Cloud Computing Boosts Data Center Market



Thanks to cloud computing, cloud-based storage, cloud-based contact centers, cloud communications and a mix of other services hosted in data centers worldwide, the data center market is booming. A solid article about the market comes courtesy of David Gross at Seeking Alpha.

Coincidentally I will be moderating an Interactive Intelligence sponsored webinar focusing on cloud communications at 2:00pm EST today (don’t worry; it is archived if you get to this post later or are busy at this time). I hope to see you online- in the mean time here is an excerpt from the above-mentioned article.

Riding the industry’s recessionary expansion, Digital Realty (DLR) grew to $191 million in revenue last quarter, a 28% year-over-year increase. The data center REIT is now larger than many of its retail and office counterparts, and is over half the size of office stalwart Boston Properties (BXP). During its first quarter, co-location provider Equinix (EQIX) grew at a comparable 24% year-over-year rate, coming very close to a $1 billion annual run rate before closing its merger with former rival Switch and Data.

The double digit growth for an industry that suffered during the last recession raises the question of whether this expansion can continue, or if the current economy is too weak to sustain further top line growth. Nonetheless, there are a number of factors supporting the industry right now, including:

Dependence on financial trading volumes, not underlying asset values. Pushing trades, quotes, and market data across data center networks, the financial services sector accounts for about a quarter of the industry’s revenue. And traffic volumes in the recession have had a weak correlation to underlying security prices. As long as the number of algorithmic trades, derivative price quotes, and electronic executions continue to rise, traders are likely to demand more data center space.

Growth in consumer transactions. (AMZN), an Equinix customer, is still growing its top line over 20% per year. In addition to e-commerce companies, content providers like Hulu and Sony, and many gaming networks, are all running their traffic over data center networks. An indicator to watch here is page views for these consumer sites, as well as the trend of top 10 sites developing their own centers, as Facebook and Google (GOOG) are doing right now.

Major price discrepancies in long-reach and short-reach data links. Not quite as obvious as some of the consumer indicators are the persistently high price differences between short-reach and long-reach data connections. For example, a 10 kilometer, 10 gigabit link can require more than 10 times the capital outlay of a 10 meter link due to large cost differences in the optical modules and line cards needed to provision the connections. Therefore, it makes far more sense for content providers to interconnect with one another, or with their telecom carrier at a neutral data center, rather than construct a dedicated private line to reach the nearest telecom central office.

In addition to these factors, data centers have not been impacted much by the lack of job growth. Online video page views don’t sag because of a weak unemployment report, and the cloud computing and Software-as-a-Service (SaaS) providers locating servers in data centers are automating many of their customers’ job functions themselves. Leading SaaS provider (CRM), another Equinix customer, is growing at a 20% year-over-year pace comparable to Amazon.

  • Raju Arora
    June 30, 2010 at 1:32 am

    CfP to India’s Premier Cloud Computing Conference ends 30 June ’10 bit dot ly/btsummitCfP (BT Summit, 11-12Nov, BLR)

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