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June 30, 2010

Data Centers Continue to Grow Despite Overall Economy -- Solution May be in the Virtual Private Data Center

By Ed Silverstein, TMCnet Web Editor

Data centers are experiencing increasing lease rates, capacity is getting filled up and new centers are opening around the world.
David Gross, chief analyst for, says that few industries have withstood the recession as well as data centers - and the future is promising.
For example, reports that Digital Realty grew to $191 million in revenue last quarter, which is a 28 percent year-over-year increase.
In addition, for the quarter ended March 31, Digital Realty Trust signed leases during the first quarter of 2010 totaling approximately 241,000 square feet of space.
'Overall, it was one of the best first quarters for leases signed, second only to the first quarter of 2008,'said Michael F. Foust, CEO of Digital Realty Trust. 'To keep up with this level of demand for our Turn-Key space, we have accelerated plans to bring on additional space in select markets, such as Northern Virginia, where we are fully leased.'
Gross adds that the data center REIT is now larger than many of its retail and office counterparts, and is over half the size of office stalwart Boston Properties.
During its first quarter, co-location provider Equinix (News - Alert) grew at a comparable 24 percent year-over-year rate, coming very close to a $1 billion annual run rate before closing its merger with former rival Switch and Data, Gross said.
Last month, Equinix, Inc. announced the expansion of its NY4 International Business Exchange data center in the New York region. The $80 million third phase provides approximately 1,250 cabinet equivalents.
"The demand for our data center services in this metropolitan area, particularly in the financial sector, has increased significantly over the last few quarters," said Pete Ferris, president, Equinix North America.
The last time the data center industry was hurting was in 2002, when it was hurt by overbuilding and some facilities were even turned back into warehouses, Gross said.
Gross adds that the double digit growth for an industry raises the question of whether this expansion can continue, or if the current economy is too weak.
Gross said there are a number of factors supporting the industry right now, including:
Dependence on financial trading volumes, not underlying asset values. As long as the number of algorithmic trades, derivative price quotes, and electronic executions continue to rise, traders are likely to demand more data center space, Gross said.
Growth in consumer transactions. (News - Alert), an Equinix customer, is still growing its top line over 20 percent per year, according to Gross. In addition to e-commerce companies, content providers like Hulu (News - Alert) and Sony, and many gaming networks, are all running their traffic over data center networks, Gross adds.  There is also a trend of top 10 sites developing their own centers, as Facebook and Google (News - Alert) are doing right now, Gross said.
Major price discrepancies in long-reach and short-reach data links. It makes far more sense for content providers to interconnect with one another, or with their telecom carrier at a neutral data center, rather than construct a dedicated private line to reach the nearest telecom central office, Gross said.
Data centers have not been impacted much by the lack of job growth. Cloud computing and Software-as-a-Service (SaaS (News - Alert)) providers locating servers in data centers are automating many of their customers' job functions themselves, according to Gross. SaaS provider,, another Equinix customer, is growing at a 20 percent year-over-year pace comparable to Amazon, Gross said.
While data center growth is inevitable, companies might consider installing a virtual private data center to help handle increasing volume.

Ed Silverstein is a contributing editor for TMCnet's InfoTech Spotlight. To read more of his articles, please visit his columnist page.

Edited by Erin Monda

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