By Vidhan Rana

As more and more people today watch videos, store their documents and pictures, and get their news online, the need for online storage capabilities has increased tremendously. As we hit the search button on Google’s search engine, Google servers in one of Google’s 36 data centers around the world get busy. Google has 20 data centers alone in the US (including those currently under construction). The company invested $1.9 billion on data centers in 2006, and $2.4 billion in 2007.

Alongside big Internet companies such as Google, data co-location service providers are also making the most out of this favorable trend. Equinix, a company that provides data co-location services for companies that cannot build their own data centers, has increased its revenue from $221 million in 2005 to $705 million in 2008. Since hitting its lowest stock price of $32.72 a share in November 2008 in the last 52 weeks of trading, Equinix (NASDAQ: EQIX) has almost doubled in value to about $72 a share now. The overall market (S&P; 500 index) only increased by around 20% in the same time period.

Using Conway Scorecard Data, a service that tracks new investment and expansion announcements in the United States, we identified 426 data center announcements in the United States between 1993 and 2008. In 2008 alone, there were 57 new project announcements, the highest on record, bringing recorded investments of over $3 billion. The chart below shows the level of projects by year in the United States between 1993 and 2008.

Though the number of data center projects continued to increase despite the financial turmoil, the dollar amount of investments declined in 2008. The chart below shows the dollar amount of data center investments in the United States between 1993 and 2008.

Notice the spike in investment in 2000 and 2001. Data center investment remained fairly low in the years after the “dot com” crash. However, since 2005 investments have increased dramatically. The total recorded investment in the last three consecutive years were $2.7 billion in 2006, $5.1 billion in 2007 and $4.1 billion in 2008.

We measured investment per data center project and saw a marked decline in per-project investment for both new and expansion announcements. The chart below shows the comparison of investment per project for data centers between 1993 and 2009.

Investment per new project has declined from a peak of $115 million per project in 2007 to $32 million per project for the 11 projects we have identified in 2009. Similarly, investment per expansion project has declined from $71 million per project to $28 million per project in 2009.

This change may be attributed to factors such as improvements in technology in the industry, which has led to the decrease in the size of data servers and thus a decrease in the size of data center facilities. The limited availability of financing for large projects, perhaps, also contributed to companies taking on smaller projects.

Texas, Virginia, California, Kentucky, and Ohio have been the top states in the data-center industry in the last 15 years. In 2008 alone, Texas received 14 data center projects. Ohio and Kentucky had nine and seven projects respectively. Kentucky had no projects in 2007, when the industry was fairly active in other parts of the country, but there were seven projects in 2008. Similarly, there was only one project in Ohio in 2007, but activity jumped in 2008 with 9 project announcements.

The map below shows the location of the top thirty data center projects in the United States in terms of investment dollars in 2008.*

As the map above shows, the major data center announcements have centered close to major metro areas. However, there have been projects in rural areas that are within two to three hours driving range of a major city. Whittaker Associates is currently undertaking a study to determine if there is any difference between companies that expand within a metro area or those that stay outside of it.

These top 30 projects had a cumulative investment of $3,041 million out of the $4,102 million recorded in 2008 for the 57 projects that Whittaker Associates identified. According to a recent article in PC World Magazine, forty percent of the companies that operate data centers will run out of data center space in the next 12 months. As the cost of creating additional space for data centers is rising and obtaining financing is becoming more difficult, many companies will go the co-location route. Therefore, demand for co-location provider’s services is expected to skyrocket. This means that 2009 is going to be a busy year for the data center industry, despite the economic slowdown.