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The evolution of Cloud Data Centers

By Kiran Nandavarapu and Ragini Vunnava

The rapid adoption of cloud computing is driving the concept of offsite data computing and storage, increasing the share of “cloud” within the data center.

Cloud data centers (data centers for cloud services) are capable of handling higher traffic loads with increasing server computing capacity, leveraging virtualization and multiple workloads per physical server that are common in cloud architectures. According to Cisco1, cloud data centers are going to process nearly two-thirds of all workloads, growing at a CAGR of 30% over the next five years. Also, by 2014, workloads in cloud data centers will dominate over traditional data center workloads. For the same reasons, cloud data center traffic is projected to grow at a CAGR of 35% to reach 5,313 EB (exabytes) per year, up from about 1,755 EB per year in 2013.

Currently, traditional data centers are facing various challenges in terms of confluence of performance, capacity and infrastructre complexity due to the data explosion and rising need for scalability. With exploding data volumes, where exabytes are the current norm and Zettabytes coming around, the traditional incremental approach of adding infrastructure to support data growth will no longer offer the scalability to face the challenges that are unavoidable in cloud computing.

Increasing infrasturture complexity and hardware management are posing another significant challenge to data center managers. Rising power and energy consumption, water and cooling issues, low occupancy rates (actual vs. planned), aging hardware equipment and infrastructure etc. are the other challenges faced by data center service providers. To overcome these challenges, the transition of data centers, which involves end-to-end transformation of servers, storage and networks, has become a necessity. Cloud data centers support greater degree of virtualization, standardization and automation, resulting in high performance and cost optimization.

Consequently, the market is undergoing a transition from traditional data centers to service providers. By 2016, over 25% of total large data center capacity in the US will be owned by service providers including data center service providers, Telco’s, colocation and hosting vendors, and cloud service providers2. With the closing of traditional in-house data centers and internal corporate server rooms, the number of data centers is falling. Interestingly, on the other hand, overall data center space is growing as cloud service providers are opening and operating hyper-scaled facilities. They are also adding massive data center capacity, resulting in a few large data centers. Attributed to huge cloud storage deployments and build-out of public cloud offerings, midsized and large data centers are growing considerably.

Due to these dynamic changes, investments are pouring from various vendor segments into the datacenter markets. Traditional technology players turned cloud service providers like Microsoft, IBM and Google are investing heavily in data centers to expand their cloud businesses.

For example:

Cloud Service Provider Data center Investments Huge Data centers
IBM $1.2 Bn for 15 new data centers in 20143 $350 Mn in a 300,000 sq. ft. Boulder facility5
Google $2 Bn in second half of 20134 plans for 164,000 sq. ft. facility in Oregon6
Microsoft over $1 Bn in 2013 Adding 169,000 sq. ft. to the total size of 584,000 sq. ft. facility in Dublin7
Facebook is investing $1.5 Bn in first phase of about 1,400,000 sq. ft. data center in Iowa8

Data center service providers, who are under pressure due to losing revenues from public cloud service providers, are capitalizing in colocation services to leverage cloud opportunities. They are investing in re-architecting their facilities into a software-defined model to become more cloud friendly. Many cloud service providers are leasing space in large colocation facilities, instead of building their own facilities, and they are also sharing the same facilities with competitors for leasing space. For instance, Linode, who itself is a cloud hosting service provider, is utilizing SoftLayer’s hosting services at latter’s Dallas data center. Some colocation facilities leased by cloud service providers include Equinix (Salesforce.com), DuPont Fabros (by Rackspace), and SuperNAP of Switch (by Profitbricks). Similarly in regions like China, most of the service providers are leasing data center space or leveraging service provided by local hosting providers. Not just large vendors, most of the emerging start-ups are leveraging cloud data centers to launch and provide their services.

Today, there is an industry trend where almost all cloud service providers are establishing two or more data centers in high economic and advanced zones near major metropolitan cities. Consequently, cloud data centers are clustering around major internet hubs including New York, Chicago, London, Hong Kong, Singapore etc. However, some vendors are establishing facilities in interesting locations such as Quincy, WA (Microsoft, Dell), Iowa (Google), Lulea, Sweden (Facebook), to realize lower costs. Likewise, cloud service providers have started looking at emerging markets including Honk Kong, Australia, and Brazil for their data centers.

Amongst the major cloud service providers, Google has the highest number of cloud data centers with 40 globally. Their data centers are highly concentrated in the US and Europe. Google’s data center power is enabling the vendor to compete with the IaaS market leader, AWS, and helping it to differentiate on performance. After Google, IBM is close behind with significant expansions to 40 facilities that will be highly scattered across North America, Europe, and Asia, and slightly in South America and Australia. IBM will add new facilities at China, Washington, Dallas, Hong Kong, London, Japan, India, Canada, and Mexico in 2014 and the Middle East and Africa in 2015. Microsoft has 18 cloud data center facilities, which is relatively low compared to that of Google and IBM, but are hyper scaled. Google and Rackspace have good proportion of data centers in Europe, after US, while AWS, IBM and Microsoft are focusing on Asia Region.

If you interested in learning more, please visit our related infographic.

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Kiran Nandavarapu

Kiran has over 12 years of experience in providing research, insights, and advisory services to clients in the technology space. He specializes in Competitive/Market Intelligence...
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