Kickstart Europe – European data center trends

Kickstart Europe 2023 billed itself as the place to learn – and to set – the European data center trends that would be crucial to the market across the rest of 2023. It made sure to deliver on that promise long before lunch on February 21^st, with a panel composed of:

• Jan-Peter Anten, Group MD EMEA, Digital Realty
• Dick Theunissen, MD EMEA, EdgeConnex
• Eugene Bergen Henegouwen, President, Equinix EMEA
• Eric Boonstra, VP and GM Europe, Iron Mountain Data Centers

and moderated by Jonathan Atkin, Managing Director, RBC Capital Markets.

Setting the tone, Atkin assured the room that the European data center trends of the year were strength and growth – the market was quite strong, and was growing in double-digit billions of Euros, despite cloud revenue slowing just a little. He described the “speedbump” the industry had seen in the social media vertical, but said that there were strong pricing trends in operation, and that supply chain delays were beginning to ease. Labor availability was “a mixed picture, depending where you are in Europe,” but were overall fairly strong. The procurement of power and permitting, he said, was becoming a more consistent challenge in some of the major European metropolitan areas.

Macroeconomic factors.

Nevertheless, his first question showed that European data center trends were not operating in a vacuum. How, he asked, did the macroeconomy and its “interesting times” translate into commercial cycles?

Eugene Bergen Henegouwen from Equinix was first to address the issue, saying there were three phenomena that seemed really important of the industry. The first was the unequal growth of data centers in 2023. “Businesses have a cloud hangover – they’ve had a lot of ambitious plans to move everything to the public cloud. Public cloud is great – but it’s not great for every workload, so workloads that are more stable and more predictable actually don’t belong on the public cloud.

“So while there’s great growth among the hyperscalers on the public cloud, what we see is that there’ll also be a lot of companies moving workloads back out of the public cloud. That leads to two megatrends that are going to be very important for the rest of the year. Number 1 is the power price crisis. When we heard what power price increases were going to be, we were shellshocked. But then you have to realize what that does on the enterprise side, because with PUEs, their power bills have exploded.”

Shifting focus, he assured the room that Equinix was a big fan of what the EU was preparing to do in terms of legislation to promote sustainability – the third of his phenomena. “The more sustainable your data centers are and the more stable your IT infrastructure, the better off you’re ging to be,” he explained. “You’ll get better interest rates on your loans if your data centers are more sustainable. That will massively drive the 50% of IT infrastructure that is still on-prem to off-prem,” he told the room. “A good chunk of that will go to public cloud, but clearly not the more stable, more predictable workloads.”

Henegouwen said these three big European data center trends would lead to a massive acceleration in the data center marker – which he added would be really good news for sustainability.

Digital Realty’s Jan-Peter Anten agreed with Henegouwen’s take, and added that it was extremely important that data center companies came together to, for instance, influence public opinion over the next year, given the dichotomy that people needed more and more cloud access, but didn’t approve of the data centers that delivered that access.

The challenge for 2023.

Eric Boonstra from Iron Mountain put the challenge succinctly. “The economy is slowing down, by people’s need for data is increasing, so the data center market will grow by necessity. The big challenges are that we need really talented people in our industry, and that authorities don’t like us. But there are billions of dollars in the Tier 2 market, just waiting to invest, so the market will grow in 2023.”

Jonathan Atkin took up the point about educating the public. “How are you pursuing education on greening the industry and sustainability?”

Eugene Bergen Henegouwen made the somewhat sardonic observation that the hyperscalers were excellent at the education question, but that the EU had a tendency to hate them – largely because they also had a tendency to ignore regulations.

Jan-Peter Anten from Digital Realty said that talking to hyperscalers often brought disappointment, too. “They often make plans to do more themselves at the start of the year, and then by the end of the year, they’ve actually done more with contractors.”

Atkin then turned to the question of whether retail and enterprise was becoming a less competitive sector of the market, or whether it looked like it might go that way in 2023.

Anten said that it would be important to have the right mix of hyperscalers and smaller operations to navigate the year, while Dick Theunissen of EdgeConnex reminded the room that the industry has the benefit of being able to look across the spectrum and divert its risk accordingly in the event that competitiveness looked like taking a real hit.

The top 5 trends.

“What has customer reaction been to rising prices?” asked Atkin.

Eric Boonstra gave a realistic answer. “I’d love to be able to say they don’t care. They do. They don’t like it, obviously. Some of them can’t pass the costs on to their customers.”

Eugene Bergen Henegouwen added that customer reaction so far had been dependent on the way the rises were handled. “If you do it early, people accept it more readily. There are still tremendous gains to be made, but people are realizing how much energy goes to waste. The energy price crisis has been a real wake-up call.”

The top European data center trends of 2023, then, are:

• A shift of more stable workloads back off public cloud
• An arresting degree of sticker shock over energy prices, and
• A great drive towards off-prem data infrastructure, following EU sustainability incentives
• A greater focus on sustainability education, and
• Layered, strategic price rises, to minimize impact on customers.