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Bill Stein, CEO of Digital Realty, reflects on big data, scale, on-demand relationships, and global economics in a rapidly evolving landscape

Bill Stein

CEO, Digital Realty, USA

A big data revolution is here, states Bill Stein, CEO of Digital Realty, with conviction. Not only has it arrived, he assures, but the data economy it’s creating is starting to underpin the global economy, and it will increasingly do so.

Big data hasbig value, he says, citing analysis from Digital Realty’s recent Data Economy report [1]. Across the G7 countries, it represents economic benefit of USD 1.7 trillion per annum, he affirms, and could be worth far more if properly exploited. Around half the benefit remains untapped. He muses: “Our job in the data center business is to help our customers unlock that potential. We’ll be the building blocks and enablers of that revolution.”

In an exclusive interview with PTC, he listed what this potential means, along with what economic trajectories and value chains will emerge for participants.

1: Business winners in the future will be those who manage their data well
Within this emerging data economy, the first realization, Mr. Stein reveals, is that tomorrow’s business success will depend crucially on effective data management. “The focus now is on technologies around big data, and the role of big data in business transformation. We saw it first with financial services and how it transformed those organizations in how they operate,” he defines.

He continues: “The next stage we see will be IoT and AI implementations in many sectors. We think [they] have the potential to affect every industry in a material way. Consider farming as an example: sensor-based systems will determine, and respond to, agricultural conditions, and AI will indicate the right time to harvest.”

But the same trends will be unstoppable and evident in every sector. The value chain will see a reordering, with new distribution systems, new infrastructure and completely new business and manufacturing models created.” He suggests, “All these elements require interconnection, data storage and analysis, and we [in the data center world] sit in the heart of this.” This will be foundational, he voices, pointing to Digital Realty’s own mission statement, “to provide customers with the trusted foundation for the digital world.”

2:  Data centers will drive transformation in every sector
The data economy trends most expected to change both business and our everyday lives are those underpinned by data center infrastructure, from Alexa in our homes to autonomous cars on our streets and AI reshaping manufacturing and agriculture.

That will change data center operators themselves, demanding that they constantly evolve their business and their services to enable companies to fully take advantage of those rapidly evolving technologies.

“I truly believe scale matters, both [in terms of] overall size as well as geographic breadth,” he conveys. “That gives players such as Digital Realty a number of benefits. It allows us to build more economically, while leveraging our supply chain and expertise, so our costs are minimized. We can use those savings to continually reinvest in infrastructure that stays ahead of our clients’ needs”

“That model has also helped us win EPA Energy Star certification for sustainability in our Richardson Texas data center, work with Emerson to create water cooling solutions that save close to four million gallons of water annually and to create our Connected Campus that enables customers to access the rapid connectivity of a highly connected site without the high cost.”

“Rapid and low-cost interconnection are in demand at the moment, as businesses look to adopt better data analytics and even artificial intelligence. Those technologies need multiple clouds, databases and software apps to link and exchange huge amounts of data at speed. Creating the infrastructure to deliver that is complicated for businesses.”

“Customers are already investing in colocation with us to access Connected Campus, the foundation of how we help customers solve that interconnection challenge, and we’re continuing to invest in new services like our Service Exchange which helps customers connect cloud, SaaS and data center services from different vendors together, and we’re testing AI in our data centers to help manage these increasingly complex infrastructures.”

Ultimately, Stein sees a virtuous circle where data centers power business growth and that growth creates new demand for data center services. “Each new data center adds up to USD 547 million to an economy, that’s USD 145 million more than it did two years ago, and that value will keep on rising because data is becoming more and more central and valuable to businesses.

Bulk real estate acquisition and development works well at scale, he explains, citing a recent major Digital Realty purchase of 420 acres of land in Loudon County, Virginianear the Dulles Airport in the U.S. As demand permits, facilities will be commissioned on the site. “We believe it is imperative, if possible, to own the real estate ‘down to the dirt’ because we can alter facilities and we can grow facilities. If you are leasing, you can be landlocked [in terms of future development],” he adds.

Digital Realty, he contends, has been on a carefully considered acquisition trail to exploit reach, scale, [and in some cases] new product offerings, along with organic development. This year has seen the acquisition of Ascenty, a Brazilian operator of eight data centers, in a joint venture purchase. It followed a major acquisition in 2017 of DuPont Fabros, a data center operator with significant interests of hyperscale data centers in U.S. metropolitan areas and the acquisition of TelX and the Telecity properties that added colocation and connectivity capabilities.

Meanwhile, the industry is in an extremely robust state, but he disputes any notion that it is unsustainable. “I don’t necessarily see signs of bubble mania. There’s a lot of supply [being deployed], but demand continues to exceed supply in virtually every market so that would suggest it is not a bubble.”

3: In an on demand world, business relationships need to be long term

Our increasingly complex world will make business ‘communities’ more important at the technical level, he asserts. With businesses looking to make data exchange with their suppliers, partners and customers as simple as possible. The way to do that is to be in the same data center, or at least network, as the rest of your business community. “We’ve real communities of interconnections growing within some of our data centers,” he points out, “where businesses are co-locating with customers and partners and connecting with just a wire between those servers—the fastest and more secure way to do it.”

He continues: “It’s something we want to encourage, because it’s better for our customers, and the more businesses that connect in to communities like that, the more valuable that whole community becomes for the businesses within it.”

The likely customer trajectory also matters, he emphasizes, with requirements evolving quickly as the data economy gains traction. Uptime matters: the company has achieved five nines support (equivalent to 26 seconds downtime annually) in its operations for the last 11 years. Increasingly, customers are also demanding a high-speed performance, essentially a speed to market throughout the world. “We have to meet their needs,” he identifies, “The goal for us, for these customers, is to get them up and running in our data centers as quickly as possible.”

This implies deep relationships looking to the longer-term, and an assessment of likely demand patterns. “Cloud service providers really want to know they can expand in a location for many years,” he expresses. “They need to see plenty of land upon which they build their next large building. We give them that assurance.”

He continues: “Counterparty risk really matters to most of our customers as well. Digital Realty is still the only provider that has investment grade ratings from the major ratings agencies.” Customers [with critical needs] look toward providers, not only to deliver a data center on time and to specification, but also to be around to meet its obligations into the future, he denotes.

4: Data center expansion will probably track the global economy, however…
Market growth in the data economy, he acknowledges, could be affected by many factors including general economic growth. But the picture is relatively complicated. He continues: “The factors fueling growth in the industry are long-term trends, and they will spawn more innovation. AI won’t become a product and just stop. It will keep evolving and we’ll find new ways to use it and apply it, so that demand will continue to grow and power growth in the industry.

At the same time there are broader economic factors that every business leader has their eye on like increasing trade friction and potential recession. They could result in consolidation in the data center industry but I think demand for Digital Realty services will remain strong thanks to our global footprint, the range of services we offer and the fact that data infrastructure is an essential utility for businesses.

The biggest danger to our business we actually see in the long term is a shortage of talent and, in many regions, under investment in national connectivity infrastructure. Without investment by businesses and government, both of those could become a growing leash on growth across the next decade. We are active as an organization working with schools in certain regions to bring talent in at an early stage at our companies.”

Additionally, he acknowledges other externalities matter. The data center world is shaped by regulatory restrictions in several senses and these may unearth opportunities in their own right. Its acquisition of eight data centers in Europe allowed Digital Realty to significantly increase its regional presence in 2016. Regulatory pressures due to data sovereignty issues have likely focused the attention of customers on their digital asset, and may encourage them to look more to providers offering distributed data center options.

Data may be the raw currency of the data economy, but data centers need to be resourced. Alongside land, they also need adequate power and connectivity services, which are factors varied by region, he asserts. The Virginia land acquisition, for example, was predicated on bulk transmission and major fiber routes being easily accessible in the area. Green and sustainable developments are seeing widespread interest.

[1]The Data Economy Report, Digital Realty https://investor.digitalrealty.com/news-and-events/news/press-release-details/2018/Digital-Realty-Publishes-Report-on-Value-of-Data-Economy-for-G7-Countries/default.aspx