If you’ve been listening to industry chatter, then you’ve probably heard murmurs about the death of the data center. Although these claims are quite provocative, you don’t need to beeline to your closet to pull out your funeral clothes just yet — the data center is by no means dead.

As long as workloads need to be processed, data centers will never be dead. Even if the industry were to evolve into 100% workload processing via virtual machines in the cloud, there will still be data centers anchoring our applications. And until the millennials fully take over the IT processing at organizations, there will always be on-premises servers churning.

It’s true, compute loads are moving into Amazon and Microsoft facilities because cloud computing delivers flexibility, speed, and scalability while providing an alternative to committing the large amounts of capital investment required to support an on-premises data center. These massive cloud services are growing at an unprecedented rate; for example, at the end of January 2019, Amazon reported that Amazon Web Services (AWS) reached $7.43 billion in the fourth quarter. This growth underscores the fact that cloud, aka data, centers are crucial to Amazon’s success and are not going anywhere. In fact, operating income for AWS in that same quarter was $2.18 billion, exceeding the $2.09 billion estimate. In addition, the web services division accounted for 58% of Amazon’s overall operating income. By contrast, Microsoft said its revenue in the second quarter of fiscal 2019 increased 12% year over year to $32.5 billion, and operating income hit $10.3 billion — an 18% increase.

Clearly, all this cloud growth means competition. But it’s not Amazon and Microsoft competing against each other; colocation providers need to step up and expand their footprints. Why? It’s simple: As companies move workloads into public clouds, they may seek to sell their enterprise data centers, and the spike in the sale-leaseback market is a good indicator that even older data centers are still valuable. The buyers in this market are colocation businesses, and their actions are a tell-tale giveaway to what leading industry analysts are predicting: We need more data centers, and there aren’t enough of them being built to satisfy current needs. Consider these additional market growth forecasts to support this assertion:

  • International Data Corp. (IDC) predicts global public cloud revenue will grow from $180 billion in 2018 to $277 billion by 2021.

  • Forrester predicts global public cloud revenue growing at 22% compound annual growth rate from $178 billion in 2018 to $323 billion by 2021.

  • Gartner’s cloud prediction is $176 billion in 2018 to $278 billion by 2021.

In fact, privately hosted clouds represent a larger revenue amount than their public cloud counterparts, and the private cloud resides, almost by definition, within enterprise or colocation data centers — not in the shared resources that reside in hyperscale facilities. Underscoring this current condition, 451 Research estimates that in 2018, private cloud revenue will be about 43% greater than the public cloud revenue and growing only 2% less quickly. Also, while the hyperscale companies continue to build sites, they don’t have enough capacity to support this predicted growth on their own and have been increasingly turning to colocation providers for help. All this activity has caused colocation providers to have a renewed focus on operating and asset efficiency. There is a hyper-focused push to minimize space, power consumption, downtime, and operational labor.

Indeed, this predictive model is great news to the colocation market and OEMs that provide mission critical products. But how much capacity is needed if analysts’ growth predictions hold true? Using a few “back-of-the-envelope” calculations, we can begin to see how much data center infrastructure capacity growth may be needed. To find out, let’s assume a standard rack supplied at 8 kW is used to support the servers and storage for hosting a cloud environment and that each rack cabinet operating at that full load of 8 kW is able to deliver $45,000 in monthly recurring revenue.

Based on these assumptions, we can calculate the incremental cloud revenue growth and what it can mean for the infrastructure needed to support the continued expansion. If we look at the median forecast and use Gartner’s incremental growth figures of $102 billion over the 36 months between 2018 and 2021 and use the aforementioned assumptions, it translates to an incremental revenue of $2.83 million per month. And adding our assumption of $45,000 in monthly recurring revenue per rack cabinet, this translates to just over 62,888 new racks of equipment that will be needed each month. At 8 kW per rack, this equates to 503,104 kW or 503.1 MW of new data center infrastructure globally each month. The infrastructure support can come from new facilities or retrofitted data centers, but it would be an incremental infrastructure necessity to some degree.

 

Conclusion

If on-premises data centers are on the demise as Gartner suggests, then this will exacerbate a huge colocation capacity needed over the next three years. In order to ensure the infrastructure is capable of meeting all workload processing needs, future data center retrofits and new builds must be low cost, highly efficient, support higher power densities, and have the ability to rapidly scale. Modular data center designs will be the spark that ignites the colocation phoenix to rise and support these process needs.

Most importantly, these modular facilities can be deployed quickly. The Department of Energy’s National Energy Technology Lab (DOE-NETL) HPC data center build provides a solid example. The DOE-NETL facility is a modular 1-MW data center that has the flexibility to support up to 35 kW per rack. The facility uses adiabatic evaporative cooling that delivers the required ASHRAE standard humidity and temperature ranges without the higher cost of a chilled water system and raised floor requirement with computer room air conditioning units. This reduces the cost of the build to under $6 million per megawatt, yet the data center has been averaging a power usage effectiveness of 1.06.

The cloud — in whatever form it takes — will always need an anchor, and colocations will stand to prosper as workloads transition into “everything-as-a-service.” The precedent has been set by the speed and efficiency of new modular designs, and no business, large or small, will be without cost-effective compute options.