon Valley. Enterprise hyperscale transactions also saw an uptick in 2019, although not as much activity as 2018. The enterprise hyperscale deals in 2019 were indicating that the cloud still has room for evolution. These corporations opted fortheir own facilities to save costs, minimized latency for sensitive compute nodes, and increased densities for more efficient workloads.
Skybox was able to witness this enterprise hyperscale growth first-hand when DownUnder GeoSolutions (DUG) opened its doors in May, boasting a 15 MW, 250-petaflop supercomputer aptly named ‘Bubba.’ After a lengthy worldwide site selection process, DUG ultimately landed on Skybox to deploy its geo-seismically configured cloud offering, McCloud. Due to the sheer size of the data being processed, a location in Houston was paramount to eliminate latency hurdles often found when using cloud offerings with available regions outside of Houston.
Overall Score: 8/10
Transaction growth among 5 to 15 MW enterprises
With hybrid-colo cloud infrastructure becoming commonplace for large enterprises, we’re seeing more and more instances where traditional 5 to 15 MW needs are shrinking. Enterprises have been working through IT modernization efforts, particularly in Houston, over the last three to five years. Most enterprises have truly implemented this infrastructure just in the last one to two years. This adoption has reduced the physical colocation footprint as companies jettison non-critical, non-latency sensitive applications and workloads to the cloud.
All said and done, 2019 still witnessed a fair number of 5 to 15 MW transactions ranging from large enterprises, cloud providers, bitcoin miners and content distributors (Netflix, Comcast, Google, etc). For one reason or another, these groups were tasked with leasing colocation space to maximize their business processes and reduce latency.
Overall Score: 7/10
Competitive recruitment landscape
Recruitment remains a big, industry-wide challenge. No matter what conference you attended in 2019, one of the overarching themes revolved around the lack of suitable talent and overall diversity in our data center industry. Now, with this heightened sense of awareness, groups like Infrastructure Masons have partnered with industry leaders to create a platform that fosters diversity and career growth. Truthfully, the industry needs young, hardworking and adventurous talent to enter the workforce and help drive the newest technology and sustainability initiatives. Next time you’re at a conference, do yourself a favor and take a look around the room. Roughly 70% of the people in the room likely are closer to retirement than out of college. Within five to seven years they’ll ride off into the sunset, and the remaining 30% in the room will be challenged to pick up the slack without an established funnel of talent.
Skybox is lucky to have arguably (and perhaps with a little bias) the best operations team in the world which makes our customers, and us, sleep better at night. However, as we expand into new markets and bring new facilities online in existing markets, our team is hard-pressed to find the next bright mind to bring into our family. This simply is not an easy task, and as more operators enter competitive markets, this talent gap will only get wider.
2019 was a tremendous step forward in establishing platforms and programs designed to increase diversity and drive a deeper pipeline of suitable workers. However, the industry as a whole still remains behind the curve compared to other sectors, and needs another banner year in 2020 to catch up.
Overall Score: 6/10
Infrastructure Funds, private equity investors, and hyperscalers increase investments
2019 was another banner year for data center acquisitions/mergers and capital investment. A whopping 52 data center-oriented acquisitions closed out in the first half of 2019. Infrastructure Funds and Wall Street investors no longer view the data center industry as a risky investment and have been flocking to invest as the tide rises. On an investment level, this year we have seen large quantities ($750M) invested by Infrastructure Funds focused on data center operators, service companies and fiber networks.
· Berkshire Partners acquires majority stake in Johannesburg-based Teraco
· Vantage Data Centers announced it has raised $675 Million
· T5 Data Centers backed with $2.5B from Canada-based QuadReal
· STACK Infrastructure has secured $850M to finance growth of wholesale operations
Overall Score: 7/10
Competitive construction landscape
Data center construction pricing has been a hot topic for the last four to five years as the presence of hyperscale users began to grow. Due to their sheer scale—300,000SF+ & 50 MW+—these users demand an efficient supply chain and consistent construction costs. The data center REITs were some of the first groups to develop a supply chain standard and protocol for purchasing generators, UPS, switchgear, transformers, etc. This allowed them to compete against their peers, consistently chasing a lower cost per megawatt to build. Roughly five years ago, the gold standard for 1 MW typically cost around $10M to build. Today, hyperscalers are targeting $5-7M per megawatt, depending on the overall tier rating.
In 2019, we saw more enterprises bolstering their networks and interconnecting their facilities. These interconnections provide enterprises with network defined redundancy, further simplifying the redundancy needs at each physical data center location. If deployed properly, enterprises are less worried about having a Tier IV or Tier III designed facility, which further reduces the overall cost per megawatt to build. This will likely be an ongoing trend moving forward.
Overall Score: 8/10
Increased demand from enterprises
The demand for colocation services among enterprises saw above-average growth in 2019. As discussed earlier, much of this growth was driven by enterprise adoption of hybrid colo-cloud environments.
More than the need for raised floor and redundant power, operators have seen an increased customer need for on-site managed services like remote hands, direct connection to the cloud, application/hardware maintenance and others. Enterprises are facing the same talent challenges as data center operators, finding themselves short-handed and understaffed. The colocation business now more than ever is evolving into a service-based business with operators trying to supplement gaps in their customer’s workforce. Level 1 and Level 2 remote hand services are the norm and how much or little is available to a customer is a key factor in their decision process.
With hybrid colo-cloud deployments, customers are relying on services offered by colocation providers more than ever. Cloud and colocation are commodity offerings, and operators will continue to invest in developing their partner ecosystem to best serve customers’ needs.
Overall Score: 9/10
More wholesale data centers welcome liquid cooling
The adoption of liquid cooling continued to convert skeptics in 2019 as compute densities continued to increase driven by AI, VR/AR and IoT. Its overall impact and adoption by the industry is hard to quantify, as a number of large enterprises, laboratories and universities have utilized some form of liquid cooling for a number of years. They were earlier adopters who swear by the tech, and are strong advocates for its efficiency and reduced environmental impact. However, there still remain a number of users who either struggle to under its advantages or simply wish not to go through the process of retrofitting their traditional air-cooled facility at all.
Slowly but surely, 2019 saw some hyperscalers begin to experiment with liquid cooling or implement smaller deployments alongside their traditional raised floor compute. Some users are dealing with increased compute densities, causing their traditional cooling systems to struggle. Others are simply wanting to deploy a case study to determine its operational benefits at scale. As discussed, 2020 will be a notable year for edge deployments as 5G truly becomes a reality. These lights-out remote facilities may be better suited for an immersion deployment.
Immersion cooling is no longer a fad or looked at as an experiment. 2019 witnessed large single-phase and two-phase deployments coming online in Houston and Dallas for enterprise users. Immersion is here to stay and 2019 was a key catalyst to establishing its viability in data centers.
Overall Score: 8/10
Arrival of 5G pulls operations towards edge computing
The impending arrival of 5G wireless in 2019 was slightly anti-climatic, and its impact likely won’t be felt until 2020 and beyond. The technology itself is not yet totally usable or scalable—despite your iPhone telling you otherwise, you’re essentially running 4G+.
The growing tsunami of data pulling operations towards the edge is driven more by the need to access this data, not necessarily the generation of data itself. Content-defined networks are becoming ever more prevalent, which is driving the need for edge computing to limit latency issues. Gone are the days of physical DVRs at your house. Recording your favorite TV show for an after-work decompress? That data is now stored locally at a data center near you to stream when you’re available.
5G saw a lot of progress from an infrastructure deployment standpoint in 2019, which cannot be discredited. However, given the limited access for users and slower edge deployments, this prediction receives an overall score of 5 for 2019. With that said, we’re thoroughly encouraged about the possibilities and believe 2020 will be the year of the edge and the last 1,000 feet.
Overall Score 5/10
Overall, the data center industry performed relatively strong against its predicted yearly trends. As more data is collected, network traffic increases and technological innovation continues to advance, the Skybox team is dedicated to consistent growth and optimization. To learn more about our services, contact us today or request a custom quote.