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February 28, 2006

One of the many supply-demand imbalances that emerged during the dot-com boom was in data-center space. A lot more was built than was used, and prices collapsed when all the Internet startups went belly-up. I've been hearing reports, though, that the price of quality data-center space is now rising briskly, spurred by the continuing explosion in storage needs, regulatory requirements for data security, and the enormous power and cooling demands of ever-denser computing arrays. The latest evidence of a coming space squeeze is the purchase last week, by Apple Computer, of a huge 107,000-square-foot Tier IV center in Silicon Valley that had been built for MCI WorldCom in 2001 but had never been used.

Reporting on the buy, the San Jose Business Journal notes that:

valley developers completed some 3.5 million square feet of such facilities in 1999-2001. The real estate niche, once-considerable over-capacity, is dwindling steadily, meaning the cost of leasing or purchasing such facilities is rising accordingly, [broker Jerry Inguagiato] added. "Rental rates and purchase prices are very fluid at the moment" amid rapidly changing supply-and-demand dynamics, Mr. Inguagiato continued. "Users know the longer they wait, the more expensive these facilities are bound to get, so they see it's in their interest to control these assets" by purchasing the real estate or negotiating purchase options for leased facilities. Users bought and leased more valley data center facilities last year than during the three previous years combined, Mr. Inguagiato noted.

So you can add space constraints to the growing list of factors pushing companies toward the utility model for IT supply.

As for Apple, why does it need all that new space? Well, if you're about to make a move into the movie-downloading business, you better have a big data center in hand.


We can all hope for an Apple movie-downloading business, but it can't be practical until we move on to the next generation of broadband internet. Let's just hope they don't sell movies through iTunes. Wouldn't that be silly.

Posted by: Brad Mattison at February 28, 2006 03:39 PM

I would look at these events more as a market naturally moving toward equilibrium as opposed to validating your 'IT as a utility" claims. That particular market has always been subject to extremely wide swings in either direction, so I find any serious move positive or negative there as a regression to the mean as opposed to an indicator of the future.

P.S. When it gets to the point, as it did in 1999, where landlords ask for equity from tenents in addition to rent, it's time to bail...

Posted by: Bob McIlree at March 1, 2006 09:23 AM

Apple already has a very popoular Movie Downloading Service:


and the quality is surprisingly good at high or HD levels, so all that needs to happen is scaled up from a few minutes to 90+ minutes, the bandwidth is in place in many areas already, so all apple needs to do is put the xServes in place, change the iTunes name to iMovies or (whatever) and let the popcorn pop!

Posted by: OS11 at March 6, 2006 07:30 PM

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