by Robert Lemos

Economic Blues Could Slow, Not Stop, Data Center Construction

Mar 20, 20093 mins
Data CenterOutsourcing

Multi-year construction projects will continue, but outsourcing and a secondary market for cast-off facilities could slow future building.

Data center construction requires a massive investment in time and cash before a facility is completed.

It’s no wonder, then, that companies who have embarked on building a new data center have not halted their projects. In interviews with more than a dozen companies, each with $100 million in information-technology investments, Joseph Pucciarelli, program director of technology financing and executive strategies for market researcher IDC (a sister brand of CIO), found that not one planned on scaling back their projects.

“You are talking projects that have been in the works for years,” Pucciarelli says. “These are complex multi-cycle construction efforts.”

Yet, the future is a different matter, he says. Economic uncertainty has caused many companies to review plans to expand IT infrastructure. In the past six month, new orders for data center construction have essentially halted, Pucciarelli says. “Everyone is waiting to see in which direction this period of economic volatility is going to pan out.”

Data centers typically require three years or more to finish and cost tens of millions to hundreds of millions of dollars. Just planning a project can take from two to four years, the analyst says. One of the 14 companies he interviewed in February has embarked on a $200 million enterprise resource planning (ERP) project, which the firm aims to continue.

“They’re doing it because they are going to get all the cost benefits of a new IT infrastructure,” he says.

Tata Communications is another company that plans to continue building data centers. The communications and managed service provider processes around 7 billion voice minutes a year and has data centers in the U.S., the U.K., Singapore and India, its home country. It’s planning to construct new facilities in South Africa and China, says Abid Qadiri, vice president of data center services for the company.

The economic downturn has caused many companies to focus on cutting the costs of managing their data, making outsourcing attractive, he says.

“The current environment, looking at it from the cost perspective, has actually increased the incentive to outsource data centers,” Qadiri says. “Companies are asking questions that they might not have normally asked. Such as, ‘Are data centers our business?'”

Tata Communications currently has data center facilities taking up almost 1 million square feet of space, and plans to invest more than $2 billion to expand their capabilities to serve customers’ data requirements.

The trend toward outsourcing is unclear, says IDC’s Pucciarelli. While CIOs are tasked with maintaining the same level of IT service at a reduced overhead, many chief financial officers are less than enamored of outsourcing as the solution. Their three top concerns are continuity, security and value, and not all are adequately addressed by outsourcing, the analyst says.

In 2008, for example, more than half of companies interviewed in a recent IBM report had suffered an outage due to operational or power issues. Long outages dramatically affect businesses and is a major fear of people considering outsourcing, Pucciarelli says.

“When you interview a person who has had a data center issue, where it went down for days, it is an emotionally scarring issue,” he says.

Outsourcing is not the only solution. As companies consolidate during the economic downturn, they will typically merge data center operations into their newest facilities, Pucciarelli says. Over the next few years, the analyst expects many facilities to be put up for sale.