Five Data Center Prediction 2023

UII KEYNOTE REPORT 86P • JANUARY 2023
FINANCE AND STRATEGY
Five data center

predictions for 2023
Confident digital infrastructure sector beset by growing external challenges
In this report, Uptime Institute Intelligence looks beyond some of the

more obvious trends of 2023 — that the sector continues to expand and
innovate while facing stricter regulatory requirements — and identifieS
some challenging issues. These issues range from technological to
geopolitical, but what they have in common is they all make the planning
of data center development and operations more difficult.
Authors
Andy Lawrence, Executive Director of Research Max Smolaks, Research Analyst
Daniel Bizo, Research Director Lenny Simon, Senior Research Associate
Owen Rogers, Research Director, Cloud Douglas Donnellan, Senior Research Associate
Jacqueline Davis, Research Analyst
© COPYRIGHT 2023 UPTIME INSTITUTE. ALL RIGHTS RESERVED

KEYNOTE REPORT: Five data center predictions for 2023
Synopsis
The critical digital infrastructure sector continues to thrive in a period of
economic uncertainty. Further opportunities and growth are expected
in 2023 and 2024, but owners and operators are also likely to face
some difficult and expensive challenges. This report discusses some
of these potential issues, including supply chain disruption, power and
cooling requirements for powerful next-generation IT hardware, growing
wariness of public cloud, pressure on IT functions to address their
energy footprint and strong inflationary pressures.
© COPYRIGHT 2023 UPTIME INSTITUTE. ALL RIGHTS RESERVED 2

Contents
Introduction ———————————————————————————————————————————— 4
1. Geopolitics deepens supply chain worries——————————————————————— 6
2. Too hot to handle? Operators to struggle with new chips———————————— 10
3. Cloud migrations to face closer scrutiny——————————————————————— 14
4. Energy efficiency focus to shift to IT — at last———————————————————— 18
5. Data center costs set to rise and rise————————————————————————— 23
Appendix: Recap of the five data center trends for 2022—————————————— 28
Figures
34% Table 1 ——————————————————— 5 Table 2 ———————————————————19
Predictions for 2022 remain valid Restrictions on new data centers
53% since 2019 — selected examples
11% Figure 1 ——————————————————— 6
Operators see slow improvements Table 3 ———————————————————23
in data center supply chain Inflation rates as at September 2022
Figure 2 ——————————————————— 11 Figure 4 ———————————————————25

Server power consumption on a Enterprise data centers most impacted by
steep climb IT hardware costs
Figure 3 ———————————————————15 Figure 5 ———————————————————26
Drivers for and barriers to cloud Labor spending driven by staff
migration (infrastructure-level factors) retention initiatives
Uptime Institute Intelligence is an independent unit of Uptime Institute dedicated to identifying, analyzing and explaining the trends,
technologies, operational practices and changing business models of the mission-critical infrastructure industry. For more about Uptime
Institute Intelligence, visit uptimeinstitute.com/ui-intelligence or contact research@uptimeinstitute.com.

Introduction
At the beginning of each calendar year, Uptime Institute highlights a short list of trends
— or predictions — for the immediate year (and years) ahead. In our selection, we aim to
direct attention to vital yet less obvious industry topics that invite deeper consideration.
Our predictions are thought-provoking, rather than safe. For 2022, we highlighted five
trends that have largely borne out and continue to be relevant for 2023. These are
summarized in Table 1 and are explained in more detail in the Appendix.
And for 2023? Each of our five predictions highlights new or growing challenges facing
data center operators. This is not intended to suggest an industry in crisis — data centers
are accepted to be in high demand and largely efficient and resilient — but rather to
highlight areas where continuing vigilance and action may be required.
The digital infrastructure sector has expanded rapidly over the last few decades, not
only because of a seemingly insatiable appetite for digital services but by harnessing the
benefits of cheap capital, globalization and free trade. While demand for compute and
storage are as strong as ever, global market conditions have become more difficult.
Many of the threats to For 2023 and beyond, many of the threats to digital infrastructure development and
digital infrastructure stability do not come from design or operational failures, or from managing complexity,
development and but from external forces. Russia’s war against Ukraine, continuing trade tensions with
stability ... will come China and the aftermath of the COVID-19 pandemic have resulted in a perfect storm of
from external forces. high inflation, supply chain disruptions and skill shortages, with rapid increases in energy
prices pushing up the costs of building and operating data centers. In addition, energy and
land scarcity have made data center hubs less welcoming, while climate change, power
shortages and extreme weather threaten resiliency.
Data center operators are responding to these threats by both increasing and tightening
their budgets, keeping equipment in operation for longer, finding creative ways to work
around supply chain delays, and devising new approaches to attract and retain staff.
Managers are also preparing for a wave of sustainability legislation over the coming
years. Some developers have shifted their attention to less-developed locations, where
conditions are more favorable; second- and third-tier data center markets may have lighter
requirements and a less-constrained energy supply.
Data center operators may feel more apprehensive about the future than they did in 2022.
But this does not mean that the industry is slowing down its efforts to provide capacity
for an ever-increasing range of digital products and services. The opposite is true: most
data center owners and operators surveyed recently by Uptime Institute — including
enterprises — are planning to expand their footprints in 2023. Studies by market and
financial analysts also suggest demand for data center capacity remains strong.
The current challenging economic conditions are likely to drive further market
consolidation, with some smaller colocation operators absorbed by larger, better-funded
competitors. Some enterprise data centers, particularly in sought-after urban areas
will continue to be an attractive acquisition for those colocation and hosting companies
considering expansion.

Table 1 Predictions for 2022 remain valid

2022 prediction Summary
Advances in chip technology will drive major gains in energy efficiency for
Moore’s law resumes — data center operators of at-scale infrastructure. Those unable to exploit the
but not for all improvements or achieve higher utilization through consolidating workloads will
struggle to remain competitive.
Stricter environmental policies will force division among industry stakeholders.

Industry consensus on
Faced with growing regulatory and commercial pressure, operators will become
sustainability looks fragile frustrated with how to assess and report on sustainability.
The data center industry is dropping its aversion to nuclear energy. Operators will
Data center operators
openly promote nuclear as a low-emission power source, incorporate it into their
ponder nuclear option energy purchase portfolios and encourage the development of its new reactors.
Control over critical infrastructure is increasingly in the hands of a small number

Concerns over cloud of major providers, raising questions around resiliency. Customers and regulators
concentration risk grow will demand more transparency into providers’ infrastructure and vulnerabilities,
and many will explore multicloud strategies.
Interruptions to supply chains are affecting all suppliers, but larger-scale data
Supply problems favor center operators are positioned to benefit by leveraging their buying power and
standardization and scale influence. Smaller operators that embrace a standardization approach are likely
to have the best chance of remaining competitive.
UPTIME INTELLIGENCE 2023

PREDICTION 1
Geopolitics deepens supply

chain worries
The COVID-19 pandemic — and the subsequent disruption to supply chains —
demonstrated the data center industry’s reliance on interdependent global markets and
the components they produce. Although the data center sector was just one of many
industries affected, the extensive variety of the often complex electrical and mechanical
equipment involved exacerbated supply chain problems.
Engine generators illustrate the problem: they typically comprise hundreds of constituent
parts shipped from at least a dozen countries spanning North America, Europe and Asia.
Shortages of seemingly ordinary components, such as voltage regulators, air filters, valves
or battery terminals, can lead to major delays in delivery. Even when the production of data
center equipment (such as lead-acid batteries and fiber optic cables) is relatively localized,
pricing and availability will be subject to changing dynamics in global markets.
The end of the pandemic does not mean a return to the normality of previous years, as
strong pent-up demand, higher costs and abnormally long lead-times persist.
The Uptime Institute Supply Chain Survey 2022 illustrates the extent of the problem, with
one in five operators reporting major delays or disruption to their procurement over the
previous 18 months. Unsurprisingly, satisfaction with vendors’ supply chain management
has nosedived: nearly half of respondents are unhappy with at least some of their
suppliers. The availability of computer room cooling units and major electrical equipment
— specifically, uninterruptible power systems (UPS), engine generators and switchgears
— appear to be the greatest pain-points as of the end of 2022. Larger operators (superior
purchasing power notwithstanding) are apparently bearing the brunt of supply problems.
A total of 40% of operators responding to the survey confirmed they were investigating
additional sources of supply in response to these issues. A similar number reported
increasing their inventories of parts and materials to safeguard maintenance schedules and
operational resilience. Vendors, too, have taken similar measures to address shortages and
delays. Supply appears to be improving as of the second half of 2022, with more than half of
operators reporting improvements, albeit slow improvements for most (Figure 1).
Figure 1 Operators see slow improvements in the data center supply chain
Which of the following best describes your organization’s overall data center supply chain
experience over the past six months?
9% 43% 37% 8%
Slowly improved No significant change
Rapidly
Slowly worsened 3%
improved Rapidly worsened
UPTIME INSTITUTE SUPPLY CHAIN SURVEY 2022

Rising geopolitical tensions generate risks

Crucially, geopolitical dynamics — specifically between the US-led Western alliance, China
and, to a lesser degree, Russia — are giving rise to additional threats. Even with more
diversified supplies, higher inventory targets and a build-up of muscle memory, the data
center industry remains particularly exposed to the threats posed by current geopolitical
trajectories.
The profile of these emerging geopolitical risks is starkly different from other major
events, however rare. In contrast to a pandemic, natural disaster, or grid energy crisis,
it is more difficult to model the occurrence and fallout from geopolitical events — and,
consequently, more difficult to develop effective contingency plans. This is because these
threats are primarily the results of highly centralized political decision-making in Beijing,
The shock therapy
Brussels, Moscow and Washington, DC.
of the COVID-19
pandemic has made The shock therapy of the COVID-19 pandemic has made industries more resilient and
industries more mindful of potential future disruptions. Nonetheless, if some of the more radical threats
resilient and mindful posed by the current geopolitical situation become reality, their effects are likely to be
of potential future longer lasting and more dramatic than anything experienced up to now.
disruptions. Uptime Intelligence sees two major areas where the combination of global
interdependency and concentration has made digital infrastructure vulnerable to
potential economic and military confrontations, should the current geopolitical
environment deteriorate further:
• Semiconductor supply chains.
• Subsea cable systems.
Semiconductors pose a unique problem

Nothing demonstrates the problem of global interdependency and systemic fragility better
than the world’s reliance on advanced semiconductors. This issue is not just about IT
hardware: controllers, processors, memory chips and power electronics are embedded in
virtually every product of any complexity. Chips are not present just to add functionality or
to enhance controls: they have become essential.
The health monitoring, real-time analysis, power correction and accident prevention
functions offered by modern electrical gear occur through the use of high-performance
chips such as signal processors, field-programmable logic and microprocessors.
Some recent delays in data center equipment deliveries (including switchgear and UPS
shipments) have been caused by shortages of certain specialist chips.
This reliance is precarious because chip production is globally entangled. Semiconductor
manufacturing supply chains span thousands of suppliers, across a wide range of
industries, including ultra-pure metals and gases, chemical agents, high-performance
lasers and optics, various pieces of wafer processing equipment, clean-room filtration
systems and components, and the fine-mechanical packaging of chips. At every stage, only
a small number of highly specialist suppliers are able to meet the required quality and
performance standards.

The production of state-of-the-art photolithography machines, for example, relies on

just three noteworthy vendors — ASML, Canon and Nikon. Of these, only ASML has the
capability to produce the most advanced equipment, one which uses extreme ultraviolet
wavelengths to create the smallest transistor structures.
The level of complexity and specialization required to manufacture advanced
semiconductors means that no single country or trading bloc — no matter how large or
resource-rich — is entirely self-sufficient, or will become so within reasonable timeframes
and at reasonable economic cost. This means that multiple single points of failure (and
potential bottlenecks) in the data center and IT equipment supply chain will persist.
Governments have become acutely aware of these issues. The US government and the
European Commission (EC) have responded with legislation directed at supporting and
stimulating investment in local production capacity (the US CHIPS and Science Act and
the European Chips Act). China, too, while still lagging some five to 10 years behind
its international competitors, continues to invest in its capabilities to develop a more
competitive semiconductor industry. In the meantime, political battles over intellectual
property (combined with problems over the supply of and access to materials, components
Even assuming
and expertise) remain ongoing.
unstinting political
will to promote Any impact from these legislative initiatives is likely to take a decade or more, however,
self-sufficiency in and will largely only address the “onshoring” of chip manufacturing capacity. Even
chipmaking, decoupling assuming unsparing political will (and bottomless fiscal support for private investment)
semiconductor supply to promote self-sufficiency in chipmaking, decoupling semiconductor supply chains (all
chains borders the the way from raw materials to their processing) borders the impossible. The complexity
and costs involved cannot be overstated.
impossible.
It is for this reason that the US government’s increasingly stringent measures, designed to
limit China’s access to cutting-edge semiconductor technology, are proving effective. But it
is precisely because they are effective that the situation is becoming more volatile for the
entire industry — increasing, as it does, the likelihood of reprisal.
Taiwan is of particular concern. The high concentration of the global semiconductor
fabrication and IT hardware manufacturing in and around the island, home to the world’s
largest and most advanced contract chipmaking cluster, creates major supply chain
vulnerabilities. The consequence of any major confrontation (economic or military) would
result in profound and far-reaching disruption for the entire IT industry and many others.
Deep risks around subsea network

The vulnerability of subsea fiber optic cables is another concern — and, as is the case
regarding semiconductors, by no means a new issue. Growing geopolitical tensions,
however, have raised questions regarding the likelihood of sovereign states engaging in
acts of sabotage.
Subsea fiber optic networks consist of hundreds of subsea cables that carry nearly all
intercontinental data traffic, supporting trillions of dollars of global economic activity.
There are currently more than 500 international and domestic networks in operation,

which are owned and operated (almost exclusively) by private companies. The length of
these cables make them very difficult to protect against potential threats.
Some subsea cables represent high-value targets for certain actors — and are attractive
because they can be damaged or broken in secrecy and without the blowback of a
traditional attack.
Most subsea cable breakages do not result in widespread outages. Typically, traffic can be
rerouted through other cables, albeit at the cost of increasing latency. But when multiple
lines are simultaneously severed in the same region (undermining path diversity), the
effect can be more substantial.
In 2006, a major earthquake (with multiple aftershocks) in the Luzon Strait (between
Taiwan and the Philippines) resulted in seven of nine subsea cables being taken offline.
This caused severe and widespread outages across the Asia-Pacific region, significantly
disrupting businesses and consumers in Hong Kong, Japan, Singapore, South Korea and
Taiwan. Fixing these vital network connections ultimately involved more than 40% of the
global cable repair fleet. Full restoration of services was not complete until seven weeks
after the initial outage.
Cables are also vulnerable to human activities — both accidental and deliberate. Ships are
the most common cause, as fishing equipment or anchors can catch a cable and damage
it. Malicious state actors are also a threat: for example, unidentified individuals seized
telecommunications nodes and destroyed terrestrial cables in 2014, as Russia occupied
the Crimean peninsula. The same could happen to submarine cables.
Such acts of sabotage fall into the category of hybrid warfare: any such attack would be
unlikely to trigger a conflict but, if successfully coordinated, would cause severe disruption.
Protecting against such threats — and detecting and monitoring potential threats, or
identifying those responsible when attacks occur — is difficult, particularly with regard
to subsea cables often spanning thousands of miles. Since the location of these cables
is in the public domain, and international law prohibits the boarding of foreign vessels in
international waters, protecting these vital facilities is particularly fraught. Taiwan, as an
island, is especially vulnerable to attacks on its subsea cables.
The Uptime Intelligence View

Data center supply chains are still reeling from long delays, although conditions are — slowly —
improving.
Current geopolitical dynamics present new threats — the full impacts of which are difficult to
model and plan for.
Uptime sees particularly high risks around the advanced semiconductors vital to IT hardware
and data center equipment.
Subsea cable systems are particularly vulnerable to hostile forces or agents. A successfully
coordinated attack could have severe consequences for key digital services.

PREDICTION 2
Too hot to handle? Operators to

struggle with new chips
Standard IT hardware was a boon for data centers: for almost two decades, mainstream
servers have had relatively constant power and cooling requirements. This technical
stability moored the planning and design of facilities (for both new builds and retrofits),
and has helped attract investment in data center capacity and technical innovation.
Furthermore, many organizations are operating data centers near or beyond their design
lifespan because, at least in part, they have been able to accommodate several IT refreshes
without major facility upgrades.
This stability has helped data center designers and planners. Data center developers could
confidently plan for design power averaging between 4 kilowatts (kW) and 6 kW per rack,
while (in specifying thermal management criteria) following US industry body ASHRAE’s
climatic guidelines. This maturity and consistency in data center power density and cooling
standards has, of course, been dependent on stable, predictable power consumption by
processors and other server components.
The rapid rise in IT power density, however, now means that plausible design assumptions
regarding future power density and environmental conditions are starting to depart from
these standard, narrow ranges.
This increases the technical and business risks — particularly because of the risks
Driven by the rising inherent under future, potentially divergent scenarios. The business costs of incorrect
demand of IT silicon, design assumptions can be significant: be too conservative (i.e., retain low-density
server power and approaches), and a data center may quickly become limited or even obsolete; be too
typical rack power technically aggressive (i.e., assume or predict highly densified racks and heat reuse), and
are both escalating. there is a risk of significant overspend on underutilized capacity and capabilities.
Facilities built today need to remain economically competitive and technically capable
for 10 to 15 years. This means certain assumptions must be made through speculation,
without data center designers actually knowing the future specifications of IT racks. As a
result, engineers and decision-makers alike must grapple with the uncertainty that will
surround data center technical requirements for the second half of the 2020s and beyond.
Server heat turns to high

Driven by the rising demand of IT silicon, server power and — in turn — typical rack power
are both escalating. Extreme-density racks are also increasingly prevalent in technical
computing, high-performance analytics and artificial intelligence training. New builds and
retrofits alike will be more difficult to optimize for future generations of IT.

While server heat output remained relatively modest, it was possible to establish industry
standards around air cooling. ASHRAE’s initial recommendations on supply temperature
and humidity ranges (in 2004, almost 20 years ago) met the needs and risk appetites of
most operators. ASHRAE subsequently encouraged incrementally wider ranges, helping
drive industry gains in facilities’ energy efficiency.
Uptime Institute research shows a trend in consistent, if modest, increases in rack power
density over the past decade. Contrary to some (aggressive) expectations, the typical rack
remains under 10 kW. This long-running trend has picked up pace more recently, and
Uptime expects it to accelerate further. The uptick in rack power density is not exclusively
due to more heavily loaded racks. It is also due to greater power consumption per server,
which is being driven primarily by the mass-market emergence of higher-powered server
processors that are attractive for their performance and often superior energy efficiency if
utilized well (Figure 2).
Figure 2 Server power consumption on a steep climb
Power
Server power at consumption
100% utilization Power hitting nearly
(watts) consumption 800 W
rarely exceeded in Jan 22
900 300 W up to
June 17
800
700
600
500
400
300
200
100
0
Jan 08 Sept 10 Jun 13 Mar 16 Dec 18 Sept 21
1U average watts at 100% of target load 2U average watts at 100% of target load
Polynomial (1U average watts at Polynomial (2U average watts at

100% of target load) 100% of target load)
The data shows the sustained maximum power consumption of two-socket servers
when running the SPECpower_ssj2008, which simulates a Java-based business
logic. Results for 1U and 2U form factors. Data as at June 27, 2022.
SPEC.ORG, COMPILED BY UPTIME INTELLIGENCE
This trend will soon reach a point when it starts to destabilize existing facility design
assumptions. As semiconductor technology slowly — but surely — approaches its physical
limits, there will be major consequences for both power delivery and thermal management
(see Silicon heatwave: the looming change in data center climates).

“Hotter” processors are already a reality. Intel’s latest server processor series, expected to
be generally available from January 2023, achieves thermal design power (TDP) ratings as
high as 350 watt (W) — with optional configuration to more than 400 W should the server
owner seek ultimate performance (compared with 120 W to 150 W only 10 years ago).
Product roadmaps call for 500 W to 600 W TDP processors in a few years. This will result
in mainstream “workhorse” servers approaching or exceeding 1 kW in power consumption
each — an escalation that will strain not only cooling, but also power delivery within the
server chassis.
“Workhorse” servers Servers for high-performance computing (HPC) applications can act as an early warning
approaching or of the cooling challenges that mainstream servers will face as their power consumption
exceeding 1 kW in rises. ASHRAE, in a 2021 update, defined a new thermal standard (Class H1) for high-
power consumption density servers requiring restricted air supply temperatures (of up to 22°C / 71.6°F)
to allow for sufficient cooling, adding a cooling overhead that will worsen energy
will strain not only
consumption and power usage effectiveness (PUE). This is largely because of the number
cooling, but power
of tightly integrated, high-power components. HPC accelerators, such as graphics
delivery within the
processing units, can use hundreds of watts each at peak power — in addition to server
server chassis.
processors, memory modules and other electronics.
The coming years will see more mainstream servers requiring similar restrictions, even
without accelerators or densification. In addition to processor heat output, cooling is also
constrained by markedly lower limits on processor case temperatures — e.g., 55°C, down
from a typical 80°C to 82°C — for a growing number of models. Other types of data center
chips, such as computing accelerators and high-performance switching silicon, are likely
to follow suit. This is the key problem: removing greater volumes of lower-temperature
heat is thermodynamically challenging.
Data centers strike the balance

Increasing power density may prove difficult at many existing facilities. Power or cooling
capacity may be limited by budgetary or facility constraints — and upgrades may be
needed for live electrical systems such as UPS, batteries, switchgears and generators. This
is expensive and carries operational risks. Without it, however, more powerful IT hardware
will result in considerable stranded space. In a few years, the total power of a few servers
will exceed 5 kW: and a quarter-rack of richly configured servers can reach 10 kW if
concurrently stressed.
Starting with a clean sheet, designers can optimize new data centers for a significantly
denser IT configuration. There is, however, a business risk in overspending on costly
electrical gear, unless managed by designing a flexible power capacity and technical space
(e.g., prefabbed modular infrastructure). Power requirements for the next 10 to 15 years
are still too far ahead to be forecast with confidence. Major chipmakers are ready to offer
technological guidance covering the next three to five years, at most. Will typical IT racks
reach average power capacities of 10 kW, 20 kW or even 30 kW by the end of the decade?
What will be the highest power densities a new data center will be expected to handle?
Today, even the best informed can only speculate.

Thermal management is becoming tricky too. There are multiple intricacies inherent in
any future cooling strategy. Many “legacy” facilities are limited in their ability to supply the
necessary air flow to cool high-density IT. The restricted temperatures typically needed by
(or preferable for) high-density racks and upcoming next-generation servers, moreover,
demand higher cooling power at the risk of losing IT performance (modern silicon throttles
itself when it exceeds temperature limits). To which end, ASHRAE recommends dedicated
low-temperature areas to minimize the hit on facilities’ energy efficiency.
A growing number of data center operators will consider support for direct liquid cooling
(DLC), often as a retrofit. Although DLC engineering and operations practices have matured,
and now offer a wider array of options (cold plates or immersion) than ever before, its
deployment will come with its own challenges. A current lack of standardization raises
fears of vendor lock-in and supply-chain constraints for key parts, as well as a reduced
choice in server configurations. In addition, large parts of enterprise IT infrastructure
(chiefly storage systems and networking equipment) cannot currently be liquid-cooled.
Although IT vendors are offering (and will continue to offer) more server models with
integrated DLC systems, this approach requires bulk buying of IT hardware. For facilities’
management teams, this will lead to technical fragmentation involving multiple DLC
vendors, each with its own set of requirements. Data center designers and operations
teams will have to plan not only for mixed-density workloads, but also for a more
diverse technical environment. The finer details of DLC system maintenance procedures,
particularly for immersion-type systems, will be unfamiliar to some data center staff,
highlighting the importance of training and codified procedure over muscle memory.
The propensity for human error can only increase in such an environment.
The coming changes in data center IT will be powerful. Semiconductor physics is,
fundamentally, the key factor behind this dynamic but infrastructure economics is driving
it: more powerful chips tend to help deliver infrastructure efficiency gains and, through the
applications they run, generate more business value. In a time of technological flux, data
center operators will find there are multiple opportunities for gaining an edge over peers
and competitors — but not without a level of risk. Going forward, adaptability is key.

Driven primarily by silicon technology, data center capacity planning will need to accommodate a
potentially fast-shifting balance between power, cooling and space.
Operators will be faced with various choices in handling new-generation IT technologies — in
restricting air temperatures (with the accompanying efficiency penalty); in creating dedicated
environments for temperature-restricted IT systems; or in facilitating DLC.
The limited time horizons of IT manufacturers’ current technical guidance (rarely extending
beyond a few years) means planners and designers lack information on future requirements.

PREDICTION 3
Cloud migrations to face

closer scrutiny
Big public-cloud operators have often had to compete against each other — sometimes
ferociously. Only rarely have they had to compete against alternative platforms for
corporate IT, however. More often than not, chief information officers (CIOs) responsible
for mission-critical IT have seen a move to the public cloud as low-risk, flexible,
forward-looking and, ultimately, inexpensive. But these assumptions are now coming
under pressure.
As the coming years threaten to be economically and politically turbulent, infrastructure
and supply chains will be subject to disruption. Increasing government and stakeholder
interest will force enterprises to scrutinize the financial and other risks of moving
on-premises applications to the public cloud. More effort, and more investment, may
be required to ensure that resiliency is both maintained and is clearly evident to its
customers. While cloud has, in the past, been viewed as a low-risk option, the balance of
While cloud has, uncertainty is changing — as are the cost equations.
in the past, been Although the picture is complicated, with many factors at play, there are some signs that
viewed as a low-risk these pressures may, already, be slowing down adoption. Amazon Web Services (AWS),
option, the balance the largest cloud provider, reported a historic slowdown in growth in the second half of
of uncertainty is 2022, after nearly a decade of 30% to 40% increases year-on-year. Microsoft, too, has
changing — as are flagged a likely slowdown in the growth of its Azure cloud service.
the cost equations. No one in the industry is suggesting that the adoption of public cloud has peaked, or
that it is no longer of strategic value to large enterprises. Use of the public cloud is still
growing dramatically and is still driving growth in the data center industry. Public cloud
will continue to be the near-automatic choice for most new applications, but organizations
with complex, critical and hybrid requirements are likely to slow down or pause their
migrations from on-premises infrastructure to the cloud.
Is the cloud honeymoon over?

Many businesses have been under pressure to move applications to the cloud quickly,
without comprehensive analysis of the costs, benefits and risks. CIOs, often prompted or
backed by heads of finance or chief executives, have favored the cloud over on-premises IT
for new and / or major projects.
Data from the Uptime Institute Global Data Center Survey 2022 suggests that, while many
were initially wary, organizations are becoming more confident in using the cloud for
their most important critical workloads. The proportion of respondents not placing
mission-critical workloads into the public cloud has dropped from 74% in 2019 to 63%
in 2022. Figure 3 shows the growth in on-premises to cloud migrations, encouraged by
C-level enthusiasm and positive perceptions of inexpensive performance.

Figure 3 Drivers for and barriers to cloud migration (infrastructure-level factors)

Growth suppressors
Mission-critical (macro / external)
on-premises to cloud
application migrations
Regulation
Access to
funding
Tighter
budgets Extended
server
Unclear life
business
Spiraling value
costs
Concerns
over cloud
application
resiliency
Server
refresh
cycles Growth suppressors
(IT / internal)
Perception
of inexpensive
performance
C-level
enthusiasm
Today
Growth drivers
High-profile cloud outages, however, together with increasing regulatory interest,

are encouraging some customers to take a closer look. Customers are beginning to
recognize that not all applications have been architected to take advantage of key cloud
features — and architecting applications properly can be very costly. “Lifting and shifting”
applications that cannot scale, or that cannot track changes in user demand or resource
supply dynamically, is unlikely to deliver the full benefits of the cloud and could create
new challenges. Figure 3 shows how several internal (IT) and external (macroeconomic)
pressures could suppress growth in the future.
One particular challenge is that many applications have not been rearchitected to meet
business objectives — most notably resiliency. Many cloud customers are not fully
aware of their responsibilities regarding the resiliency and scalability of their application
architecture, in the belief that cloud companies take care of this automatically. Cloud
providers, however, make it explicitly clear that zones will suffer outages occasionally
and that customers are required to play their part. Cloud providers recommend that
customers distribute workloads across multiple availability zones, thereby increasing the
likelihood that applications will remain functional, even if a single availability zone falters.
Research by Uptime shows how vulnerable enterprise-cloud customers are to single-
zone outages currently. Data from the Uptime Institute Global Data Center Survey 2022
shows that only 35% of respondents believe the loss of an availability zone would result in
significant performance issues, and only 16% of respondents indicated that the loss of an
availability zone would not impact their cloud applications.

To capture the full benefits of the cloud and to reduce the risk of outages, organizations
need to (re)architect for resiliency. This resiliency has an upfront and ongoing cost
implication, and this needs to be factored in when a decision is made to migrate
applications from on-premises to the cloud. Uptime Intelligence has previously found
that architecting an application across dual availability zones can cost 43% more than a
non-duplicated application (see Public cloud costs versus resiliency: stateless applications).
Building across regions, which further improves resiliency, can double costs. Some
applications might not be worth migrating to the cloud, given the additional expense of
resiliency being factored into application architecture.
Economic forces will reduce pressure to migrate to the cloud

Successful and fully functional cloud migrations of critical workloads carry additional
costs that are often substantial — a factor that is only now starting to be fully understood
by many organizations.
These costs include both the initial phase — when applications have to be redeveloped
to be cloud-native, at a time when skills are in short supply and high demand — and the
ongoing consumption charges that arise from long periods of operation across multiple
zones. It is clear that the cost of the cloud has not always been factored in: a major reason
for organizations moving their workloads back to on-premises from the public cloud
being cost (cited by 43% of respondents to Uptime Institute’s Data Center Capacity Trends
Survey 2022).
Cloud migrations of Server refresh cycles often act as a trigger for cloud migration. Rather than purchasing
critical workloads new physical servers, IT C-level leaders choose to lift-and-shift applications to the
carry additional public cloud. Uptime’s 2015 global survey of data center managers showed that 35% of
costs that are often respondents kept their servers in operation for five years or more; this proportion had
substantial — a increased to 52% by 2022. During challenging economic times, CIOs may be choosing to
factor that is only keep existing servers running instead of investing in a migration to the cloud.
now starting to be Even if CIOs continue to exert pressure for a move to the cloud, this will be muted by the
fully understood by need to justify the expense of migration. Despite allowing for a reduction in on-premises
many organizations. IT and in data center footprints, many organizations do not have the leeway to handle the
unexpected costs required to make cloud applications more resilient or performant. Poor
access to capital, together with tighter budgets, will force executives to think carefully
about the need for full cloud migrations. Application migrations with a clear return on
investment will continue to move to the cloud; those that are borderline may be put on the
back burner until conditions are clearer.
Additional pressure from regulators

Governments are also becoming concerned that cloud applications are not sufficiently
resilient, or that they present other risks. The dominance of Amazon, Google and
Microsoft (the “hyperscalers”) has raised concerns regarding “concentration risk” —
an over-reliance on a limited number of cloud providers — in several countries and
key sectors.

Regulators are taking steps to assess and manage this concentration risk, amid concerns
that it could threaten the stability of many economies. The EC’s recently adopted Digital
Operational Resilience Act (DORA) provides a framework for making the oversight of
outsourced IT providers (including cloud) the responsibility of financial market players.
The UK government’s Office of Communications (Ofcom) has launched a study into the
country’s £15 billion public-cloud-services market. The long-standing but newly updated
Gramm-Leach-Bliley Act (GLBA, also known as the Financial Services Modernization Act)
in the US now requires regular cyber and physical security assessments.
The direction is clear. More organizations are going to be required to better evaluate and
plan risks arising from third-party providers. This will not always be easy or accurate.
Cloud providers face the same array of risks (arising from cyber-security issues, staff
shortages, supply chains, extreme weather and unstable grids, etc.) as other operators.
They are rarely transparent about the challenges associated with these risks.
Organizations are becoming increasingly aware that lifting and shifting applications from
on-premises to public-cloud locations does not guarantee the same levels of performance
or availability. Applications must be architected to take advantage of the public cloud —
with the resulting upfront and ongoing cost implications. Many organizations may not
have the funds (or indeed the expertise and / or staff) to rearchitect applications during
these challenging times, particularly if the business benefits are not clear. Legislation
will force regulated industries to consider all risks before venturing into the public cloud.
Much of this legislation, however, is yet to be drafted or introduced.
How will this affect the overall growth of the public cloud and its appeal to the C-level
management? Hyperscaler cloud providers will continue to expand globally and to
create new products and services. Enterprise customers, in turn, are likely to continue
finding cloud services competitive. The rush to migrate workloads will slow down as
organizations do the right thing: assess their risks, design architectures that help
mitigate those risks, and move only when ready to do so (and when doing so will add
value to the business).

In a period of economic strain and uncertainty, the cost of migration and the threat of spiraling
cloud costs will slow down or deter some mission-critical migrations in the years ahead.
Many CIOs are only now starting to realize the challenges of achieving sufficient resiliency, at
scale, in the cloud. For those with critical services, the headlong rush to the cloud is likely to slow
down as the full implications of migration are analyzed and planned for.
Governments, regulators and executives are, often for the first time, trying to understand and
limit the risks associated with high dependency on the public cloud. This, too, will cause some
organizations to proceed more cautiously than in the past.

PREDICTION 4
Energy-efficiency focus to shift to IT

— at last
Data centers have become victims of their own success. Ever-larger data centers have
mushroomed across the globe in line with an apparently insatiable demand for computing
and storage capacity. The associated energy use is not only expensive (and generating
massive carbon emissions) but is also putting pressure on the grid. Most data center
developments tend to be concentrated in and around metropolitan areas — making their
presence even more palpable and attracting scrutiny.
Despite major achievements in energy performance throughout the 2010s — as witnessed
by Uptime data on industry-average PUE — this has created challenges for data center
builders and operators. Delivering bulletproof and energy-efficient infrastructure at a
competitive cost is already a difficult balancing act, even without having to engage with
local government, regulators and the public at large on energy use, environmental impact
and carbon footprint.
Limited power IT is conspicuously absent from this dialogue. Server and storage infrastructure account
availability in key for the largest proportion of a data centers’ power consumption and physical footprint.
data center markets, As such, they also offer the greatest potential for energy-efficiency gains and footprint
high power prices compression. Often the issue is not wasted but unused power: poor capacity-planning
and pressure to practices create demand for additional data center developments even where unused (but
meet sustainability provisioned) capacity is available.
legislation, mean Nonetheless, despite growing costs and sustainability pressures, enterprise IT operators
enterprise IT’s — as well as IT vendors — continue to show little interest in the topic.
energy footprint will This will be increasingly untenable in the years ahead. In the face of limited power
have to be addressed availability in key data center markets, together with high power prices and mounting
more seriously. pressure to meet sustainability legislation, enterprise IT’s energy footprint will have to be
addressed more seriously. This will involve efficiency-improvement measures aimed at
using dramatically fewer server and storage systems for the same workload.
Uptime has identified four key areas where pressure on IT will continue to build — all of
them pointing in the same direction:
• Municipal (local) resistance to new large data centers.
• The limited availability of grid power to support increasing data center capacity.
• Increasing regulation governing sustainability and carbon reduction, and more
stringent reporting requirements.
• High energy costs.

Municipalities — and utility providers — need the pace to drop

Concerns over power and land availability have, since 2019, led to greater restrictions
on the construction of new data centers (Table 2). This is likely to intensify. Interventions
on the part of local government and utility providers typically involve more rigorous
application processes, more stringent energy-efficiency requirements and, in some cases,
the outright denial of new grid connections for major developments. These restrictions
have resulted in costly project delays (and, in some cases, cancellations) for major cloud
and colocation providers.
Frankfurt, a key financial hub and home to one of the world’s largest internet exchange
ecosystems, set an example. Under a new citywide masterplan (announced in 2022), the
city stipulates densified, multistory and energy-optimized data center developments —
chiefly out of concerns for sprawling land use and changes to the city’s skyline.
The Dublin area (Ireland) and Loudoun County (Northern Virginia, US) are two
stand-out examples (among others) of the grid being under strain and power utilities
having temporarily paused or capped new connections because of current shortfalls in
generation or transmission capacity. Resolving these limitations is likely to take several
years. A number of data center developers in both Dublin and Loudoun County have
responded to these challenges by seeking locations further afield.
Table 2 Restrictions on new data centers since 2019 — selected examples

Location Restriction Outcome
Singapore Three-year moratorium on new data New builds must incorporate efficiency
centers from 2019 to July 2022. innovations and maintain a PUE of 1.3 or less.
Dublin (Ireland) De facto ban on new data centers due A more rigorous application process and
to denial of grid connections by utility stricter sustainability requirements are
provider EirGrid from January 2022, expected.
possibly lasting until 2028.
One-year moratorium on new builds Stricter regulations governing

in Amsterdam and Haarlemmermeer sustainability and PUE (1.2) have been
municipalities from 2019 to 2020. established.
The Netherlands
Nine-month national ban on hyperscale
Once lifted, stricter sustainability reporting
builds (>70 MW) from February 2022
and licensing requirements for new
(excluding Groningen and Noord-Holland
hyperscale builds are expected.
municipalities).
Groton One-year moratorium on new data center Once lifted, stricter environmental and noise
(Connecticut, US) builds (>5,000 square feet / 465 square regulations for new builds are expected.
meters) from June 2022.
Frankfurt New cloud and colocation builds restricted New requirements for heat reuse, multistory
(Germany) to specified zones from June 2022. construction, and compliance with strict
efficiency standards (under development)
are expected.
New builds restricted to specified zones New builds face stricter permitting and
and must meet higher sustainability design approval processes and must use
standards from September 2022. noise mitigation.
Loudoun County
(Virginia, US) New builds restricted by limited grid Many new builds will be delayed until the
connections from utility provider Dominion utility upgrades transmission infrastructure
Energy from July 2022. (expected 2026).

New sustainability regulations

Following years of discussion with key stakeholders, authorities have begun introducing
regulation governing performance improvements and sustainability reporting for data
centers — a key example being the EC’s Energy Efficiency Directive recast (EED), which will
subject data centers directly to regulation aimed at reducing both energy consumption and
carbon emissions (see Critical regulation: the EU Energy Efficiency Directive recast).
This regulation creates new, detailed reporting requirements for data centers in the EU
and will force operators to improve their energy efficiency and to make their energy
performance metrics publicly available — meaning investors and customers will be better
equipped to weigh business decisions on the basis of the organizations’ performance. The
EED is expected to enter into force in early 2023. At the time of writing (December 2022),
the EED could still be amended to include higher targets for efficiency gains (increasing
from 9% to 14.5%) by 2030. The EC has already passed legislation mandating regulated
organizations to report on climate-related risks, their potential financial impacts and
environmental footprint data every year from 2025, and will affect swathes of data centers.
Similar initiatives are now appearing in the US, with the White House Office of Technology
and Science Policy’s (OTSP’s) Climate and Energy Implications of Crypto-assets in the US
report, published in September 2022. Complementary legislation is being drafted that
addresses both crypto and conventional data centers and sets the stage for the introduction
of similar regulation to the EED over the next three to five years (see First signs of federal
data center reporting mandates appear in US).
Current and draft regulation is predominantly focused on the performance of data center
facility infrastructure (power and cooling systems) in curbing the greenhouse gas emissions
(GHGs) associated with utility power consumption (Scope 2). While definitions and metrics
remain vague (and are subject to ongoing development) it is clear that EC regulators intend
to ultimately extend the scope of such regulation to also include IT efficiency.
Expensive energy is here to stay

The current energy crises in the UK, Europe and elsewhere are masking some
fundamental energy trends. Energy prices and, consequently, power prices were on an
upward trajectory before Russia’s invasion of Ukraine. Wholesale forward prices for
electricity were already shooting up — in both the European and US markets — in 2021.

Certain long-term trends also underpin the trajectory towards costlier power and create
an environment conducive to volatility. Structural elements to long-term power-price
inflation include:
• The global economy’s continued dependence on (and continued increasing
consumption of) oil and gas.
• Underinvestment in fossil-fuel supply capacities while alternative low-carbon
generation and energy storage capacities remain in development.
• Gargantuan build-out of intermittent power generation capacity (overwhelmingly wind
and solar) as opposed to firm low-carbon generation.
• Steady growth in power demand arising from economic growth and electrification in
transport and industry.
More specifically, baseload power is becoming more expensive because of the economic
displacement effect of intermittent renewable energy. Regardless of how much wind and
solar (or even hydro) is connected to the grid, reliability and availability considerations
mean the grid has to be fully supported by dispatchable generation such as nuclear, coal
and, increasingly, gas.
However, customer preference for renewable energy (and its low operational costs)
means fleets of dispatchable power plants operate at reduced capacity, with an increasing
number on standby. Grid operators — and, ultimately, power consumers — still need to pay
for the capital costs and upkeep of this redundant capacity, to guarantee grid security.
IT power consumption will need to be curbed

Facility operators High energy prices, carbon reporting, grid capacity shortfalls and efficiency issues have
have passed the been, almost exclusively, a matter of concern for facility operators. But facility operators
point of diminishing have now passed the point of diminishing returns, with greater intervention delivering
returns ... but every fewer and fewer benefits. In contrast, every watt saved by IT reduces pressures elsewhere.
watt saved by IT Reporting requirements will, sooner or later, shed light on the vast potential for greater
energy efficiency (or, to take a harsher view, expose the full extent of wasted energy)
reduces pressures
currently hidden in IT infrastructure.
elsewhere.
For these reasons, other stakeholders in the data center industry are likely to call upon IT
infrastructure buyers and vendors to engage more deeply in these conversations, and to
commit to major initiatives. These demands will be completely justified: currently, IT has
considerable scope for delivering improved power management and energy efficiency,
where required.
Architecting IT infrastructure to deliver improved energy efficiency through better
hardware configuration choices, dynamic workload consolidation practices and the use
of power-management features (including energy-saving states and power throttling /
capping features) — will deliver major energy-efficiency gains. Server utilization, and
the inherent efficiency of server hardware, are two key dials that could bring manifold
improvements in energy performance compared with typical enterprise IT.

These efficiency gains are not just theoretical: web technology and cloud services
operators exploit them wherever they can. There is no reason why other organizations
cannot adopt some of these practices and move closer to the performance metrics
achievable. In an era of ever-more expensive (and scarce) power resources, together
with mounting regulatory pressure, it will be increasingly difficult for IT C-level managers
to deny calls to engage in the battle for better energy efficiency.

Both new-build data centers and redevelopments are facing increasing resistance from local
government, as well as limitations in grid capacity, in established and concentrated data
center hubs.
More stringent sustainability regulation and reporting requirements will force IT to deliver
improved performance in energy efficiency. Ongoing price pressures — unlikely to abate, even in
the long term — are a further driver.
Underutilized and inefficient server hardware remains one of the key reasons for
underperformance in energy. Fewer yet higher-performance, highly utilized servers could deliver
major energy gains. Refusing to deploy these improvements will be increasingly difficult to justify.

PREDICTION 5
Data center costs set to rise and rise

Up until two years ago, the cost of building and operating data centers had been falling
reasonably steeply. Improving technology, greater production volumes as the industry
expanded and consolidated, large-scale builds, prefabricated and modular construction
techniques, stable energy prices and the low costs of capital have all played a part. While
labor costs have risen during this time, better management, processes and automation
have helped to prevent spiraling wage bills.
Table 3 The past two years, however, have seen these trends come to a halt. Ongoing
Inflation rates as at September 2022 supply chain issues and rising labor, energy and capital costs all set to make
building and running data centers more expensive in 2023 and beyond.
Country Percentage
inflation rate But the impact of these cost increases — affecting IT as well as facilities —
The Netherlands 14.5 will be muted due to the durable growth of the data center industry, fueled
Sweden 10.8 by global digitization and the overwhelming appetite for more IT. In response,
most large data center operators (and data center capacity buyers)
Germany 10.4
are continuing to move forward with expansion projects and taking on
UK 10.1
more space.
Denmark 10.0
Smaller and medium-sized data center operators, however, that lack
US 8.2 the resources to weather higher costs are likely to find this particularly
Ireland 8.2 challenging, with some smaller colocation operators (and enterprise data
centers) struggling to remain competitive. Increasing overhead costs arising
Singapore 7.5
from new regulatory requirements and climbing interest rates will further
REFINITIV, NATIONAL challenge some operators, but an immediate rush to the public cloud is
STATISTICS OFFICES
unlikely since this strategy, too, has non-trivial (and often high) costs.
Capital costs
Capital plays a major part in the data center life cycle costing. Capital has been both
cheap and readily available to data center builders for more than a decade: but the
market changed in 2022. Countries that are home to major data center markets or to
major companies that own and build data centers are now facing decades-high inflation
rates (see Table 3), making it more difficult and more expensive to raise capital. But
with increasing demand for capacity, partly due to a pent-up demand resulting from
construction bottlenecks during the COVID-19 pandemic along with permitting and energy
supply problems more recently, the most active and best positioned operators are funding
their capacity expansion.
Uptime Institute’s Data Center and IT Spending Survey 2022 shows that more than
two-thirds of enterprise and colocation operators expect to spend more in data center
costs in 2023. Most enterprise data centers (90%) say they will be adding IT or data
center capacity over the next two to three years, with half expecting to construct new
facilities (although they may be closing down others).
The recent rise in construction costs may have come as a shock to some. Data center
construction costs and lead-times had improved significantly in the 2010s but we are now

seeing a reversal of this trend. An average Tier III enterprise data center (a technical facility
with concurrently maintainable site infrastructure) would have cost approximately $12
million per megawatt (MW) in 2010 per Uptime’s estimates (not including land and civil
works) and would have taken up to two years to build.
Changes in design and construction had resulted in these costs dropping — in the best
cases, to as little as $6 to $8 million per MW immediately before the COVID-19 pandemic,
with lead-times cut to less than 12 months. While Uptime has not verified these claims,
some projects were reported to have been budgeted at less than $4 million per MW and
taken just six months to complete.
The view today is markedly different. Long waiting times for some significant components
(such as certain engine generators and centralized UPS systems) are driving up prices. By
2022, costs for Tier III specifications had risen by $1 million to $2 million per MW according
to Uptime’s estimates. Lead-times can now reach or exceed 12 months, prolonging
capacity expansion and refurbishment projects — and sometimes preventing operators
from earning revenue from near complete facilities.
While prices for some construction materials have started to stabilize at an elevated level
since the COVID-19 pandemic, prices are expected to increase further in 2023. Product
shortages, together with higher prices for labor, semiconductors and power, are all having
an inflationary effect across the industry. Concurrently, site acquisitions at major data
center hubs with low-latency network connections now come at a premium, as popular
data center locations run out of suitable land and power.
Regulations in Uptime Institute’s Supply Chain Survey 2022 shows computer room cooling units, UPS
some major data systems and power distribution components to be the data center equipment most
center hubs mean severely impacted by shortages. Of the 678 respondents to this survey, 80% said suppliers
only developments had increased their prices over the past 18 months. Notably, Li-ion battery prices, which
with highly energy had been trending downwards every year until 2021, increased in 2022 due to shortages of
efficient designs can raw materials coupled with high demand.
move forward. More stringent sustainability requirements, too, contribue to higher capital costs.
Regulations in some major data center hubs (such as Amsterdam and Singapore) mean
only developments with highly energy efficient designs can move forward. But meeting
these requirements will come at a cost (engineering fees, structural changes, different
cooling systems), lifting the barriers to entry. New energy efficiency standards (as
stipulated under the EC’s Energy Efficiency Directive recast, for example) will stress
budgets still further (see Critical regulation: the EU Energy Efficiency Directive recast).
Operators are looking to recover the cost of sustainability requirements through efficiency
gains. Surging power costs, which are likely to remain high in the coming years, now mean
the calculation has shifted in favor of more aggressive energy optimization — but upfront
capital requirements will often be higher.

Operating and IT costs

The operating expenditures associated with data centers and IT infrastructure are also set
to increase in 2023, due to steep rises in major input costs. Uptime Institute’s Data Center
and IT Spending Survey 2022 showed power to be driving the greatest unit cost increases
for most operators (see Figure 4) — the result of high gas prices, the transition to renewable
energy, imbalances in grid supply and the war in Ukraine.
The UK and the EU have been most affected by these increases, with certain colocation
operators passing down some significant increases in energy costs to their customers.
While energy prices are expected to drop (at least against the record highs of 2022), they
are likely to remain well above the average levels of the past two decades.
Figure 4 Enterprise data centers most impacted by IT hardware costs

Regarding your organization’s colocation or enterprise data center expenses, in which areas
has your organization experienced the greatest unit cost increase over the past 12 months?
Choose no more than two.
64% Enterprise data center

58% owners / operators (n=252)
47% Colocation providers (n=88)
27% 28% 27%

16% 17%
13% 5% 11% 6%
Power cost IT hardware cost Labor cost Connectivity Additional Colocation costs /
(per kWh) (per device) (per employee) bandwidth cost space cost colo maintenance
(per gigabit) (per m2) cost (per usage)
("Other", "Don’t know" and "Public cloud (per resource)" responses are not included.)
UPTIME INSTITUTE DATA CENTER AND IT SPENDING SURVEY 2022
Second only to power, IT hardware showed the next greatest increase in unit costs for
enterprise data center respondents, partly because of various dislocations in the hardware
supply chain, shortages of some processors and switching silicon, and inflation. Demand
for IT hardware has continued to outpace supply, and manufacturing backlogs resulting
from the COVID-19 pandemic have yet to catch up.
Uptime sees promising signs of improvements in data center hardware supply, largely
due to a recent sag in global demand (caused by economic headwinds and IT investment
cycles). As a result, prices and lead-times for generic IT hardware (with some exceptions)
will likely moderate in the first half of 2023.
If history is any guide, demand for data center IT will rise again some time in 2023 once
some major IT infrastructure buyers accelerate their capacity expansion, which will yet
again lead to tightness in the supply of select hardware later in the year.

Staffing will also play a major role in the increased cost of running data centers, and
is likely to continue to impact the industry beyond 2023. Many operators say they are
spending more on labor costs in a bid to retain current staff (see Figure 5). This presents
a further challenge for those enterprises that are unable to match salary offers made by
some of the booming tech giants.
Figure 5 Labor spending driven by staff retention initiatives

Which of the following has been the primary driver of increased unit labor costs (per
employee) over the past 12 months? (n=80)
34% Salary / bonus

increases to attract
new employees
Salary / bonus 53%

increases to retain
existing employees 11% Staff training /
education cost
increases
2% Employee benefits
increases (healthcare,
insurance, etc.)
(”Other" and "Don’t know" responses are not included.)
UPTIME INSTITUTE DATA CENTER AND IT SPENDING SURVEY 2022
The aggregate view is clear: the overall costs of building and running data centers is set to
rise significantly over the next few years. While businesses can deploy various strategies
and technologies — such as automation, energy efficiency and tactical migration to the
cloud — to reduce operational costs, these are likely to entail capital investment, new skills
and technical complexity.
Will data centers becoming more expensive drive more operators towards colocation or
the cloud? It seems unlikely that higher on-premises costs will cause greater migration
per se. Results from Uptime Institute’s Data Center and IT Spending Survey 2022 show that
despite increasing costs, many operators find that keeping workloads on-premises is still
cheaper than colocation (54%, n=96) or migrating to the cloud (64%, n=84).
Estimating the costs of each of these options, however, is difficult in a rapidly changing
market, in which some costs are opaque. Given the high costs associated with migrating
to the cloud, it is likely to be cheaper for enterprises to endure higher construction and
refurbishment costs in the near term and benefit from lower operating costs over the
longer term. Not all companies will be able capitalize on this strategy, however.

Those larger organizations with the financial resources to benefit from economies of
scale, with the ability to raise capital more easily and with sufficient purchasing power to
leverage suppliers, are likely to have lower costs compared with smaller companies (and
most enterprise data centers). Given their scale, however, they are still likely to face higher
costs elsewhere, such as sustainability reporting and calls for proving — and improving —
their infrastructure resiliency and security.

The costs of critical digital infrastructure (including IT and data center facilities) have seen
consistent reductions up to recent years. This trend has now ended and prices are set to rise: a
trend likely to persist in the medium term.
Supply chain problems, and higher prices for capital, energy and labor, have all contributed to
rising costs.
Demand for digital services continues to fuel demand for data centers. There is no sign that
higher prices are set to dampen demand — although they are likely to drive renewed efforts to
improve efficiency.

Appendix
Recap of the five data

center trends for 2022
1. Moore’s law resumes — but not for all
In the past few years, the continuous improvements in chip processing speeds and efficiency
have stalled as key suppliers found themselves operating at the limits of physics. This is likely
to change from 2022 onward as advances in chip performance benefit at-scale infrastructure
operators (and, indirectly, cloud customers) the most. This is because recent trends in compute
technologies favor highly consolidated infrastructure and software that makes use of new
features. Technical organizations with the necessary skills and equipment will set new
benchmarks in infrastructure efficiency in 2022 and beyond.
2. Industry consensus on sustainability looks fragile

Major businesses are facing increasingly stringent sustainability reporting requirements, and
significant energy users, such as data centers, are in the firing line. Some of the proposed
methods of reducing carbon emissions are going to be complicated and may appear
contradictory and counterproductive. For this reason, we can safely predict that many managers
will be bewildered and frustrated with the requirements to report and reduce greenhouse gas
emissions and other environmental impacts in the years ahead.
3. Data center operators ponder the nuclear option

As major businesses feel a growing sense of urgency to dramatically cut carbon emissions,
opinions are starting to shift in favor of nuclear power, which is not classed as clean, but is a
near-zero carbon energy source. From 2022, we expect some major data center operators, along
with industry influencers and leaders, to support nuclear power more actively and openly — even
pressuring governments and utilities to invest in this option.
4. Concerns over cloud concentration risk grow

Following several high-profile cloud outages, and with regulators asking more questions, there
is growing concern that relying on a major cloud provider represents a single point of failure, not
just technically but also from a business-risk perspective. Key customers of cloud computing are
demanding a better view of their cloud suppliers’ infrastructure and a better understanding of
potential vulnerabilities. In 2022, we expect these “concentration risk” concerns to rise up more
managers’ agendas. Many managers will explore multicloud strategies.
5. Supply problems favor standardization and scale

Component shortages and supply chain delays resulting from the COVID-19 pandemic are likely
to persist into 2022 and beyond as demand for IT, and for new data center capacity, continues
to increase. Larger operators have benefited from their buying power and extensive use of
industrialization, as repeated use of the same designs encourages suppliers to continuously
invest in more efficient processes. Many smaller data centers, however, continue to request
custom one-off projects; those that embrace a standardized approach are likely to have the best
chance of remaining competitive.

About the authors

Andy Lawrence
Andy Lawrence is Uptime Institute’s Executive Director of Research. He is Uptime Institute’s
Executive Director of Research and has spent three decades analyzing developments in IT,
emerging technologies, data centers and infrastructure. He also advises companies on their
technical and business strategy.
alawrence@uptimeinstitute.com
Daniel Bizo
Daniel Bizo is Uptime Institute’s Research Director. He has been covering the business
and technology of enterprise IT and infrastructure in various roles, including more than a
decade as an industry analyst and advisor.
dbizo@uptimeinstitute.com
Owen Rogers
Owen Rogers is Uptime Institute’s Research Director of Cloud Computing. He has
been analyzing the economics of cloud for over a decade as a product manager, a PhD
candidate and an industry analyst. Rogers covers all areas of cloud, including economics,
sustainability, hybrid infrastructure, quantum computing and edge.
orogers@uptimeinstitute.com
Jacqueline Davis
Jacqueline Davis is a Research Analyst at Uptime Institute covering global trends and
technologies that underpin critical digital infrastructure. Her background includes
environmental monitoring and data interpretation in the environmental compliance and
health and safety fields.
jdavis@uptimeinstitute.com

Max Smolaks
Max Smolaks is a Research Analyst at Uptime Institute. His expertise spans digital
infrastructure management software, power and cooling equipment, and regulations and
standards. He has 10 years’ experience as a technology journalist, reporting on innovation
in IT and data center infrastructure.
msmolaks@uptimeinstitute.com
Lenny Simon
Lenny Simon is a Senior Research Associate at Uptime Institute covering global trends,
sustainability and technologies in critical digital infrastructure. Before joining Uptime, he
was an analyst at GreenMax Capital Advisors and worked in the Office of the Mayor of
New York City.
lbrandes-simon@uptimeinstitute.com
Douglas Donnellan
Douglas Donnellan is a Senior Research Associate at Uptime Institute covering
sustainability in data centers. His background includes environmental research and
communications, with a strong focus on education.
ddonnellan@uptimeinstitute.com
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UII KEYNOTE REPORT 86P • JANUARY 2023

FINANCE AND STRATEGY

Five data center

In this report, Uptime Institute Intelligence looks beyond some of the

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Figure 2 ——————————————————— 11 Figure 4 ———————————————————25

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Table 1 Predictions for 2022 remain valid

Stricter environmental policies will force division among industry stakeholders.

Control over critical infrastructure is increasingly in the hands of a small number

UPTIME INTELLIGENCE 2023

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Geopolitics deepens supply

UPTIME INSTITUTE SUPPLY CHAIN SURVEY 2022

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Rising geopolitical tensions generate risks

Semiconductors pose a unique problem

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The production of state-of-the-art photolithography machines, for example, relies on

Deep risks around subsea network

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The Uptime Intelligence View

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Too hot to handle? Operators to

Server heat turns to high

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Figure 2 Server power consumption on a steep climb

Polynomial (1U average watts at Polynomial (2U average watts at

SPEC.ORG, COMPILED BY UPTIME INTELLIGENCE

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Data centers strike the balance

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The Uptime Intelligence View

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Cloud migrations to face

Is the cloud honeymoon over?

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Figure 3 Drivers for and barriers to cloud migration (infrastructure-level factors)

UPTIME INTELLIGENCE 2023

High-profile cloud outages, however, together with increasing regulatory interest,

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Economic forces will reduce pressure to migrate to the cloud

Additional pressure from regulators

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The Uptime Intelligence View

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Energy-efficiency focus to shift to IT

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Municipalities — and utility providers — need the pace to drop

Table 2 Restrictions on new data centers since 2019 — selected examples

One-year moratorium on new builds Stricter regulations governing

UPTIME INTELLIGENCE 2023

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New sustainability regulations

Expensive energy is here to stay

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IT power consumption will need to be curbed