This article is the second analyst insight of a four-part series from IHS Markit in which the Data Center Infrastructure team will explore the potential benefits of edge data centers and what they mean for related infrastructure markets. This discussion focuses on how edge data centers are affecting the UPS market. For an introduction to edge data centers, see part one of the series. The markets still to be assessed are containerized data centers and multitenant data centers.
The UPS market is still feeling the effects of overcapacity, political and economic unrest, less redundant UPS schemes, consolidation in enterprise data centers, and outsourcing of IT-asset management from enterprise data centers to multitenant data centers and cloud services. These factors have combined to outweigh the increasing digitization and computing demands worldwide, leading to a 4.3% contraction in the UPS market from 2014 to 2015 and resulting in revenue just under $7.3 billion.
These factors are leading to a UPS market that is beginning to feel the effects of bifurcation. Companies are continually shifting away from owning their own data centers and are instead outsourcing their IT management to colocation and cloud-service providers. This dynamic is creating fewer but larger data centers. As this shift is happening, we are seeing a “scoop” taken out of the middle segment of the UPS market, owing to fewer small and medium-size data centers. The result is an expectation that in the long term, large three-phase UPSs will experience the biggest growth. Although this trend is still a prediction for the long term, 2015 has shown some surprising strength in smaller kVA segmentations.
The global market for UPS with power ratings of 10.1–100 kVA was relatively flat from 2014 to 2015, contracting by 0.3%, while the overall market declined at a much steeper rate of 4.3%. In developed regions, such as North America and Western Europe, this divergence away from the general market contraction rate was even greater, with some countries even growing in this power-rating segment year over year from 2014 to 2015. Why? Developed regions have a higher percentage of total UPS revenues driven by colocation and cloud-service providers than developing regions do. As this shift is happening, the “business edge” is performing quite well.
Although companies are outsourcing to colocation and cloud-service providers, they are also keeping a few mission-critical applications in house. On average, IHS finds the applications required to remain on the premises to be 10–20% of total computing and storage needs, although this number varies by industry. This 10–20% of “what’s left”—the business edge—is positively affecting this 10.1–100 kVA range. These applications are remaining on premises, as they are mission critical and/or data-security sensitive. Therefore, they not only require backup from a UPS system, but they are more likely to have a higher average redundancy to ensure the greatest availability and reliability. Generally, this situation also means a UPS-refresh cycle. When a business shifts to a cloud- or colocation-service provider, its on-premises IT load shrinks. As UPSs operate more efficiently at a higher percentage of IT-load capacity, using an oversized UPS (which would have been sized to the data center before the colocation- or cloud-service transition) could lead to thousands of dollars lost in inefficient energy usage. Therefore, growth in cloud and colocation services is leading to growth not only in large UPS systems but in smaller ones as well. This growth, however, is not organic; rather, it’s cannibalization of medium-size systems, resulting in bifurcation of the UPS market.
The “consumer edge” is the other half of the story. This term refers to edge data centers that serve consumer applications, such as Netflix. As data centers become more centralized, certain applications may require further geographic reach to improve the end-user experience. These applications could even deliver cost savings through less stringent network requirements at central data centers. The Netflix Open Connect program, discussed in part one of this series, is a good example. The company works with ISPs to provide a Netflix Open Connect appliance, or a “Netflix box,” closer to the end user to enhance the consumers experience in a specific geographic region. Although this type of application isn’t mission critical, the physical location of the hardware may be more difficult or expensive to service if it resides outside an ISP’s data center. According to Netflix, the Open Connect appliance only requires 750 watts. Other hardware is likely to reside in a Netflix box, but a small UPS in conjunction with this hardware could mitigate the need for a service engineer to be sent to assess any damage or replace the box after a power spike or outage. Netflix pays the bill for this hardware, so it already prohibits direct power connection to the Netflix box in case of any power fluctuation, bolstering the case for a UPS. Therefore, hardware protection and service costs could drive the attachment rate of UPSs in edge applications, even if they are not mission critical.
The consumer edge remains undeveloped, with Netflix being a rare and mature example. As consumers continue to demand more content at the click of a mouse (or swipe of a finger), the consumer edge is expected to grow. Consumer-edge applications could scale to much larger sizes (about 10–100 kVA), acting as cache points for data-heavy consumer regions and keeping general network traffic down during peak usage. Growth in the consumer edge can be viewed as a complement to growth in centralized cloud and colocation services, with some of these services beginning to provide offerings in this space.
With growth from the business edge already affecting the market, and with the consumer edge starting to gain traction, edge data centers are predicted to have a positive impact on UPS systems of less than 100 kVA. Continue following the IHS Markit series on edge data centers to learn how edge data centers are affecting the containerized data center and multitenant data center markets as well.
About the Author
Lucas Beran is an analyst in the Data Centers, Cloud & IT Infrastructure group at IHS Markit. The team produces high-quality market intelligence covering uninterruptible power supplies (UPSs), power distribution, precision cooling, rack enclosures, colocation, structured cabling and service/support. Lucas joined IHS Markit in early 2016 and has since been responsible for producing semiannual reports covering the UPS global market. Before IHS Markit, he obtained a degree in economics from Boise State University and had been working in Copenhagen, Denmark, in IT, including server-room management.