Barely a month goes by without news of another data centre opening or expanding in Australia. Are all these new racks simply meeting market demand or future-proofing as the world moves to cloud? Is there a shortage of capacity, or a glut?
The short answer is: perhaps, but only in Sydney, and even then, it’s complicated. CRN spoke with a range of data centre providers and related companies to try to get a handle on what’s happening with capacity in Australia.
New kids on the block
Everyone CRN spoke to recalled the pain five to 10 years ago when data centre capacity was constrained. Lack of substation capacity was common, and floor space was at a premium. Data centres were relatively old and cramped, in dingy locations.
Many were owned by telecommunications providers: Telstra, Optus, and the like. When customers or IT service providers leased space with them, they were often corralled into choosing the telco as their network provider as well. Cross-connect costs were high, discouraging customers from choosing a competitor’s network services. Other space was available as part of the outsourcing binge, but this was with your choice of outsourcer, such as IBM, EDS, Accenture, and came as part of the overall deal.
“Space was scarce, but then there were some big moves by Digital Realty, NextDC and Equinix,” says Chris Deere, deputy CEO at Vocus Communications. “There was a need in the market. There wasn’t a lot of capacity. It was a good time to get in.”
Damien Spillane, APAC director of sales engineering at Digital Realty, agrees. “Particularly two to five years ago, there was a real lack of high-quality provider space in Australia. You had a scenario where a lot of organisations were building their own data centres.”
Then the new providers arrived, seemingly all at once. Equinix, Global Switch, NextDC and Metronode all built out large amounts of capacity in shiny new data centres. Suddenly, there was a lot of space to choose from. But that was a few years ago, and the market has had time to absorb some of the capacity. Is there a glut now?
Data centres take a while to plan and build. While it’s easy enough to turn on a new virtual machine with a few clicks and a credit card, building a Tier 3-rated data centre takes a lot longer. If a new facility is full on day one, you’d need a lot of other buildings online one after another.
“There’s going to be a lot of demand,” according to Bob Sharon, executive director at consultancy Green Global Solutions. “A lot of spaces are filling up, even though on the floor it looks quite empty. There’s a lag between order and kit on the floor.”
Tim Gentle, general manager at Australian IT Services, which perform cleaning and maintenance work for data centre providers, agrees. “Twelve months ago, maybe there was a glut, but now it’s really taking off, over maybe the last six months in particular. Global Switch [Sydney] East is full now.”
Multiple markets
Getting a handle on the capacity available in the market depends on understanding the market’s structure, and this is where things start to get complex. Not all data centres are created equal, and they are different in multiple ways.
The traditional model of co-location is the most well known – selling power and space in a big warehouse built for IT systems, with the provider managing the facilities, but the systems owner looking after their own kit. Then there’s the managed service provider model, which adds a lot of additional services on top of the co-location of physical gear.
Traditional providers such as IBM still use this model, but there are a host of other companies, like Dimension Data and Interactive, who also provide this model. These providers use a mix of their own, purpose-built data centres, such as Interactive’s new facility in Port Melbourne, and co-location space leased from organisations like NextDC.
Then there’s old versus new. Older facilities are less energy efficient, tend to be smaller, and won’t have the same power or network capacity of newer buildings. Even the relatively new Metronode Sydney 1 facility has only 2,900m2 of space, compared to the Sydney 2 facility with nearly triple the space, at 7200m2.
Newer facilities also tend to have extra, non-computer facilities, such as comfortable break rooms with TVs and snack machines. While the computers that sit in the halls probably don’t care about foosball, the humans who occasionally need to tend to them (and have to sign the contract in the first place) sometimes do.
“It’s getting very competitive. If you’ve got a dowdy entrance, you’ll have trouble selling stuff,” says Tim Gentle. “With the co-los now, it’s very much a show thing. Meeting rooms, the breakout rooms, BCP facilities, staging rooms. It’s all got to be ‘A1’ now. The data centre managers themselves are becoming more accomplished salespeople as well.”
Then there’s the question of geography. People want data centres close to them, and there are plenty of good reasons why: physical access to load gear in and out, proximity to major network links, access to a network of service providers, such as specialist cleaning and security staff. There are also more psychological reasons, such as the sense that you can get in your car and drive to the data centre if you should need to, for some nebulous future reason.
Next: who has data centres in Australian capitals?
Sydney
Sydney has by far the most data centres, both in square metres of floor space and in kilowatts of power available, largely due to the presence of Global Switch and Equinix. What has that meant for capacity in the harbour city?
“Sydney? My God, there’s a glut,” says Simon Cooper, chief operating officer at NextDC.
“Right now, I would say that in the short term there’s an oversupply of facilities in the market,” says Michael Gunton, general manager of data centre facilities at Fujitsu. “In the medium term, I’m reasonably sure it’ll get filled.”
Every provider CRN spoke to said customer demands were driving them to build data centres. For customers, there seems to be no single reason behind all this space in Sydney. Rather, it’s a combination of factors that all conspire to make Sydney a preferred location.
Sydney is the landing point for multiple inter-continental communications cables, which provide the bandwidth that global companies require to move data in and out of the country. That can be important for global organisations that want to minimise the latency between their international offices.
Sydney is also roughly midway between Melbourne and Brisbane, the second and third most populous cities in Australia. If you’re looking for somewhere to place your first set of servers, right in the middle makes a certain logical sense.
Many organisations have their headquarters in Sydney, and for those that don’t, Sydney is a large market into which they’re bound to expand if national growth is part of the plan. “If you’re a successful Australian enterprise, you need to get into Sydney at some point,” says NextDC’s Simon Cooper.
Finally, Sydney enjoys the dubious honour of being the only Australian city many foreigners know. It is, therefore, top of mind when choosing between more-or-less equal other choices, and that could be enough to tip the balance.
Melbourne
Melbourne is, in some ways, playing second fiddle to Sydney. It’s not quite as large – by population or market – and isn’t as famous internationally as its more photogenic cousin with the fancy white theatre and coat hanger bridge.
Global Switch has foregone a Melbourne location completely, and Equinix only commissioned its first facility this year after building three in Sydney (with a fourth announced). Both providers are decidedly more globally focused, and if their capacity is removed, Melbourne and Sydney are on a far more even footing. Melbourne is still a major market domestically, and that tends to be the focus of customers choosing Melbourne for their data centre.
“The reality is that they [Sydney and Melbourne] are both similar, from a tech perspective,” says Digital Realty’s Damian Spillane.
Canberra
Canberra tends to be chosen for two major reasons: to be close to a government department, and as a disaster recovery location from Sydney. Canberra is just close enough to Sydney to drive to, and far enough away to provide good geographical separation. “Canberra is highly government department-led,” says NextDC’s Simon Cooper. Again, if we exclude the presence of Global Switch and Equinix in Sydney, Canberra has close to the same data centre capacity as Melbourne.
Perth
Perth is the other major landing point for inter-continental communications cables, apart from Sydney, but its distance from the major population centres of Australia means few organisations set up shop there unless they have a compelling local reason to be there.
Perth tends to be the choice for mining and resources companies, and those who want another diverse path out of Australia, but still want to be close to the cable landing point.
“Perth has lots of the resources sector, and serving the solutions side of the market,” says Cooper.
Brisbane
Brisbane is our third largest capital, but there isn’t as much call for hosting as in other capitals, beyond the few locally focused organisations with enough IT needs that they want to maintain locally. Think Suncorp and Flight Centre.
Based on the sample data for this report, Brisbane makes up less than 2 percent of total data centre capacity in Australia.
Market growth
The market is well supplied with enough capacity to serve existing and forecast demand. There is spare capacity in Sydney, which is leading to some discounting, but other cities seem to have capacity matching demand quite well.
The overall market for data centres is definitely growing, driven by corporate demands to store ever increasing amounts of information, and the continued growth of cloud computing in public, private, and hybrid modes. But if a provider is not already in the data centre market, the advice is to stay out or get eaten alive by companies that are bigger and better at it.
“My concern in the cloud space, competing with AWS and Azure, you’re competing with a utility product. That forces you into a niche offering,” says Chris Deere from Vocus.
Over the next 18 months, it’s likely that smaller providers will either become heavily focused on higher-margin, full-service offerings, or be acquired by larger players better able to play the return on assets game.
Consolidation is already taking place: Vocus has grown its data centre network to 20 sites through its $600 million acquisition of Amcom as well as the smaller deal for two data centres from Enterprise Data Corporation (EDC). It would be fair to assume that Vocus will look to consolidate these dispersed workloads.
Older facilities will get refurbished or sold off, and much of the ‘internal’ data centre capacity inside office buildings will be migrated into newly built, modern facilities. CIOs everywhere can get rid of the headaches of managing physical space and make it someone else’s problem while they focus on trying to be relevant to the businesses they serve.
“Capex is more difficult for companies than ever before,” says Michael Gunton, general manager of data centre services at Fujitsu. “People want to move to a just-in-time opex model.”
“Digital transformation is a revolution, happening now. Companies out there are saying, ‘I don’t need to run my own kit, pay licence fees, buy my own servers and pay people to run them. I can run it in the cloud. I can just pay a monthly fee.’”
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