Data centres: Enablers of the Digital Economy
Thu 13 Aug 2020 | Derek Webster
Data centres are critical utilities, the almost invisible heart, lungs and nerve cells of the digital revolution, facilitating increasing general economic activity for the good of citizens – nationally and internationally. By Derek Webster, CEO at Andget.
A 100 years ago a person could intimately know no more than 50 books in a lifetime, today we can access information from over 600,000 books. When I went to school, I had books and access to a library. My children went to school with laptops and access to the Internet. That is a revolution from new digital products to digital services providing an economic change and impact.
Digitalization is transforming the value chain with increased efficiency, productivity, quality and competitiveness. The digital infrastructure underpinning digitalization, including the Internet’s backbone — data centres, the cloud and network infrastructure — is closing a global social-economical gap, in business and for those on the right side of the digital divide.
Time and again I hear Government agencies asking Data Centre Foreign Direct Investors “How many onsite Jobs will this investment create?”. In the age of the Digital Economy, a more pertinent question is “What will the wider economic impact be?” The answer? Enormous.
Measuring the size of the Digital Economy
Measuring the Digital Economy is difficult yet the IMF ‘Measuring the Digital Economy 2018’ report stated that the Digital Economy in most nations is less than 10 percent of total economic activity if measured by value-added, income or employment.
And according to the UNCTAG 2019 report, the Digital Economy ranges from 4.5% GDP in developed countries (circa 12%+ for Nordic nations and the UK) to 15.5% of global GDP in developing countries. For most of the G-20, that makes the Digital Economy larger than Mining, Utilities, Agriculture, Education and Transportation.
34% of investors questioned in the ‘2018 EY Attractiveness Survey Europe’ regard the Digital Economy as the leading investment class. As for 2020, IT Data Centre spending is expected to reach $191bn, while $100bn will be pumped into Cloud IT Infrastructure between now and 2023.
It’s worth comparing the digital age to previous revolutions. On average, the Internet, over its initial 15 years, contributed to a $500 increase per capita in developed countries. The industrial revolution took about 50 years to achieve a similar impact.
What are data centres anyway and how many are there?
While Wikipedia offers a perfectly fine definition of a data centre, a more all-inclusive understanding of what data centres are and what they enable helps us to form a better sense of their global economic impact. In short, a data centre(s) is or are:
- Data Driven Critical Infrastructure
- A Data Factory that processes digital workloads
- Moving photons & electrons processing Applications & Services
- Engines of a digital outsourcing revolution
- Heart, lungs and nerve cells of ‘digital driven delivery’
- Physical enabler to new business and social models
- An ‘A$$et Cla$$’ (the smart money knows it even if it is not recognised by institutions!)
As for how many: Emerson in 2011 stated there where 509,147 data centres worldwide, IDC estimated this peaked in 2017 which dipped to circa 8,400,000 globally. Likely due to more enterprises migrating to more efficient facilities with lower OPEX and into the cloud which include 562 hyperscale data centres.
Data centres supporting the Digital Economy
Data centre critical infrastructure as the heart, lungs and nerve cells of ‘digital driven delivery’ contributes to stock market values of the web giants, large cloud providers and enterprises.
AWS, Microsoft Azure, Google Cloud Platform and the like are known in the finance world as FAANG stocks, comprising Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Alphabet (GOOG) formally Google. In January 2020, these combined companies had a market capitalization of over USD $4.1 trillion (January 2020). FAANG stocks trade on the NASDAQ and are part of the S&P 500, representing approximately 15 percent of the index.
National examples of data centre economic impact also serve up some impressive figures.
Germany’s $36bn ‘National Broadband Strategy’ investment, launched in 2010, contributed €170.9bn to GDP (0.60 % GDP growth). According to the Dutch Central Bureau of Statistics, multi-tenant data centres (excluding telecoms) in the Netherlands directly contributed €462m to its economy. The total GDP impact of these facilities is estimated at €1bn, equal to 7.7% of Netherlands’ GDP. And Oxford Research estimates the economic impact of the Finnish data centre cluster to be €7-11 bn (in a country with a population of only 5.5 million).
The impact of data centres in the two towns of Luleå, Northern Sweden and Quincy, Washington State USA is also striking.
Facebook’s Luleå site, the company’s first data centre outside of the USA, contributed 9bn SEK ($992m) of full economic impact. It created 4,500 full-time jobs over 10 years (direct, indirect, and induced impacts), including 1,450 direct impact jobs (yet it is not clear how many remain employed inside the facility). According to BCG, in 2012 Facebook contributed 1.5% to the region’s economy.
Quincy has enjoyed significant data centre initial investment from Microsoft, Yahoo! and Ask.com, which together hired 180 facility workers by 2008. Then Sabey, Intuit, Dell, and Vantage landed. The impact of the town’s $1.3bn data centre investment between 2005-07 saw the population grow 13 percent, while salaries rose by 8 percent, and house prices by around 30 percent. This created 220 new construction jobs (and 500 workers for the Microsoft site).
Direct and indirect job numbers at data centres
Despite these localised examples, data centre job creation is not a fertile ground of research in a sector still steeped in confidentiality. But the data we do have paints a compelling picture.
USA Jobs and Investment: The USA’s open home market data (which represents 43% of global data centre businesses) provides some interesting averages for a typical data centre: 1,688 local workers employed during construction, $244m output generated and $9.9m in revenue for the state and local governments. 157 local jobs were created on average per data centre. And between 2010-2016 data processing, internet publishing and other information services were responsible for an annual of $87bn in GDP per year.
Google in the USA: In 2016, Google provided $1.3bn of economic activity, $750m job income and 11,000 jobs in total across the USA, of which 1,900 were direct data centre workers. There were 1,140 construction workers across six data centre campuses with additional supply chain jobs at 3,500 and 70 direct jobs working on future renewable projects.
The job multiplier (1 direct job supports x additional non-Google Jobs) is 5.9 with a GDP multiplier of 6.6 (adding value to the wider economy). According to Oxford Economics, Google invested more than $10.5bn equipping their data centres, yet manufacturing jobs of equipment is not included in these numbers. Google’s own USA figures from 2018 across nine facilities provide some data centre indicators: Total investment $11.95 billion; contribution to local GDP $717 million; total related jobs around 7,565.
Facebook in the USA: As of March 2018, Facebook had spent $4.2bn on four data centres with a total workforce of over 800. After five years of operation the average direct job per data centre is 196. For each data centre worker an extra five jobs were needed elsewhere (5x job multiplier). RTI International claim Facebook created 60,100 jobs (including total multiplier effect) between 2010-2016 from its $5.8bn GDP impact. For every $1m spent on data centre operations 13.1 jobs were supported elsewhere in the economy and 14.5 for capital expenditure.
Netherlands/Germany: As of 2015, in the Netherlands, multi-tenant data centres alone (excluding telecoms) provided 2,300 direct full-time jobs and 1300 indirect full-time jobs. As of 2015, 200,000 employees worked for the German data centre industry of which 120,000 were operational staff. To put that into a context that represents 0.5 percent of the total number employed in the economy.
Wider job and GDP creation from ICT/Broadband/Internet
McKinsey’s Global SME Survey (2012) found that for every job lost to ICT 2.6 new jobs were created, in line with a separate French study which showed 500,000 jobs lost over a 15 year period created 1.2 million others. It has been estimated that 4 to 5 jobs are created in the economy for each new ICT job (European Commission, 2016; Moretti, 2012).
The ‘Employment and Social Development in Europe’ 2016 report looked at employment in ICT and occupations between 2003 and 2013 and found it grew between 16% and 30% in 25 European countries. Over the last decade, an extra two million ICT specialist jobs have been created, a million of which were created in the last three years.
Looking just at the role of the Internet, China attributed 2.5% growth in GBP to a 10% increase in broadband deployment. While Thailand attributed 1% and Latin America/Caribbean 1.7% growth for the same percentage broadband penetration. As a University of Munich study concluded: “a clear path can be found from introducing broadband and its increased penetration to per capita GDP.”
The direct and indirect economic benefits of data centre construction and operations are profound, but we can’t get away from the fact that the industry is power-intensive. The power demands of the sector are being increasingly scrutinised, but careful analysis of the trends reveals an industry that is leading the charge to a more energy-efficient world.
According to International Energy Agency, data centres consumed 1% of global electricity demand in 2020. Data transmission networks were also responsible for 1% of energy consumed globally. But even though digital workloads have increased 550% since 2010, power demand has levelled, as facilities leverage more efficient infrastructure and source power from increasingly greener energy sources.
While from the standpoint of sustainability data centres are not perfect, the sector has consistently exhibited self-regulating continual improvement. Between 2011-2017, data centre PUE dropped from around PUE 1.6 to PUE 1.2 (and on average CPU processing per watt has increased 200% every 2 years).
The efficiency changes have been dramatic. In the Dot.Com boom era I built many data centres across Europe and thought a 1MW 300 rack circa PUE 2.0+ site was substantial. Yet 25 years later, a 100MW PUE 1.08 site processing exponentially more CPU per watt from more sustainable energy sources is not unusual.
Organisations are increasingly moving workloads from less efficient on-premises data centres to more efficient colocation and cloud data centres in more sustainable locations and operations.
New cooling technology and re-use of energy developments are gaining traction, further reducing overall energy use and carbon impact per watt of processing demand. It’s worth comparing data centres to alternatives than studying them in isolation: An internet news search requires 0.2g of CO2 yet one page of newsprint requires 350x more energy.
Data centres as Critical Utilities
Digital Infrastructure should be seen as a critical utility. In the same way as roads, transport systems, energy provision and water are normally viewed and measured.
They increase general economic activity for the wider good of citizens, nationally and internationally. And they enable governments to increase competitiveness, the ease of doing business, add significant GDP impact and make countries more attractive to Foreign Direct Investors (FDI).
Since the first industrial revolution we have seen an emerging pattern: that of labour and cost reductions driving commoditisation, in turn demanding new skill sets, creating job diversity and new employment types that counter older technologies.
This digital revolution is still in its infancy and ongoing, and our current crop of graduates with their ‘What IF’ algorithms can see the world in more digital terms – a wider macro perspective where digital impacts are not just about jobs, but include human enrichment. Yet never forget that data centres are critical infrastructure, the almost invisible heart, lungs and nerve cells of a ‘digitally driven revolution’.