The recent explosive growth in demand for data storage, cloud computing and big data is matched only by the surge in demand for data centers; all of which is outpacing the industry’s rate of expansion. New colocation & cloud providers are emerging everywhere and industry veterans are expanding like mad to capitalize on the market, which Gartner forecasts will grow 4% to $156 billion in 2014. (Source: 2013 InfoTechLead.com) However, even as the demand rises, competition and perceived value are driving down rates across the industry.
Tightening margins and growing demand have companies in the data center space focused on developing unique offerings and competitive advantages to differentiate them from their competitors. Core values like accessibility, supply of redundant power and use of green/clean energy have always been important selling points to colocation and cloud providers in the past. However, demand for services, economic incentives, and a friendly political environment are emerging as the leading criteria for site selection today.
Location has always been a major part of data center planning, but now there are as many economic and political factors at play as geographic and climate concerns. As a result of the evolution of the data center industry, massive economic opportunities are materializing in smaller cities & rural towns that can attract data center projects. Recent legislation in Texas, Virginia, Nevada, Alabama, Arkansas, Kansas, Nebraska, Mississippi, Iowa and other states has attracted significant projects to each that are projected to add millions a year in revenue to the local communities.
The flagship data center projects in these states were naturally supported by massive providers like Facebook, Google and others. But as the economic impact of those projects is revealed over time a “gold rush” will take place as local governments scramble to secure data center developments of all types and sizes.
Following the construction of their facility in Oregon, Facebook commissioned ECONorthwest to produce a study on the economic impact of the project on the local community. Reduced to the salient paragraph; the paper surmises:
“Total capital costs associated Facebook’s Prineville Data Center Project to date are approximately $210.4 million. We estimate that, between January 2010 and December 2011, approximately $14.5 million in capital spending has accrued to businesses in central Oregon and $61.2 million benefited workers and businesses in other parts of the state. In total, we estimate that Oregon has captured approximately 36 percent (or $75.7 million) of the capital spending on the Prineville Data Center Project to date.” (Source: 2013 The Economic and Fiscal Impacts of Facebook’s Data Center in Oregon)
Facebook’s data centers are on a scale far beyond the typical colocation provider, without a doubt. However, this example demonstrates a viable model for projecting the economic value of a data center project. Fundamentally, data centers of all sizes are inherently similar and are, in effect, built to scale. Therefore, for the sake of conversation, it’s safe to assume that any data center project could contribute approximately 30%-40% of its construction expenses to the local economy. And that’s just one-time construction spending…
The study additionally reports an additional $10 million per year in revenues from jobs created both directly and indirectly by Facebook’s new data center. Further, that the economic benefits of “multiplier spending effects” from outsourced jobs, the infusion of non-local revenue and spending from new high-income employees will have a residual positive effect.
Honestly, it’s difficult to estimate what amount of revenue smaller data center projects might bring to a community. It’s not difficult to see, however, the variety of different ways which data centers can stimulate the local economy. The multiplication effect, I think, is particularly fascinating. By introducing additional high paying jobs and outsourced jobs, the area invariably benefits from increased spending; akin to some sort of IT economic stimulus plan.
This could represent a completely new stream of revenue for a small city or rural town; particularly valuable to those who are suffering from economic recession. It may be that eventually, every community will support data centers of one kind or another. But the cities and states that become players in the data center industry stand to gain billions (and potentially trillions) in future dollars from that investment.
More and more states are launching economic initiatives and passing helpful legislation to attract data center projects. Virginia is, by far, the most successful at this effort; with numerous political organizations like the North Virginia Technology Council and the Data Center and Cloud Infrastructure Committee working in tandem to facilitate new data center developments in the area.
In a guest opinion in the Loudoun Times in March of 2013, Delegate Barbara Comstock (R-34th District), shared that,
“Our aim is to be one of the most “data center friendly” places in the country…In 2012, data center companies such as Equinix, Raging Wire, Latisys and DuPont Fabros have expanded in Virginia along with industry leaders Facebook, Microsoft and Amazon. As The Washington Post reported last year, the county now has about 40 centers comprising roughly 4 million square feet of space, which is equivalent to 22 Wal-Mart Supercenters.” (Source: 2013 The Loudoun Times)
Virginia’s winning strategy includes three crucial components; first a geographically-viable location, second, economic incentives and third (and most importantly), supportive local businesses operating in a friendly political climate. The importance of the formation of advocacy and special interest groups like the NVTC and DCCIC cannot be overstated. These organizations “lay out the welcome mat” to data center providers shopping for new locations.
Another example of this model in practice is Chicago’s Data Center Express project, which Mayor Rahm Emanuel explained would “streamline the startup process for data centers,” and, “…make it easier for data centers to provide their vital services to Chicago’s businesses, creating jobs and economic opportunity throughout the city,” at the program’s launch in June of 2013. (Source: 2013 CityOfChicago.com)
These trailblazers have created ecosystems in which data center providers can thrive, built on economic incentives, community initiatives and increased awareness. The local governments have recognized the long-term benefits of attracting data center business and are working hard to ease the transition of new developments. These key factors have contributed to their success (in order of importance):
Established demand from the community
Direct access to major Internet networks
Political initiatives and strategic partnerships
Redundant and plentiful power supply
Economic incentives (tax and utilities)
Geographic viability & special features (green energy, cool climate, etc)
Any data center provider will agree, one of the most attractive incentives that a community can offer is a friendly welcome and introductions to the businesses in the community that most need their services. By forming initiatives like Data Center Express, local governments send a signal to the industry that they’re committed to working with data center providers and ready to help them integrate into the community. It may be time for your community to consider a similar commitment…
*image used courtesy of Data Center Knowledge