This piece was originally published in the January 2017 issue of electroindustry.
Anand Krishna, Vice President for Business Development, PDI
Mingbo Zhao, PhD, Vice President of Engineering, PDI
Vlad Gulkarov, Director of Engineering, PDI
Dave Mulholland, Vice President of Service, PDI
As data center power distribution equipment evolves to address the changing needs of data centers, it is growing and becoming more competitive.
Underlying drivers such as the Internet of Things, cloud-based applications, rapidly growing video storage and transmission, and the migration of media from cable to streaming are driving double-digit annual growth in storage and computing capacity.
In 2015, enterprises saw a tipping point, as many changed their business models to make their offerings available through the cloud. Companies that had previously resisted offering their products through the cloud realized that they had to embrace delivery of their offerings in a cloud-based model, especially as usage on mobile devices surpassed usage on PCs.
One growing area for competition is the colocation (colo) space. A colo is a type of data center that bundles space, cooling, electrical power, computing and storage equipment, bandwidth, and physical security to retail customers who often provide their own servers and storage. Some colos may also offer managed services.
The market has become more competitive. Many new entrants are competing in the colo space, relative to 2012–2013 when the model was getting established. Many went public in 2013–2015 to tap into the capital markets for expansion. As the model gained acceptance in Europe, Latin America, and Asia, colos globalized. U.S. colos are acquiring competitors in Europe and Asia to rapidly build their global footprint and be able to serve multinational customers. Some Asian and Latin American telecommunications companies and colos are expanding into the U.S., viewing it as a high-growth market.
As practices to run colos efficiently became widely disseminated from 2014 to 2015, it became harder for the players in the top quartile to differentiate themselves. One differentiator is speed to market. Driven by the rapid growth in storage and computing requirements, as well as by the widespread acceptance of the outsourcing model around the world, colos are building and deploying data center capacity rapidly, increasing asset efficiency, and reducing operating expenses. At the same time, the time interval from spending capital to generating cash flows is reduced. As the colo supply market has become more competitive, even privately owned colos and real estate investment trusts (REITs) have to compete for capital to a greater extent than in 2010–2013.
In order to increase their return on capital to ensure stock price growth and to be able to attract capital, privately-owned colos maximize efficiency from capital spending by squeezing more rack capacity out of a given amount of floor space; reducing energy consumption (i.e., increasing their power usage effectiveness), and optimizing the skill level required for various tasks (e.g., not employing certified electricians when equipment can be engineered to enable work by less skilled personnel).
As the supply market becomes more competitive, business models become less distinct. The lines increasingly blur between offering only space, power, and cooling versus offering value-added services.
Colos want equipment that enables them to cost-effectively tailor their offerings for the businesses that they win. As some colos go global, for example, they try to determine the extent to which they can cost-effectively standardize equipment and designs across continents to accommodate different output voltages.
Safety regulations are increasingly stringent: colo and enterprise data centers must comply with OSHA guidelines and with arc-flash and safety guidelines. Colos want to be able to comply with safety guidelines without having to deploy their most expensive personnel more often than necessary. They also want to minimize negative productivity impacts due to having to don personal protective equipment for all maintenance activities. Furthermore, U.S. colos that expand into Europe have to meet European regulations and guidelines.