The Netcraft Web Server Survey found 500 million web sites this month.

The web now has more than 500 million sites, according to UK research firm Netcraft, which tracks Internet growth. The latest results reflect a period of torrid growth for the sites tracked in the Netcraft survey, which stood at 249 million sites last November, meaning the web has virtually doubled in size in 11 months. While there has certainly been strong growth in that period, it’s possible that some of the increase is related to improved site detection.

These benchmarks always trigger debates about the best way to measure Internet growth, but Netcraft is a popular baseline, as its survey has been conducted every month since August 1995, when there were 18,000 sites and the NCSA web server had a 57 percent share. Some personal history: I used to blog for Netcraft, and the day the Web Server Survey hit the 100 million site milestone I wound up on CNN.

Antonio Piraino, Research Director at Tier 1 Research, gives the keynote presentation at the Hosting and Cloud Transformation Summit.

LAS VEGAS – Are we in the midst of another Tech Bubble?  And is there too much data center supply?

Antonio Piraino said those are two of the most frequent questions he hears about the data center sector, both related to memories of the severe industry downturn of 2002-2003. Piraino, the Research Director for Tier 1 Research, had reassuring answers to both questions in his keynote presentation Monday at the Hosting & Cloud Transformation Summit (HTCS) event at the Bellagio.

“We keep being asked this question: are we in oversupply?,” said Piraino. “The short answer is no. There has been a large amount of supply coming online, (but) we still see demand outstripping supply. We do not see oversupply in this market.”

Longer Sales Process

Piraino said data center inventory in some markets is being affected by the pace of customers’ process of evaluating space. “We are finding it’s because enterprises are more elongated in the decision making, but it’s not because they don’t want to (lease space). ”

Many data center analysts have long memories of the overbuilding and data center glut from the dot-com bust of 2001-2003. In recent months, some industry watchers have expressed concern about growing inventory in areas like New Jersey.

That data center glut grew out of the bursting of the dot-com bubble in 2001-2001. Recent valuations for social media properties have led some pundits to conclude that there’s another tech bubble on the horizon. Piraino says there’s a reasons to be cautious about a tech bubble, but that doesn’t translate into big problems for the data center sector.

Less Debt, Smarter Building

“There’s a fundamental difference from 12 years ago,” said Piraino. “Yes, we are in Tech Bubble 2.0. A lot of this tech bubble is driven by social media.

“Back then, people were buying companies based on PowerPoint presentations,” Pirano noted. “Companies were incredibly leveraged. Now people are tightening their belts.”

Piraino also noted that data centers are now built differently. Improvements in phased construction, along with limited access to capital, have limited the prospect for overbuilding. That discipline, he said, adds up a very different level of risk exposure to a downturn in the startup and social media sectors.

Perhaps the best expression of Tier 1′s confidence: it projects that spending on Internet infrastructure will grow from $44 billion this year to about $58 billion in 2013.

HSBC announced plans to close the Amherst facility in 2009. Buffalo was the home base for Marine Midland, which maintained data centers in the region for decades before being was acquired by HSBC in the 1990s.

M&T would bring 75 new jobs to the site, and retain 45 existing jobs in Amherst, some at the new data center and others at the Commerce Drive location. M&T Bank already employs 1,314 people at two major operations centers and nine branch locations in the Town of Amherst. Across Western New York, M&T has approximately 5,000 employees, operates 84 branch office locations and owns and/or occupies nearly two million square feet of commercial real estate.

“At M&T Bank, we’re pleased to be working with HSBC on this project to keep the data center generating new investment and jobs in the community,” said Mark Czarnecki, President of M&T Bank. “As we’ve grown in the Northeast and Mid-Atlantic regions of the United States, M&T’s Western New York employment has more than doubled from 2,400 in 1999 to 5,000 today. This new investment gives us the room we need to expand our technology infrastructure–and the room we need to add more new jobs.”

The purchase is subject to additional due diligence and certain approvals from the Amherst Industrial Development Agency. M&T Bank operates retail and commercial bank branches in New York, Pennsylvania, Maryland, Virginia, West Virginia, New Jersey, Delaware, Florida, the District of Columbia and Ontario, Canada.

New data from one of the industry’s leading players, Digital Realty Trust, suggests that a growing number of large companies are turning to an outsourcing model for their data centers. An annual survey of large data center users found that  only 51 percent of respondents who plan to expand their data centers in 2011 are considering the do-it-yourself approach for any of their upcoming data center projects, a decline of 6 percent from last year’s results.

The survey, conducted by Campos Research, also found that 60 percent of respondents pursuing data center expansion in 2011 plan to lease space from a wholesale provider rather than building their own facilities, an increase of 7% over last year.

It’s not surprising that Digital Realty believes demand will be high, since the company is in the business of building and leasing data centers. But the findings align with the company’s tracking of demand for data center space, which showed a significant jump in the first quarter of 2011. Digital Realty says it is now tracking potential customer requirements totaling about 2 million square feet of space, up from its previous level of 1.4 million square feet.

‘Very Positive Uptick’
“We’re seeing a very positive uptick in market activity,” said Michael Foust, Chief Executive Officer of Digital Realty Trust (DLR). “We’re definitely seeing a clear trend for corporate IT to be more oriented towards outsourcing.

“One key finding is how decisively the industry is moving toward a model that relies on the expertise and resources of data center specialists,” said Foust. “The lease vs. own analysis has long been a consideration for the corporate enterprise customer. Increasingly, enterprises appear to be favoring the lease model as fewer companies are choosing to go it alone on these capital-intensive projects.”

The survey reported multiple signs suggesting data center demand will remain strong for 2011 and into 2012:

• 85% of respondents will definitely or probably expand in 2011 (a 4% increase over last year’s results) and a similar number will definitely or probably expand in 2012.
• 72% of respondents project an increase in their data center budget in 2011. The average budget increase is estimated to be 7.7% over 2010.
• The leading geographic locations cited by respondents for these datacenter projects in the U.S. are the New York/New Jersey metro area, Los Angeles, Chicago, San Francisco Bay Area and Dallas. Internationally, the most mentioned sites are London, Mumbai, Paris, Singapore, Tokyo and Hong Kong.
• Based on data from respondents who plan to expand their datacenters in 2011, the average maximum IT load is 2.8 MW of electrical power and the average size is 18,000 square feet for their datacenter expansions.

Foust said two data points from this year’s study support some of Digital Realty’s anecdotal experience from our working with customers. “First, datacenter projects have become very high-profile discussions involving the highest levels of companies’ management teams and second, new datacenter projects are being driven by the pursuit of energy efficiency and lower energy costs,” said Foust.

Kerrigan, the Director of the National Data Center Practice at Grubb & Ellis, put together a chart of recent industry deals, along with the transaction value as a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). A key driver of this activity has been the strong performance of data center companies and assets compared to other investment options. See Data Center Deals for 2010 for additional background on recent M&A activity.

“Data centers are one of the only types of real estate to have experienced any appreciation during the last three years,” writes Kerrigan, “The state of data center space is vastly different than that of the late 90s, and most experts believe that it would take more than $5 billion of investment to over-saturate the market. That is unlikely to occur during the next 10 years.”

Kerrigan notes that vacancy rates at data center have remained steady as more than 5.5 million square feet of stand-alone third-party data center space has been built in the past three years. Grubb & Ellis projects that demand will remain steady over the next two years, with digital television and social networking emerging as key demand drivers in 2011, while demand from the health care industry is likely to surge in 2012. See the Grubb & Ellis data center blog for the complete analysis.

But Apple’s North Carolina data center ushered in the Era of the Billion Dollar Data Center, and we’re starting to see more projects touting potential investments of $1 billion or more. These include the potential Verizon data center in Somerset, N.Y., which is stated to have a potential 20-year investment in excess of $4 billion.

The latest example comes from Missouri, where local officials claim a secretive data center project with the code name “Project Unicorn” could bring more than $1 billion in investment to an industrial park near Columbia, Missouri. Dave Griggs, the chairman of Columbia’s Regional Economic Development Inc. said this week that the Ewing Industrial Park had a major prospective tenant.

“We are currently working with a prospect that is well beyond a billion-dollar investment,” Griggs told the Boone County Fire Protection Broad, which approved an amendment to its tax abatement program to help attract the project. Griggs said the change would help put Boone County “on a level playing field” with other states pursuing the “Project Unicorn” tenant.

Is this really a $1 billion project? Or are numbers being inflated to try and sway legislators and local officials whose support it essential in assembling tax breaks? So long as the “Unicorn” prospect is cloaked in secrecy, these huge numbers are difficult to substantiate or debunk.

It’s worth noting that the Columbia site has been the focus of previous rumors about large tenants, especially during an effort this past spring to win state-level tax incentives. Earlier this year the Ewing Industrial Park project was tied to the Open Source Data Center Initiative, an initiative to develop an open source approach to data center design and engineering.

EchoStar Broadcasting is a subsidiary of EchoStar Corp (SATS). The broadcasting company will use the data center for internal supercomputing, data storage and archiving. EchoStar will also provide colocation to third-party customers, including DISH Network LLC, one of its largest customers. The colocation space will feature Tier III infrastructure for its power and cooling, and support high density rack-mount solutions.

“After visiting and reviewing more than 50 sites across the country, we chose Cheyenne due to our strong ties to the community, a business-friendly tax environment, reasonably priced power, and the availability of a professional work force,” said Jeff McSchooler, senior vice president of EchoStar Broadcasting Corp.

A Win for Wyoming
The state of Wyoming has been actively pursuing data center projects. The state’s economic development team has attended major industry conferences for several years, highlighting Wyoming as a destination for data center development. Cheyenne will also be home to a new data center that will house the NCAR-Wyoming Supercomputing Center, which scientists will use to accelerate research into climate change

The data center will initially add about a dozen new IT professional positions to EchoStar’s staff, which numbers more than 360 in Cheyenne at the company’s 24/7 broadcast center. The center is one of the largest providers of video channels in the world, and tracks and controls more than a dozen communications satellites. 

The Cheyenne uplink facility was built in 1994 to support the launch of DISH Network, one of the fastest growing satellite TV services. Today, it delivers uplink services for a variety of commercial and government customers.

Lightbound plans to invest $24 million in the construction of the 47,000-square-foot data center on West Henry Street, and expects to spend an additional $4.9 million on servers and telecom gear to support its oprations, according to local media.

The project is expected to create 35 jobs, and the company is seeking a nine-year tax abatement that could save it as much as $2.5 million.

Further, it plans to spend $4.9 million on new computer hardware, and telecommunications and related information technology equipment.

Lightbound expects the investment will create 35 jobs with an average wage of $24.76 per hour and will retain 32 jobs at an average wage of $22.97 an hour.

The Indianapolis Department of Metropolitan Development estimates the investments will result in an increase to the tax base of about $18.7 million of assessed value.

The nine-year abatements should save Lightbound a total of $2.5 million, the department said.

Previously known as iQuest. Partners with Exact Target.major tenant will be email marketing company ExactTarget Inc.

“Demand is far outweighing supply,” said Antonio Piraino, the Research Director of Tier 1 Research. “The demand is extremely healthy. We’re seeing more and more cloud computing providers coming into this space. It’s just a great opportunity for the data center space.”

Leases Absorbing Wholesale Space
Leases for more than 400,000 square feet of wholesale data center space were signed in the first quarter of 2010, according to Grubb & Ellis’ National Data Center Practice. Nationally, there are just six single-story properties with more than 30,000 square foot of raised floor space built out and available for occupancy today, according to a recent analysis by Jim Kerrigan and Bill Moser of Grubb & Ellis.

The limited supply of wholesale space in key markets has prompted some large users to move aggressively to secure space. Chief among these is Facebook, which in March leased much of the available wholesale data center space in two major markets, Santa Clara, Calif. and Ashburn, Va.

Hosting companies have also been active in the market, particularly in Chicago, where leases from ServerCentral and Rackspace for nearly 6 megawatts of power/space helped DuPont Fabros Technology helped fill up its data center in the western suburb of Elk Grove Village.

“Hosting has begun to show signs of recovery,” said Piraino. “Hosting had a tremendous slowdown in 2009. The growth has picked up again, particularly for managed hosting providers.”

New supply is coming on the market, especially in Santa Clara, where there are active construction projects for Digital Realty Trust (DLR), DuPont Fabros (DFT), Terremark (TMRK), CoreSite and newcomer Vantage Data Centers.

Haunted by History
Some market watchers get nervous when they see a flurry of data center construction. The overbuilding and data center glut from the cot-com bust left their mark on the industry. That period is often referred to as the “Field of Dreams” era, when leading data center and colocation providers borrowed heavily to pursue a strategy of “build it, and they will come.”

When the Internet market crashed, the customers never came, and many of the overbuilders wound up in bankruptcy, leaving gorgeously-engineered $100 million data centers sitting empty, to be sold for pennies on the dollar.

The distressed asset sales of 2001-2003 helped many of today’s leading providers acquire quality facilities cheap. But the pain on the other side of the transaction was acute, leaving investors, landlords, lenders and analysts with long memories of the industry’s nuclear winter.

As a result, there’s a deep-seated reflex in some quarters to be skeptical of strong demand and pose the question: Is this another round of overbuilding, setting the stage for oversupply and future disaster?

What’s Different Now?
There are several important differences between the data center industry of today and that of the dot-com boom years. Most of the current crop of companies and executives are survivors of the “Fields of Dreams” era, and made plenty of mental notes about common mistakes to be avoided.

Data center developers like Equinix and Digital Realty Trust track demand closely, conducting regular surveys of their customer base and the marketplace to assess the supply-and-demand dynamic. This is crucial for in-house capacity planning as well as reassuring lenders and investors.

The other big change is in the deployment of capital. Data centers are still plenty expensive, but are built very differently. Companies like WorldCom and AboveNet invested $100 million at a time to build out “barns” – complete raised-floor data centers spanning more than 100,000 square feet of space – before they had any customer commitments.

The building methodology of 2010 is based on a “pod” approach that allows for a phased build-out in chunks of about 8,000 to 10,000 square feet at a time. This also allows for repeatable design, which shortens the construction phase, allowing companies to move closer to a “just in time” model in which supply can be more closely linked to demand.

Most significantly, the demand is driven by a wholesale shift toward using the Internet for business and entertainment, a shift that is generating enormous volumes of data and growing requirments for data centers and network infrastructure to support it.

The survey of senior decision makers with responsibility for their companies’ data center strategies was conducted by Campos Research & Analysis for Digital Realty. Among the key findings:

• 83 percent of respondents are planning data center expansions in the next 12 to 24 months;
• 36 percent of respondents have definite plans to make those expansions during 2010;
• 73 percent of respondents plan to add two or more facilities as part of their data center expansions;

It’s not surprising that Digital Realty believes demand will be high, since the company is in the business of building and leasing data centers. But the customer survey’s major points were echoed by multiple panelists at Wednesday’s DataCenterDynamics New York event. 

Financing is a Factor
“Demand has been pretty steady,” said Dan Golding, Managing Director at DH Capital, an investment bank specialized in hosting and telecom deals. “The story has really been supply. It’s been very, very difficult for people to finance new data centers.”

At the national level, the pending demand for data center space may be three times greater than the available supply of quality space, according to Jim Kerrigan, the director of the data center practice at the real estate firm Grubb & Ellis. “All those deals that got shelved in 2009 because the CFO said no .. they’re going to happen,” said Kerrigan.

The end users at DataCenterDynamics New York included large firms in the financial sector, who concurred with the notion that cost-cutting has resulted in pent-up demand for data center space. “A year and a half ago we were talking about new data centers,” said Glenn Neville, Director of Engineering at Deutsche Bank. “Since then we’ve been talking about how long we can go with our current data centers. Our plans for growth are still there. Those plans are being postponed, but they’re not being cancelled.”

“It feels like someone closed a door, and things are backing up behind it,” said David Schirmacher, a vice president at Goldman Sachs.  

Big Chunks of Space Grow Scarce
Kerrigan said the supply and demand challenges will be most acute for companies needing large footprints of contiguous space. That imbalance stands in stark relief to the requirements described in the Digital Realty survey, in which 70 percent of companies planning data center expansions say they envision large projects of at least 15,000 square feet in size or 2 megwatts or more of power.

“One of the most interesting pieces of data in this study is the lead role that power is now playing in these expansions,” said Chris Crosby, Senior Vice President of Corporate Development for Digital Realty Trust. “The need for additional power has become the main driver for data center expansion plans as companies seek facilities with adequate power and favorable utility rates to control operating costs.”

As a result, more companies are tracking their data center power usage and using the data in their capacity planning. The survey found that 76 percent of respondents now meter their power use, while the number of companies that meter power down to the PDU level increased by 29 percent over last year. “These are very positive signs that companies better understand their data centers’ energy use and can make informed decisions to reduce energy consumption,” said Crosby.