Data Center Wars – The Falling Price per kW

About the Authors:

Todd Smith and Kevin Knight specialize in the data center facility market working for technology advisory firm Kiamesha Global (  If your organization is considering the potential benefits of a data center relocation, expansion or simply want to better understand your options in the data center marketplace Todd and Kevin can be contacted via e-mail at and  Special thanks to Sean Patrick Tario, CEO of Open Spectrum Inc. – a Kiamesha Global business partner in the newly formed Renegade Trust – for contributions to this article.


From Bust to Boom

The data center industry has come a long way since the “Dot Com” bust of 2000.  As waves of new facilities have come on line throughout the major metropolitan areas of the world, data center service options have become abundantly available to the business consumer.  With this abundance of options hitting the market the overall price per kW of data center infrastructure has fallen significantly for a number of reasons.

Competition is Fierce Bobby Wagner Authentic Jersey

In the recent past the most formidable competitor that data center operators faced was the “in-house do it myself the way we have always done it model”.  Financially speaking the “Build vs. Buy” has become an increasingly easy sale for data center operators to make.  With the cost per MB of data transport plummeting and now with it being a norm in business culture to outsource a data center facility in many cases it has simply become a no-brainer decision.  Data center operators are now going head to head like they never have before for the same business in the same markets with customers that are already convinced to outsource.  The new entrants and established players are in a high speed race to bring on new clients with the hope that industry churn rates will remain extremely low.  Cloud providers are often the most coveted prospects as the successful ones have proven to be very high growth tenants.

With this increased competition it has simply become a buyer’s market.  Don’t let supply and demand trick you.  While there are  some cases that tight supply may indeed drive up the kW price temporarily, in the major markets the data center providers are ready, able and willing to put more capacity on line quickly to meet demand.  Also, with the development of inter-site connectivity platforms most of the major national/global players have deployed it is becoming easier to tap into available capacity throughout a provider’s facility portfolio.

Cheaper Investment Money is Abundant

Many of the larger data center providers have structured themselves as publically-traded Real Estate Investment Trusts (REITS).  While there are restrictions to being a REIT which mandate the overwhelming majority of revenue be lease versus service related, there are significant tax advantages to this structure.  A publically traded REIT in a very low cost of capital environment is able to put large investments in play.  These investments are providing the marketplace larger, higher-density, “future-proofed” facilities that have a wide range of amenities.  Even with the REIT restrictions there are creative ways that these companies are able to provide value add services to their tenants such as variations of cloud and managed services to operate and interconnect within their facility portfolios.

Larger More Efficient Builds

The large low-interest investments being made are providing greater economies of scale and efficiency.  Investing capital in driving down the cost of cooling has been a major focus of many of the serious contenders as they seek a long term advantage in lowering the operating expenses for themselves and their customers.  For those of us that model data center offerings for a living we know how much of an impact just a couple fractions off the PUE (Performance Utilization Effectiveness) figures can make.  When you have the capital to spend now to save money for many years to come it is an easy choice to make.

The Future

There are many more reasons for the falling price per kW of infrastructure.  Some of them are more complex than others.  Customers should not expect to see this trend continue indefinitely as they have come to expect with items such as compute, storage and network.  Power and cooling infrastructure are more industrial in nature and not items that fall dramatically in price themselves.  Other market forces such as business closure and consolidation will be coming into play as some providers struggle to compete.