Business leaders have become embroiled in a land grab, as the acute lack of space for enterprise-class data centre space begins to bite, warns Philip Low, founder and managing director of data centre consultancy BroadGroup. The result has been a transformation of the market – and one that could be painful for businesses, he adds.
BroadGroup has been following the data centre market since its inception in 2002. As recently as three years ago, the only businesses looking for additional data centre space were Internet service providers and mobile operators, says Low. Now everybody is scrabbling for the few remaining plots of suitable land.
To get ahead in the race for resources, data centre managers must understand how the market is shifting, and factor in whether spiralling prices make it more or less expensive to own data centres. Working out the right price for the right site has become a lot more complex, he adds.
This arms race for data centre space is being driven by a shortage of sites with suitable network connectivity and power feeds – especially within the sought-after central London area. The pain is heightened by rising power costs, the prospects of legislation and environmental concerns, says Low.
To illustrate the problem’s extent, Low cites research from Fujitsu Siemens which showed that a third of UK businesses report that their data centres are full. And the problem looks likely to get worse.
Already businesses have begun to store more data to contend with regulations such as Sarbanes-Oxley. Soon European banks – already voracious consumers of data centre space – will have to comply with the Markets in Financial Instruments Directive (MiFID), which comes in to force in November 2007. This will increase the volume of data they are required to keep still further.
Furthermore, there is a feeling, says Low, that legislation governing carbon emissions will soon be enacted, with potentially widespread ramifications for the data centre. “Managing data centres will only become more problematic in the future,” he says.
The difficulty in securing prime data centre sites has refuelled interest in outsourcing, notes Low; an industry that was on its knees following the post-dot-com downturn, is now resurgent. But while handing over responsibility for site acquisition may appeal, the data centre hosting companies are now able to dictate terms, warns Low.
As demand increases and the availability of sites diminishes, the service providers are tailoring their services to achieve the highest possible margins. Carrier-neutral data centre providers in London, says Low, have begun to wind down their co-location offerings in favour of more lucrative managed services. This can only be expected to intensify: available data centre space within the M25 is growing at less than 2% per year. “It really is a seller’s market,” says Low.
A key differentiator in the London market in years to come will be suppliers’ ability to provide high quality power to the data centres. This situation could be complicated further by the London 2012 Olympic games. There are rumours, says Low, that the amount of power data centre owners will be able to draw from the electricity grid could be capped, to ensure sufficient supply for the sporting event.
Of course, there is a whole world outside the M25. Ireland, says Low, is an attractive location thanks to its low-tax economic model. Web giants Google and Yahoo have both based their European data centres in Ireland, for that reason. And although India’s infrastructure is not known for its reliability, the talent pool is enough to attract large business: Google is reported to be building a 1 million square foot data centre to power its Asian business from Andhra Pradesh in southern India, says Low.
Perhaps one cause for optimism, says Low, is that the data centre market has not escaped the attention of private equity funds, meaning that at least there is the capital available to drive the investment needed.
Whether this will come as any comfort to businesses faced with escalating data centre bills is another matter, because as Low says, “because of the limited availability of resources, this will remain a seller’s market for some time to come.