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Over the past three years, many organizations have dramatically shifted their business operations. The COVID-19 pandemic had a substantial impact on the sales cycle by accelerating deals that otherwise would have taken longer, prompting a rush to work-from-home environments, and seriously disrupting supply chains. As a result, data center capacity planning is also transforming from near-term transactional to long-term supply capacity partnership agreements.
The AI race – Boosting data center capacity quickly
Even as the effects of COVID wane, other new developments are affecting data center planning. Supply chains, for the most part, have improved, but another big change is afoot, and it is having a massive impact on data centers – artificial intelligence (AI).
Soaring demand for data-intensive AI applications on top of the growth of cloud has poured gas on the fire of digital infrastructure growth. The rising costs of electricity and availability, coupled with increased operational costs, are creating additional pressures. As a result, some operators are raising lease fees to cover their added expenses. Naturally, this is causing some anxiety in the market, with owners of data centers and colocation sites trying to strike the right cost balance while rushing to build capacity to meet soaring demand.
An evolving data center market
In response to these market events, the conversation between technology suppliers, customers, and data center operators is changing. In the past, it centered on product benefits first and capacity requirements came later. Now, the focus has shifted to capacity planning and establishing partnerships. A lot more time is spent on the new priorities — planning customer demands and needs, and suppliers can partner with operators over a longer period.
On the operator side, this is causing a sprint to build out capacity. Much of the demand for colocation and data center space is driven by internet giants. The result is fierce competition among data center and colocation operators to secure their business.
The global data center market is estimated to grow at a 15% to 20% CAGR in the next three to five years. McKinsey projects that worldwide spending on data center construction will hit $49 billion by 2023. Tenants are feeling the urgency to plan capacity much earlier than they used to. The timeframe required to get a new facility up and running used to be 24 months, but we’re seeing this process completed in as little as 12 months in many cases. It’s becoming increasingly common for tenants to sign leases for a facility that won’t be fully operational until two years down the line. They know the demand will be there, so they’re securing the space well in advance.
Lease size is also increasing substantially because tenants need more compute power. A typical lease would call for 18 Megawatts (MW), but now tenants are pushing for 40 MW to accommodate data-intensive, power-hungry applications.
A better approach – Supply capacity agreements
Data center and colocation operators need help from capable, reliable partners for capacity planning. They’re trying to accommodate hyper-growth from internet giants and other providers of AI, the Internet of Things (IoT), augmented reality (AR), industrial automation, and other applications.
There are several considerations when choosing a partner for supply capacity agreements. First, operators should seek out partners with global reach and customizable solutions that address specific requirements. One size does not fit all. Second, a strong partner will provide service offerings and predictive maintenance to prevent downtime and help scale for growth. Lastly, operators would benefit from partners experienced with hybrid distributed networks because they’re better equipped to meet skyrocketing demand for edge computing applications and local compute needs.
Operators should utilize the expertise of a trusted partner to guide them through the transition from a transactional mindset to supply capacity agreements. We recommend that companies consider multi-year agreements built around customizable solutions that deliver multiple customer benefits.
It’s important to have flexible options available with monitoring and services that support digital transformation and the implementation of hybrid distributed networks. As such, operators will receive planning assistance, technology solutions, and services that enable them to meet the challenges and seize the opportunities created by AI and other advanced technologies well into the future. AI-driven predictive maintenance and sustainability consulting is another very useful tool to support decarbonization goals. To learn more about supply capacity agreements and how they can help your company scale efficiently, please reach out to me.