Procurement Intelligence Unit

Despite the biggest economic slump in a generation, some sectors have proved to be remarkably adept at maintaining their growth – which in some cases hasn't been great news for procurement.

Data centres are just one area that has continued to steam ahead – with strong consumer demand powering a market that shows little sign of slowing. One of the major factors behind this seemingly inexorable rise has been the soaring cost of operating an in-house data centre facility. And with this in mind a growing number of firms are now looking to outsourcing as a means of controlling cost, gaining access to external expertise and making more efficient use of their own internal resources, as the new PIU supplier market report shows. 

According to a Gartner poll involving companies with 1,000 employees or less, about 42% of the companies questioned have already either partially or fully outsourced their data centre. Over a quarter (28%) of companies said that they planned to do so over the next 12 months.

Of course, one of the primary reasons behind the data centre explosion has been the massive increase in data that companies across the world – and particularly in the US – are now forced to cope with. The implementation of the Sarbanes-Oxley act in 2002, has had a major impact on firms operating in the US, and with the banking and automotive industry also being forced to comply with more stringent legislation and policies, that flow of data seems unlikely to slow in the immediate future.

Add to this the enormous growth in internet subscribers globally – a number which rose by a staggering 380.3% over 2008/09 – and the increasing deployment of digital devices – such as digital cameras and digital televisions – and it's easy to see why those involved in the data centre management market are licking their lips in anticipation at what the next decade could bring.

From a procurement perspective, data centres are a major strain on the budget, not just because of the power they use – which is significant, perhaps as much as 30-40% of the total costs associated with a data centre – but also because of the costs of the components that operate inside them. A recent study for the Data Centre Price Tracker of 14 European nations revealed that the average per rack price increased by 8.5% in 2008. A further, although more moderate, increase was also expected in 2009.

While the construction of many data centres has either slowed or stopped completely, as a result of the economic slump, some US$15 billion of global spend was earmarked for global spend in 2008/09. And although that figure may pale in comparison to the huge sums pumped into the global economy by some of the world's leading nations over the past 18 months, it's a sizeable sum, and one that indicates that data centres could emerge as one of this decade's key areas of spend.

Some of the major beneficiaries of the current boom are the traditional financial centres of London, Frankfurt, New York, Tokyo and Singapore. However, with markets such as global web hosting expected to increase by an annual rate of over 6% between 2008 and 2012, other countries are now emerging as locations to rival these traditional financial powerhouses.

According to a study by BroadGroup, the data centre capacity in the South-East Asian economies of Singapore, Indonesia, Malaysia, Thailand and Vietnam will have grown by as much as 68% by 2010. BroadGroup's study also claimed that the Indian market will be worth US$1.5 billion by 2010 as it becomes a major hub for regions such as the Middle East, East Africa and South-East Asia.

Their growth may have been little short of phenomenal, but data centres do carry with them considerable risk – not least in the area of data security. A 2008 study of senior IT decision makers in the UK, Germany and France revealed that over half had experienced security lapses in that 12-month period. Perhaps more worryingly, 70% had not encrypted their data. Furthermore, and particularly in the light of recent natural disasters, there is now a growing acceptance that data centres located in regions prone to earthquakes, flooding and even terrorist attacks will have to be moved to other more low-risk locations.

The huge cost of setting up and running a data centre is also a major headache for those in procurement – and it could be a headache that is about to worsen. Subodh Bapat, vice president, energy efficiency for Sun Microsystems, recently claimed that the cost of powering data centres would increase from US$18.5 billion in 2005 to US$250 billion by 2012.

With these kinds of figures in mind, it's little surprise that procurement has been forced to do some serious blue sky thinking – and the answer to the enormous cost increases outlined by Bopat could lie in cloud services.

In the past there has been a reluctance from companies to hand their data over to a third party, either through outsourcing or, as we're now seeing far more, through the use of cloud services. The economy of scale offered by the latter does, though, mean that far more procurement operations are now looking skywards for a solution. Based on a pay-per-use model, cloud services offer a cost model that's hard to compete with, and although it may require another leap of faith for firms to fully embrace this new trend, its benefits, particularly in terms of cost, are clear to see.

For such a young market it is, though, impossible to make too many predictions as to what may develop over the immediate future. But with data centre outsourcing continuing to grow, it could be another area about to enjoy a boom.