The data center industry has grown fast and will continue at an accelerated rate. 2021 and 2022 have recorded massive and record-setting activity in the data center M&A landscape. Not only are there more deals happening, they’re getting bigger (just like the campuses themselves).
Four deals over $10 billion each have occurred since June 2021 (previously the largest deal was for $8.4 billion in 2019). Synergy Research Group tracks industry M&A and reports an aggregate value of $49 billion in 2021 deals, and a total value of $30 billion on closed deals with $17 billion of additional deals pending as of October 2022.
But what is driving this copious investment and how can data center network engineers use these trends to create value moving forward?
While many of us focus solely on the data center industry, we sometimes forget that data centers are a part of a broader set of physical products that enable the broad landscape of digital infrastructure.
Industry news tends to focus on the latest build announcement, land purchase, or funding disclosure. This can give the impression that the only limitations between today and 100 new data centers are the capital itself and the ability to find plots of suitable land to build, employees to staff the facilities, and backup systems and design to ensure resiliency.
But, in order to continue building these facilities, inherently there has to be customer (and, by extension, end-user) demand. Without end-users producing the data and information, wireless networks collecting and receiving data, subsea cables linking facilities globally, and terrestrial networks connecting homes, businesses, and data centers alike, data centers would be isolated and empty.
Data storage doesn’t function as a silo. Some data center providers understand and prioritize this dynamic: they proactively group, build, or acquire assets in locations with the necessary digital infrastructure to support their investments.
It seems like others forget this dynamic and build with little regard for other digital investments made or planned in a given market.
In some cases, hundreds of megawatts of power are built by a single provider in locations that strategically may not be able to support these investments. There is no point in building this much capacity without the necessary correlating digital infrastructure to support.
The smartest network designers today understand these converging dynamics. Investors are paying attention, too – the trail of record-level capital investment over the past two years is pulling the digital infrastructure space closer.
DigitalBridge’s transaction with Switch and American Tower’s investment in CoreSite are the most clear indicators of this trend. Aside from blockbuster M&A, the convergence can also be seen across the industry from large hyperscale-sized facilities to newer Edge platforms.
Wholesale and colocation operators can and should continue to think beyond the four walls housing the space and power they will eventually resell – data center operators must work in harmony with the rest of the digital infrastructure space.
Subsea cable stations and subsequent data center clusters in Oregon and soon to be in South Carolina are great examples of the ways in which colocation providers have worked with anchor customers and other digital infrastructure investments to create new markets.
The most innovative data center platforms, and the ones I suspect will grow sustainably and robustly moving forward, are harnessing the power of complementary infrastructure assets to generate new pools of demand.
This convergence isn’t just happening for larger size deployments, it’s the basis for the Edge platform. While people are free to debate and theorize around what and when and where the Edge will be, the true purpose of the Edge stems from a need for more local data storage and low-latency access.
As data center operators move toward end users, they will create more frequent and smaller points of convergence. These points cannot be a mini version of a data center as currently built, plunked in the middle of nowhere, with none of the necessary digital support.
These points will inherently require interconnection and collaboration between wireless, wireline, and data center operators. Established data center, wireless, and digital infrastructure platforms have recognized this value and begun investing in newer Edge upstarts.
Today’s network integrators must note this convergence and the value of a cohesive ecosystem of digital infrastructure to sustain elevated levels of growth. The smartest players will continue to craft a strategy that develops or utilizes complementary infrastructure, while those that don’t may see a future of empty server rooms, abandoned mega campuses, stranded capacity, and billions in sunk cost.
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