Data Center Transformation Market

[361 Pages Report] During the forecast period, the data center transformation market is anticipated to grow from USD 11.5 billion in 2023 to USD 18.9 billion by 2028 at a CAGR of 10.5%. Some important factors that boost the growth of the data center transformation market include the necessity to tackle significant network congestion within data centers, the proliferation of edge devices, and legacy modernization.

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Recession Impact on the Data Center Transformation Market

The recession impact has a medium-term impact on the market. The market vendors offering data center transformation services are impacted mildly. For example, in connection with the Russian invasion of Ukraine, Cisco has stopped its business operations in Russia and Belarus for the foreseeable future; those operations in Russia and Belarus included sales, services, and related support functions. However, despite inflation, the ongoing Russia-Ukraine conflict, and the looming threat of recession, private investors throughout 2022’s H1 poured billions of dollars into the data centers that power cloud computing.

Data Center Transformation Market Dynamics

Driver:  Indispensable requirements to improve data center uptime and energy efficiency

Outages or downtimes have been the biggest culprit behind immediate hefty losses, brand damages, reduced productivity, and potential data loss among major data center customers. According to the 2019 Uptime Institute global data center survey, 50% of respondents had an outage or severe IT service degradation in the past three years. As per the 2020 report by Uptime Institute, power failure was a critical cause of outages by over 37% of respondents. Power supply issues have long been the most common factor behind network or data center outages. The growing demand for energy across data centers and falling Power Usage Effectiveness (PUE) have compelled various governments to introduce PUE caps to curb the environmental impact of the growing data center power usage. Therefore, multiple organizations adopt modern data center infrastructure approaches to improve power efficiency, availability, agility, and resiliency. DCIM helps monitor nodes, gain information about assets, manage workflows, and track network and power connectivity to improve data center performance and prevent downtimes. The proactive maintenance and in-time troubleshooting help improve data center availability and energy efficiency while complying with the new energy regulations, improving overall performance.

Restraint: Data security and privacy concerns

As organizations modernize their infrastructures and migrate data to cloud environments, it becomes paramount to ensure the confidentiality, integrity, and availability of sensitive information: data breaches, unauthorized access, and regulatory non-compliance risks are at their peak during these transitions. Striking a delicate balance between seamless transformation and robust security measures demands meticulous planning, stringent encryption, access controls, and adherence to evolving data protection regulations. Failing to address these concerns adequately could lead to reputational damage, legal repercussions, and compromised customer trust, significantly impeding the progression of data center transformation initiatives. Organizations often work with third-party vendors for various aspects of data center transformation. Ensuring these vendors comply with data privacy regulations and security standards is essential to mitigate third-party risk. Also, when moving data between on-premises and cloud environments, organizations must maintain consistent data handling practices to protect personal and sensitive data. Some regulations require that certain data remain within specific geographic boundaries. Datacenter transformations involving cloud services must consider data residency and sovereignty requirements. Many regions and industries have strict data protection regulations, such as the General Data Protection Regulation (GDPR) in Europe or the US Health Insurance Portability and Accountability Act (HIPAA). Datacenter transformations must ensure compliance with these regulations, which can be complex and demanding. While cloud providers offer robust security measures, organizations must protect their data. Misconfigured cloud settings, weak access controls, and inadequate encryption can lead to security incidents.

Opportunity: Data center consolidation and optimization to drive the demand for data center transformation services

Data center consolidation plays a significant role in driving the demand for data center transformation services. Data center consolidation refers to optimizing and centralizing IT resources by reducing an organization’s number of data centers. This strategy helps businesses streamline operations, improve resource utilization, enhance efficiency, and reduce costs. However, data center consolidation is a complex undertaking requiring comprehensive transformation efforts.

Businesses are continuously acquiring and being acquired all over the globe. Such acquisitions may force the companies to consolidate and relocate their data centers to drive better business outcomes. Relocation helps in reducing costs while providing increased operational flexibility and improved efficiency. Data center relocation involves financial and operational challenges and requires a process-driven approach. Data center transformation services can benefit from this opportunity, aid in the consolidation and relocation process, and provide a holistic data center strategy that includes application dependency mapping, program management, virtual server migration services, and online data migration services between data centers. Therefore, data center consolidation necessitates a holistic IT infrastructure and operations transformation. The complexities of migrating, optimizing, integrating, and securing resources drive the demand for specialized data center transformation services. These services help organizations successfully navigate the intricacies of consolidation, ultimately achieving more efficient, cost-effective, and streamlined data center environments.

The US federal government owns many data centers and has long struggled to reduce its footprints and eliminate inefficiencies. The US Office of Management and Budget (OMB) established the Data Center Optimization Initiative (DCOI) to address challenges. DCOI requires federal agencies to develop and report on data center strategies for consolidating and modernizing their infrastructure. With this, the adoption of data center transformation solutions is increasing among federal agencies. Data center infrastructure providers, such as Sunbird Software and Nlyte Software, provide dashboards with their DCIM software that enlists DCOI KPIs and delivers insights into DCOI optimization efforts. As per the US Government Accountability Office (GAO), in FY 2021, federal agencies closed 58 data centers with savings of USD 612 million.

Challenge: Downtime and disruption challenge

Downtime refers to when services, applications, and critical business functions are unavailable to users, while disruption encompasses any disturbance or interruption to normal operations. Both challenges can have far-reaching consequences for organizations undergoing data center transformation. Downtime and disruptions can halt business operations, resulting in financial losses, missed opportunities, and customer dissatisfaction. Even brief downtime can have severe consequences in industries where 24/7 availability is crucial, such as e-commerce, finance, and healthcare. Every minute of downtime can be costly, particularly for high-transaction-volume businesses. Extended or frequent downtime can erode customer trust and damage a company’s reputation. Customer loyalty and brand perception can suffer if users experience frequent disruptions or perceive the organization as unreliable. Industries subject to regulatory requirements must ensure that data remains secure and compliant even during transformations. Downtime or disruption can potentially violate compliance standards and lead to legal consequences. Addressing downtime and disruption challenges requires careful planning and execution. Organizations should prioritize risk assessment, adopt phased approaches to transformation, implement robust testing and validation, and have contingency plans to manage unexpected issues. To overcome the challenges of downtime and disruption, organizations must approach data center transformation with comprehensive strategies that prioritize minimizing disruptions, ensuring business continuity, and maintaining a seamless user experience throughout the transformation process.

Data Center Transformation Market Ecosystem

This section highlights the data center transformation ecosystem comprising the colocation providers, cloud service providers, data center vendors, system integrators, and verticals. The data center transformation ecosystem varies based on the various vendors in the market. The data center transformation ecosystem represents a relationship between all the elements—vendors, solutions/services, and end users/verticals. System integrator design, build, synthesize, and implement applications that are customized as per the requirements of customers/users. SI players test and authenticate the data center transformation solution to determine suitability before integration. SI players own integration capabilities among software, hardware, services, or other related devices to develop a comprehensive data center transformation system.

The optimization segment will witness the second-highest CAGR during the forecast period based on service type.

Data center optimization maximizes an existing infrastructure’s efficiency, performance, and cost-effectiveness. The primary goal is to use resources best within the current setup. Data center optimization ensures that a data center operates at its highest capacity while minimizing operational costs and energy consumption. Optimization involves reconfiguring or changing data centers to reduce required resources without hampering the functionalities. Data center optimization services help organizations determine how to optimize performance and evolve their data centers to realize more value from the current infrastructure. Data center optimization services provide advantages such as improved performance of business-critical applications, reduced operational overhead, rapid adoption of technology innovations with fewer risks, reduced costs through efficient equipment and data center operations, better productivity, enhanced business processes, and increased revenue. Data center consolidation is about reducing the number of physical data center facilities, often with a strong focus on cost reduction, while data center optimization is about maximizing the efficiency and performance of the existing infrastructure, regardless of the number of facilities. End users often pursue either or both strategies, depending on their specific goals and circumstances.

Based on data center size, the mid-sized data center segment will witness the second-highest growth during the forecast period.

Midsized data centers have an area ranging from 10,000 to 25,000 square feet. Enterprises and cloud service providers use mid-sized data centers. These data centers are characterized by the high use of computing power to fulfill the data center needs of large companies. Tight constraints in operational costs and a greater need for energy efficiency also characterize them. Moreover, mid-sized data centers experience the high use of the virtualized environment for the optimal utilization of servers, and they require the optimal allocation of various data center resources. Mid-sized data centers are increasingly adopting data center transformation services to facilitate high performance, efficient design, and easy deployment. Organizations that have outgrown small data centers but do not require the extensive capacity of large data centers often opt for mid-sized facilities to meet their specific scaling requirements.

The US market contributes the largest share of North America’s data center transformation market during the forecast period.

The US is estimated to account for North America’s most significant share of the data center transformation market in 2023, and the trend will continue until 2028. Due to several factors, including advanced IT infrastructure, the existence of numerous businesses, and the availability of technical skills, it is the most developed market for adopting data center transformation. The US has the highest readiness for the adoption of cloud, and companies in the US will spend more on AI, ML, and data contact center solutions. The United States data center transformation market is a dynamic and rapidly evolving sector within the broader IT industry. It encompasses a wide range of services and solutions to modernize, optimize, and adapt data center infrastructure to meet the evolving needs of businesses in the digital age. The US has one of the world’s largest data center transformation markets. The market has experienced consistent growth due to the increasing demand for data center modernization and digital transformation. Businesses across various industries undergo digital transformation initiatives, often requiring updated and agile data center infrastructures. Some data center transformation providers are IBM, Deloitte, Accenture, and Cognizant.

Key Market Players

The key technology vendors in the market include Dell (US), Microsoft (US), IBM (US), Schneider Electric (France), Cisco (US), NTT (Japan), HCLTech (India), Accenture (Ireland), Cognizant (India), Google (US), Wipro (India), Atos (France), TCS (India), Hitachi (Japan), NetApp (US), Mindteck (India), Bytes Technology Group (UK), General Datatech (US), Insight Enterprises (US), Tech Mahindra (India), NETSCOUT (US), Dyntek (US), Softchoice (Canada), InKnowTech (India), Rahi Systems (US), Blue Mantis (UK), GreenField Software (India), Hyperview (Canada), FlexiScale (UK), LiquidStack (US), RackBank Datacenters (India), and Vapor IO (US). Most key players have adopted partnerships and product developments to cater to the demand for data center transformation.

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Scope of the Report

This research report categorizes the data center transformation market based on service type, tier type, data center type, data center size, verticals, and regions.

Based on the Service Type:

• Consolidation Services
• Optimization Services
• Automation Services
• Infrastructure Management Services

Based on the Tier Type:

• Tier 1
• Tier 2
• Tier 3
• Tier 4

Based on the Data Center Type:

• Cloud Data Center
• Colocation Data Center
• Enterprise Data Center

Based on the Data Center Size:

• Small Data Centers
• Mid-Sized Data Centers
• Large Data Centers

Based on the Vertical:

• IT & Telecom
• BFSI
• Healthcare
• Retail
• Transportation
• Manufacturing
• Government & Defense
• Energy & Utilities
• Other Verticals (Education and Media & Entertainment)

Based on Regions:

• North America
  • United States
  • Canada
• Europe
  • United Kingdom
  • Germany
  • France
  • Rest of Europe
• Asia Pacific
  • China
  • Japan
  • India
  • Rest of Asia Pacific
• Middle East & Africa
  • UAE
  • Saudi Arabia
  • South Africa
  • Rest of the Middle East & Africa
• Latin America
  • Brazil
  • Mexico
  • Rest of Latin America

Recent Developments:

• In August 2023, IBM unveiled the introduction of its new Turbonomic Reporting Dashboards, currently accessible to Turbonomic SaaS clients, with the release of IBM Turbonomic version 8.9.6. These upgraded reporting dashboards within IBM Turbonomic offer in-depth observations into both application performance and the utilization of the supply chain.
• In August 2023, Cisco and Nutanix, inc., a leader in hybrid multi-cloud computing, announced a global strategic partnership to accelerate hybrid multi-cloud deployments by offering the industry’s most complete hyper-converged solution for IT modernization and business transformation. This partnership will deliver an expanded market opportunity for both organizations as they tackle the challenges of standardizing, simplifying, and securing environments across the data center, the public cloud, and the edge.
• In July 2023, Schneider introduced the easy ups 3-phase modular, a sturdy, uninterruptible power supply (ups) engineered to safeguard vital loads, and it comes with third-party validated live swap capabilities. The easy ups 3-phase modular is offered in a 50-250 kW capacity range, featuring n+1 scalability and compatibility with the EcoStruxure architecture, enabling remote monitoring services. Its modular design and live swap feature make it ideal for small and medium-sized data centers and business-critical applications.
• In July 2023, HCLTech announced its collaboration with Schneider Electric, one of the leaders in digital transformation of energy management and industrial automation, to develop carbon-efficient solutions for data centers in the Asia Pacific (APAC) region.
• In June 2023, IBM announced plans to open its first Europe-based quantum data center to facilitate access to cutting-edge quantum computing for companies, research institutions, and government agencies.
• In June 2023, NTT unveiled its most recent hyperscale data center campus, Chennai 2. Additionally, they have introduced their subsea cable system, MIST, to the city. The Chennai 2 campus, situated in Ambattur and spanning 6 acres, represents a cutting-edge project with a planned total capacity of 34.8 MW for critical IT load across two data center buildings.
• In June 2023, Microsoft announced the upcoming availability of its first cloud region in Italy, providing Italian organizations access to scalable, available, and resilient cloud services and confirming its commitment to promoting digital transformation and sustainable innovation in the country.
• In June 2023, Dell has recently expanded its Dell Private wireless program, aiming to offer secure enterprise connectivity for edge locations. The program now supports Airspan and Druid wireless solutions, providing businesses with enhanced options for safe and reliable wireless connectivity at the edge.
• In May 2023, Wipro announced that its FullStride Cloud Studio has partnered with Google Cloud’s Rapid Migration Program (RaMP) to help clients accelerate their journey to the cloud and pursue a migration strategy anchored in business outcomes.
• In March 2023, Cisco unveiled a data center in India in Chennai, which will further expand to Mumbai. The aim is to ensure hybrid and multi-cloud environments in India.
• In February 2023, Microsoft and SAP partnered to launch RISE with SAP on Microsoft’s hyperscale cloud data center region in Qatar. SAP customers in Qatar can now host RISE with SAP on Microsoft Azure, expanding the opportunities for building a cloud-first economy in Qatar, the GCC, and the MENA region.
• In January 2023, NTT introduced pioneering implementations of Liquid Immersion Cooling (LIC) and Direct Contact Liquid Cooling (DCLC) technologies. NTT has recently achieved a significant milestone by deploying these technologies for the first time in the Asia-Pacific (APAC) region at its Navi Mumbai Data Center. This facility, situated within its Mahape campus, spans 13,740 square feet and boasts a capacity of 4.8 MW.
• In January 2023, Google entered into a long-term lease agreement for a data center spanning approximately 381,000 square feet in Navi Mumbai. This strategic move is part of Google’s expansion of its cloud infrastructure in India, addressing the increasing demand in one of its key growth markets.
• In November 2022, Atos & AWS jointly announced a Global Strategic Transformation Agreement. This agreement empowers Atos customers with substantial infrastructure outsourcing contracts to expedite their workload migrations to the cloud and achieve digital transformation. AWS and Atos will collaborate on developing and delivering innovative industry solutions for global IT outsourcing and data center transformation. Additionally, the partnership will focus on enhancing Atos’ workforce skills and optimizing its data center, cloud, and security operations, including targeted migration of legacy data centers and IT hardware assets.
• In March 2022, Microsoft and Fortum collaborated in which Fortum will harness surplus heat produced by a forthcoming Microsoft data center in the Helsinki metropolitan area of Finland. These data centers will operate on 100% clean energy. Fortum channeled the eco-friendly heat generated during the server cooling process to residences, businesses, and service providers linked to its district heating network. This waste heat recovery initiative from the data center region is poised to become the largest of its kind globally.

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