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This Time the WSJ Gets It Wrong In Data Center Real Estate
Posted on: August 12th, 2011 by Bill

On Friday, July 7th, Anton Troianovski wrote an article critical of the growth of the wholesale data center market in the US. Search the Wall Street Journal on line, July 7th, and look for the article:

Storage Wars – Web Sparks Data-Center Boom

And Anton, only civilians hyphenate data center.

While not one to sharply opine on non-technical articles, I will have to say Anton got it flat wrong. I’ve been design and building data centers for the past 25 years. Yes, I’m that old, but I’ve been fortunate to watch the information business move from centralized, big-iron (and I love big iron – it’s just a HUGE server) cooled by water and powered by 415 Hz motor-generators.

The one indisputable fact this that information, in parallel to Moore’s Law, has grown exponentially. In the past 25 years, I’ve seen really only seen three off years – 1984, 2001 and 2009, all resulting from contractions in the finance markets that supports the capital side of business IT growth or the general shock of recovering from some economic trauma or force majeure. And it continues to do so today.

If you really look at enterprise computing (and the derivative benefit that shows up on your smart phone or desktop system vis a vis capabilities and capacity), it is likely to be the most innovative portion of our society. One of the major changes with information in the past 10 years is that it has moved from a being a business tool to being a societal tool. Think about your life without a smart phone, social networking, the ability to shop on line, stream movies, the ability to streamline and render more efficient any operation, smart homes – the evidence is endless. Have you seen the new HTC phones with the Facebook location button built right into the face of the phone?

On an organic level, you buy that 10 TB HDD for your desktop at home to hold your music, photos and movies. 10 years ago, a 1 TB HDD was unthinkable for your home – what in the heck would I put on that big a drive? And you likely have an online or redundant drive or cloud backing up your personal information. Holy cow – personal disaster recovery! Unthinkable ten years ago, uncommon five years ago, and common today.

And this does not even speak to the drivers of the MC real estate business in the last five years, cloud computing, social networking and content. Your Facebook data, your NetFlix movies and your outsourced processing at Amazon are living somewhere safe, clean, quiet and continuously cooled and powered.

So, all of your virtual needs need to be fulfilled somewhere. And that somewhere is a in data center.

I think the major flaw in that thinking is that the article views data center real estate as any other real estate operation. Agreed on a basic level, as everyone need to live, shop and work somewhere. But using a traditional RE industry observation to the data business would mean you would have to say that I need to build houses for a population that doubles every three years. The math and your sensibilities simply don’t work at that rate of growth.

Putting aside the commoditization and packaging of data center space by your leading REITs like Digital Realty Trust (DLR), Vantage or T5 Partners into more homogeneous and appropriate solutions for large business, the fact remains for every Facebook that moves out of a data center, there are several more parties coming right in behind them. The article also missed the fact that data operations move first from the small back-of-house hand-built set ups, to managed services, then to wholesale colocation on a more homogenized platform and then to either widespread colo or bespoke builds. So the service levels vary for the stage of life and IT need your business has.

Older facilities may not be readily available for newer technologies and power densities or cooling requirements without substantial capital outlay and physical renewal. That’s fine and no building is relevant forever unless it’s an icon. Only the truly dodgy and speculative data center real estate solution stand empty. The better built, better designed and better operated stand the test of time and are refitted on a routine basis.

People may also state that IT efficiencies will overcome the fixed asset limitations of UPS, generator or cooling plant size – that IT can compact faster than it’s growing. We’ve never seen an IT operation be able to “out compress” the data center’s physical infrastructure for space, power or cooling. The growth rate simply trumps the compaction rate. We attribute this directly to the further depth and sophistication of both the business and personal use of information, especially storage. In short, with that freed up IT support capacity (power, cooling & space), IT guys will put in more stuff (I know, great technical term). And that stuff tends to be quite a bit more powerful, viewed both in IT capabilities and W/SF.

As a result, we now offer the Mazzetti Algorithm:
The pace of IT system growth will always trump the ability of that IT system to compact or virtualize over a three year period.
And that’s why the data center real estate business is in no danger of oversupply.

Thanks for reading. C U soon.


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