Will Data Center Spending Recover in 2021?

No sector has been left unscathed by the COVID-19 pandemic. Data Centers are no exception: Spending on data center infrastructure was dismal in 2020, according to the research firm Gartner. Due to the widespread lockdowns across the world in 2020, the construction of 60 percent of new data center facilities hit a roadblock

The silver lining here is that Gartner expects Data Center spending to bounce back in 2021. Projections by the research firm indicate that data center spends shall increase $200 billion in 2021, a 6 percent increase from 2020. 

According to this article, presently, the primary focus of organizations is to keep their operations running. Data center growth is being pushed back until markets recover. For now, cost containment measures have been placed on data center segments. It is expected that data center sites shall resume their expansion plans later in 2021. Major public cloud providers like Google, Microsoft, and AWS are continuing to spend billions on data center growth in spite of COVID-19 induced disruptions. AWS and Google opened the most new data centers in 2020, followed by Oracle and Microsoft.  As per research made the Synergy Research Group, the total number of large data centers that are operated by hyperscale cloud providers increased to 541 in 2020, 

Highlighted below are the key factors that shall influence data center spends in 2021 and beyond:

Hyperscalers

As the data center markets continue to grow, the number of hyperscale data centers in critical locations worldwide shall also increase.  Hyperscale data centers support the massively scalable architectures of AI/Machine Learning, streaming media, worldwide web, hyperscale cloud providers, and social media. Build-outs for hyperscale data centers are born out of necessity, and this entails millions of servers being deployed globally at times.The industry is also seeing a seismic shift as hyperscale customers want access to these scalable and high-density facilities within a short time-frame.

Enterprise co-location

There is a strong emphasis on sharing IT workloads between cloud hosting services and off-premise colocation. With the increasing complexity and costs of maintaining on-premise data centers, the shift to colocation shall continue beyond 2021. Such a paradigm shift from on-site data centers is also being fuelled by the pandemic and an increased need for cost-effective High-Performance-Computing (HPC) solutions.

Edge

Gartner highlights that at present, centralized data centers process 90 % of enterprise data. In 2021 and beyond, one can expect a significant increase in enterprise cloud computing growth. However, as technologies like driverless vehicles and 5G networks become mainstream, latency-sensitive IOT workloads shall make a shift towards edge computing. This shall impel a need for micro data centers.

Reality check

Despite the fact that 2021 will not see Data Center spending return to their 2019 levels, Gartner expects year-on-year growth shall continue till 2024 (specific growth rates were not mentioned). 

In a worst case scenario, if Data Center growth requires that people return to offices, then the 6 percent growth projection may not happen. Despite these unforeseen factors, data center managers can take the following steps to  increase infrastructure growth opportunities:

• The head of procurement and CFO can consider negotiating IT contracts, consolidating IT teams, and finding ways to streamline operations to cut costs.
• Create an action-plan to understand the industry specific impact of the pandemic and take actionable steps to mitigate those effects.
• Focus on building new go-to-market business models that foster innovation, even in hybrid IT setups, and have need-based- pricing for infrastructure requirements.