March 14, 2014

CeBIT Show Hanover - Data Center Trends

By Hartmut Leuschner

The growth of lower-cost SaaS-based solutions and overcapacity of traditional data center space were cited as key issues facing the European data center market during this year’s CeBIT show in Hanover, Germany.

White-Box Cloud on the Rise
Attendees at CeBIT, Europe's largest technology event, in Hanover, Germany, said there has been a significant increase of white-box cloud since last year. "Data center capacity continues to grow in most European countries, and large software players are bundling their data analytics services with large data center capacity," an infrastructure supplier said. Specifically, contacts said Oracle Corp. and SAP AG are using white-box cloud offerings from new players like Portugal Telecom SGPS S.A. Sources said Portugal Telecom is offering hosted services in its new 50,000-server data center in Covilhã to both software houses for prices (computing power per square meter) up to 30% below the European average. "You might not trust someone in Portugal to host your data, but you trust SAP and Oracle," an enterprise carrier executive said, adding new players like Portugal Telecom put additional pricing pressure on an already crowded market. A leading equipment vendor for data centers said SAP has ordered "record volumes" of servers over the past couple of months.

Colocation Offerings Shift to Netherlands, France
A manager of a tech association said due to cost pressures, several colocation companies have started to shift capacity from Germany into neighboring countries where possible. He cited Equinix Inc. as an example and said he heard the company is moving data center capacity from its Frankfurt locations to Amsterdam and Paris because electricity costs are too high for their Frankfurt data centers. He said in Frankfurt, data center service providers have to pay €0.14 per kWh, compared with €0.09 in Amsterdam and €0.07 in Paris. One source believes competitor Telecity Group PLC is less affected by the prices than Equinix because of Telecity's strong presence and continuing expansion in the United Kingdom, where energy prices are around one-third below Germany's.

Excess Cheap Data Center Capacity in Western Europe
Some international network operators announced at CeBIT they want to increase their cloud offerings for enterprises and add aggressive pricing structures. "We won't build those big data centers anymore; that is a pure commodity," a carrier said, pointing out his company is buying cheap capacity in existing data centers that are not necessarily in prime locations. "The latency of a couple of milliseconds really doesn't matter if you are not in the financial business," he added. Despite all the hype around data growth on the Internet, he does not see the need for a significant buildout of more data center capacity in Europe. "If you are OK with a 99.99% access guarantee, as Google [Inc.] is already offering it very cheap, then there is plenty of overcapacity in most European countries." He believes this calls into question the need for further buildout of high-level colocation space in key locations, as in InterXion Holding N.V. just opening its ninth data center in the Frankfurt region and BT Group PLC's British Telecom with a new Tier III data center in Frankfurt-Sossenheim. Another carrier attending CeBIT said he believes increased network quality will soon allow for decentralized data center space and lower the need for proximity to the large interconnects in the major hubs like London, Paris, Amsterdam and Frankfurt.