Data has been in the news a lot lately. In the past two weeks alone, Facebook has lost over 100 billion dollars in market capitalization because of concerns regarding its handling of users' data. Facebook had a long way to fall since it has been outperforming the stock market for many years now. Along with Amazon, Apple, Netflix and Google, it is part of a market-leading group of companies dubbed FAANG. FAANG stocks are characterized by rapid revenue growth. All are information technology stocks and represent a new economy of sorts. An economy based on data.
Datacenters are being built from coast to coast to meet increasing data processing and storage demands. Image Source: CloudwattA critical aspect of this new economy is the storage and manipulation of data. In the early days of computing, computers were very large and required special environmental conditions to operate correctly. Users interacted with the computers through remote terminals. With the advent of the personal computer, computing became decentralized. Businesses would purchase computers for individual employees and install software programs on them. Then in the 1990s came the widespread adoption of the internet. All of these computers were being connected via servers. Server rooms were added to offices and as a natural extension, some consolidation of data occurred. After all, why not back up critical information onto a server if you could.
This paradigm of decentralized computing has continued more or less intact into this decade, however, a shift is now underway back to centralization. This decade has seen an increase in the usage of data centers and cloud computing. Companies such as Amazon, Microsoft, Yahoo and others have created massive data centers to exploit the economies of scale. Amazon in particular, with its focus on offering cheaper prices through better distribution, quickly understood the massive market for providing cloud storage and processing power to small and medium-sized companies that struggled to afford enterprise solutions. Most software companies have come to realize that cloud-based subscriptions for software can produce lucrative returns while simultaneously keeping users up to date with the latest patches and features.
The result has been a boom in the construction of massive data centers. These data centers, that can use up a small city’s worth of electricity and can mean hundreds of jobs, are popping up all over the world. Usually located in areas where cheap electricity is available, or where they can receive tax breaks, the data centers are an intricate design of servers, switches and cooling. Atlanta is a city that has emerged as a preferred location for data centers. This week Facebook announced it would be building a $750 million data center in Newton County. Switch already has announced plans to invest $2.5 billion to build data center space in Douglas County. Both counties are right outside Atlanta. All of this is occurring as the Georgia Senate has just passed a bill containing additional tax breaks for data centers. Data centers have become hot commodities and municipalities are competing for them.
All of this data center activity is affecting the networking equipment market. According to IHS Markit, data center network equipment revenue totaled $13.7 billion in 2017 and is expected to grow to $19.6 billion by 2022. This growth is occurring in the midst of a market transition from on-premises data centers to the cloud. In fact, cloud service provider purchasing is forecasted to overtake on-premises data center purchasing by 2019. This is expected to lead to an increase in purchasing of higher capacity servers and bare metal switches and a decline in Ethernet switches since cloud data centers tend to be larger and more efficient in design due to the economy of scale. Just as data centers are being transformed, so too are the industries that support them.
The FAANG companies mentioned earlier have a collective market capitalization of $2.9 trillion as of March 27, 2018. Data breaches and scandals have become front-page issues, influencing everything from what we buy to who we vote for. Artificial intelligence is growing exponentially to handle the exponential increase in data available on individuals. Even the ethics of data use and privacy has made it to the mainstream. Data has become the fuel of the economy and data centers are where it is stored and processed. Increasingly data centers can be found coast to coast just like the factories of old. These new factories of the information age are creating a construction boom and hiring thousands. As we move forward in the information age, there will only be more data and more data centers, the factories of the information age.
