Data Center Bubble: Fact or Science Fiction?

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Too many dot coms brought us a bubble.  Too much leverage brought us a bubble.  Too many houses sold to people who couldn’t afford them – you guessed it, a bubble.  In all of those cases demand was so strong that supply was generated as fast as possible to satiate those in need and to make money for those willing and able to sell.  The data center space right now looks eerily similar.

Co-location, Software as a Service, Platform as a Service, Infrastructure as a Service and Anything-else-you-can-think-of as a Service has driven demand for data center space through the roof.  Throughout my two days of meetings at the SIFMA Technology show in NY I had at least a half dozen meetings with people building data centers.  Telco providers, data center providers, software providers and others who in previous years made their money in places other than data centers are creating raised floor space with power and cooling at an amazingly rapid pace.  Creation of millions of square feet of anything in such a short time scares me a bit.

However, as much as I’d love to prophesize the next bubble I can’t see how demand for data center space will slow.  Through the worst recession in decades, banks and other trading firms snatched up prime space at thousands of dollars a rack as fast as it could be built.  New regulations around co-location might make pricing more transparent, but it will not stop the demand for space near top matching engines.

On the other end of the low-latency spectrum, the move to SaaS, Cloud and other methods of infrastructure outsourcing are in full swing and there is no turning back.  What do these things all have in common?  They need lots of data center space.  The words describing the technology may be buzz-worthy but the approach itself is not.  With even Microsoft beginning to provide its beloved desktop applications online it’s clear the momentum here is permanent.  So where desks with room for a PC sold like crazy in the 1990’s, this decade will see all of that horsepower moved to datacenters.  Case in point, Office now runs on millions of PCs; in a few years it will run on servers utilizing millions of square feet of data center space.

Smaller, faster and more power efficient servers and networking equipment could also keep data centers empty, as they can do much more with less.  However, the compute and bandwidth demands of financial services firms (and the rest of the media-obsessed world) will ensure that faster and smaller technology will not shrink data center footprints – they will simply allow their users to crunch more data, trade more shares and stream more HD video with the same space they have today.

So this time around despite frantic building and quick selling, no bubble has emerged.  And unless Congress bans Wall Street from using computers altogether and we all give up our iPhones, a data center bubble will remain science fiction.

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