A Data Center Recovery?

Red Herring thinks so. In a feature story this week, the well-read technology mag asserted that the data center meltdown was coming to a close and "an industrywide turnaround might be just a few months away." The article raises two important questions: is this analysis correct, and will the industry benefit from this shift in analytic sentiment?

The article's author, Om Malik, writes regularly on communications for Red Herring, and has also written for Forbes and The Wall Street Journal. Back in May of 2001, he penned a piece titled "Data centers run for cover" chronicling the collapse of the market. Less than a year later, Malik suggests a dramatic turnaround is on the horizon, citing improvements in data center fill rates, as well as slightly improved valuations for facility sales.

Those trends hold true for the best-positioned companies and the best-engineered data centers. And it's clear that the level of activity in the sector is accelerating. In the past month, we've seen a significant surge in inquiries through our Data Center Exchange and Colocation Guide web sites, as well as a pickup in advertising on the Carrier Hotels web site. Clearly, some insiders believe it's the right time to go shopping for data centers and start marketing facilities and services.

At the same time, in the past 18 months I've had a front row seat for the carnage in this sector. The distress is much deeper and broader than high-profile indicators - like the performance of either Exodus or Rackspace - might suggest.

The underlying health of the telecom industry isn't getting any better, either. Just this week, both Light Reading and Network World published analyses suggesting a telecom recovery is a long way off.

Yet there is one factor that could help the data center industry get better in a hurry - money. In that respect, feature stories by Red Herring can make a difference. The magazine and its web site have an influential readership, especially among venture capitalists.

As the dot-com boom proved on the way up, sentiment and momentum are important in technology investing. It'll never be 1999 again. But as the industry makes the transition from the Era of Overbuilding to the Era of Frugality, even a fraction of that kind of funding would make a big difference.