2023 progress report: Digital transformation and the energy transition

2023 data center progress report: digital transformation and the energy transition

Introduction

Commercial data centers are one of the most digitallyadvanced of all sectors, given that new IT technologies are literally their stock in trade. That doesn’t necessarily make the job of digitizing their own operations any easier. They sometimes lack the digital tools needed for timely, actionable insights into critical operational and sustainability metrics. They’re also often overwhelmed with too much data—unclear about which insights truly matter and uncertain how best to report them to meet industry and regulatory requirements. To make things even more challenging, the sector continues to face digital staffing and skills challenges even as the number, capacity and type of data centers needed to power the planet’s digital economy continues to grow exponentially.

Those are among the major takeaways from a survey commissioned by Eaton and 451 Research of 152 commercial data center owners and operators on their organization’s digital transformation efforts in eight countries across the United States (U.S.), Europe and United Arab Emirates (see Methodology).

Digital transformation: data center sector dynamics

Compared to many sectors, commercial data centers are universally engaged in digitalization. None of the survey’s 152 commercial data center respondents indicated they weren’t at least planning, if not already executing, digital transformation strategies. Adoption of digital tools and technologies is, if anything, even more prevalent (see Figure 1).

Figure 1: Data center digitalization is strong, with most already in the game 1 and 2

Several sub-segments outpace those averages—in some cases significantly (see Figure 2).

• Regionally, data centers in the U.S. and Nordic countries are leading the way with their digital transformation strategies.

• 100% of large data centers (5,000 employees or more) said they are executing a digital strategy.

• Hyperscale and colocation data centers are more likely to be digitally executing versus regional or edge data center providers.

Data centers face operational, business and sustainability challenges

In a sector as fast-growing and mission-critical as data centers, new concerns arise regularly—providing windows of opportunities for new entrants and challenging incumbents to evolve (see Figure 3).

While service delivery concerns dominate—from securing and improving IT infrastructure to meeting evolving customer service demands—energy and power challenges are also front and center.

Overall, 74% of commercial data centers plan to evolve their primary power source over time, a harbinger of significant change. 61% of data centers intend to transition to renewables as their primary source vs. 25% doing so today. In the future, only 27% expect to be primarily powered by the electric grid, down from 44% today.

Renewables adoption among commercial data center providers varies geographically, with Western Europe and the Nordics looking to leap ahead in the coming years—in part driven by more stringent regulations that are guiding all industries in those regions to lower their carbon impact and transition to new energy sources (see Figure 4).

Data centers are especially energy- and power-intensive, requiring massive amounts of power and cooling to keep operations humming along. As you might expect, managing that energy transition, and its impact on data center power and cooling requirements in particular, is a critical concern for the sector.

54% of commercial data center respondents are executing digital transformation strategies.

By geography:

• Nordics: 69%

• U.S.: 64%

• Western Europe: 45%

• UAE: 40%

By size:

• Small: 54%

• Medium: 52%

• Large: 100%

By type:

• Hyperscale cloud: 67%

• Colocation facility: 64%

• Local/edge: 53%

• Regional: 52%

For more insights by data center type, see Sidebar: Commercial data centers—from edge to core to cloud

Data Center Operational Challenges

Figure 3: Commercial data centers face a range of service delivery challenges3

g. cyber attacks, data theft)

Figure 2: A closer look at digital transformation

So, it’s not surprising that aspects of managing that evolution—from ensuring regulatory compliance to optimizing power consumption to effectively supporting corporate environmental, social and governance (ESG) programs— register as the top three drivers of digital transformation for commercial data center owners (see Figure 5).

Considering digital drivers, several regional differences stand out:

• UAE data centers highlighted a range of critical digital drivers compared to their peers:

• 73% of UAE respondents cited improving understanding of customer needs vs. 40% overall.

• 67% cited managing energy transition vs. 49% overall.

• 73% cited improving supply chain relations vs. 49% overall.

• Western Europe data centers prioritized risk reduction and compliance (including meeting regulatory demands) compared to other regions; 65% of Western Europe respondents cited reducing compliance risk vs. 43% overall.

• Nordic data centers highlighted a need to deliver on ESG targets, reflecting both cultural and regulatory priorities in the region; 62% of Nordic respondents cited ESG support vs. 47% overall.

• U.S. data centers out-paced their peers for one business-focused digital driver; 50% of U.S. respondents cited improving revenue/sales vs. 45% overall.

Exactly how commercial data center operators aim to improve their energy strategy is illuminating—highlighted by a mix of energy transition, power efficiency and business transformation goals. Some priorities such as increasing renewables and improving battery storage are increasingly mainstream and imminent initiatives, while others such as trading energy credits or disaggregating the power infrastructure into microgrids are more nascent (see Figure 6).

Given the prominence of sustainability-focused initiatives, the commercial data center sector has a significant opportunity to leverage digital technologies to reach their environmental goals more quickly. For instance, data center operators today are much more likely to track relatively broad energy metrics like total energy consumption (measured by only 41% of respondents) versus more sustainability-specific metrics like tracking greenhouse emissions (24% of respondents) or total carbon offsets (31% of respondents).

Digital technologies, staffing and skills

Given the strong technology focus of commercial data centers, the relatively low state of digital maturity in the sector is surprising. Overall, just 29% of commercial data center respondents cite ‘broad adoption’ of digital technologies, while just 30% say their current staff is ‘highly’ digitally skilled (see Figure 7). These numbers impact both the level and type of technology adoption.

Deployment of baseline digital technologies, however, is high. 98% of commercial data centers have deployed cybersecurity tools—a must to protect their customers. That said, deployment of newer or more advanced digital technology lags.

4: Renewables adoption by region

Figure 5: Energy and power needs are the top driver of data center digital transformation6

Top three digital drivers for commercial data center operators

Just 34% have deployed internet of things (IoT) sensors; 27% are using energy or power management platforms, exclusive of data center infrastructure management (DCIM); and only 8% are leveraging digital twin technology (see Figure 8). That leaves significant room for digital growth across the sector.

As for regional differences in the pace and focus of technology adoption:

• Most regions are relatively at pace in both using tools and gaining digital skills. Leaders include Nordic data centers (46% ‘broadly’ adopting digital technology vs. 29% overall) and Western Europe data centers (35% citing ‘highly’ digitally skilled staff vs. 30% overall).

As for commercial data center adoption of individual digital technologies and tools:

• Edge computing is most frequently deployed in the U.S, cited by 57% of respondents vs. 37% overall.

• IoT sensors and platforms are most frequently deployed in the Nordics, cited by 54% of respondents vs. 34% overall.

• Energy/power management platforms are most frequently deployed in the Western Europe, cited by 32% of respondents vs. 27% overall.

Figure 7: Regional differences in digital technology adoption and staffing are impacting the level and type of technology data centers

Figure 6: Commercial data centers are evolving how they do business—driven by sustainability7

Sidebar: Commercial data centers—from edge to core to cloud

Commercial data centers are evolving. Hyperscale, colocation and multi-tenant data center facilities continue to scale and grow, feeding on a seemingly endless demand for centralized compute power. At the same time, the data center industry is disaggregating, with smaller, more localized ‘edge’ data centers that are serving growing requirements for nearby, low-latency workload processing.

When it comes to digital transformation, however, one data center ‘type’ stands apart from its peers: hyperscale data centers. These typically huge facilities that are built and operated by the likes of Amazon Web Services (AWS), Microsoft, Google, Meta/Facebook, IBM and Oracle provide massive amounts of data storage and processing power. Given their scale and customer requirements, hyperscale data centers have been the most aggressive and are today the most digitally capable and ambitious of all data center operators (see Figure 8).

Conclusion

Data centers serving commercial customers stand at a digital crossroads. They are incredibly tech-savvy, delivering cutting-edge doses of IT capacity, systems and applications. Yet their own operations have plenty of room for digital improvement: IoT sensors to collect and leverage machine data; artificial intelligence (AI)/machine learning (ML) analytics to predictively automate critical functions; digital twins and metaverse technologies to speed and optimize design and planning; management platforms to transition to new energy sources and optimize power and cooling. Overall, digitalization is proceeding nicely, with significant pockets of outsized focus and progress. Hyperscalers, facing massive scale challenges, lead the way. Regions with more stringent decarbonization requirements, like the European Union (EU), force operators to emphasize and accelerate sustainability efforts, enabled by digital technologies and use cases. Progress in one data center segment or region forces others to accelerate their own initiatives. Play catch-up or risk getting left behind in a fast-moving and highly competitive industry—a recipe for continued digital growth (see Figure 7).

Figure 8: Commercial data center operators need technology help to reach digital goals8

Footnotes

Chart data correlates to these questions from the survey conducted by 451 Research/S&P Global Market Intelligence.

1. Which of the following best describes the status of your organization’s digital transformation strategy?

2. Which of the following best describes the status of your organization’s adoption of technology tools, technologies and solutions to support current or future digital transformation efforts?

3. Which of the following are challenges your organization faces in operating its data centers?

4. Which of the following are drivers of your organization’s current digital transformation initiatives? Answer=renewables.

5. Which of the following are drivers of your organization’s future digital transformation initiatives? Answer=renewables.

6. Which of the following are drivers of your organization’s current or future digital transformation initiatives?

7. Thinking specifically about the efficiency and sustainability of your data center, which considerations or goals guide your organization’s efforts today?

8. Which of the following technologies, tools or applications have you deployed or plan to deploy in the next 12 months to support your organization’s digital transformation?

Methodology

This report is based on a commissioned web survey conducted in April and May 2022. The respondents were qualified based on their expertise in their organization’s adoption of digital transformation strategies. Respondent companies were from diverse industries and had 100+ full-time employees. Surveyed countries included the U.S. United States, United Kingdom, France, Germany, Spain, Italy, Nordic countries and UAE/Dubai. Sample size for the commercial data center owners and operators in this study was 152. Respondent roles included data center owner/provider (including colocation and edge). Survey invitations reached executives at the director level and above in IT, technology, facility operations, power management and environmental management job roles. Respondents were screened to be purchase decision-makers for embedded operations technology, having responsibility or connection in their role to operations technology for the site/facility. Their connection to operations technology could be either for IT or other mechanical operations. The survey was executed blindly. The survey sponsor name was not revealed to the participants at any stage of the project.

About 451 Research/S&P Global Market Intelligence

Founded in 2000, 451 Research is a technology research group within S&P Global Market Intelligence. 451’s experienced analyst team, supported by S&P Global data experts, analyzes the technologies, services and companies that disrupt and evolve information technology. More than 1,300 client organizations including leading and emerging tech vendors, enterprise decisionmakers, private/public investors, and investment banking and advisory providers rely on 451 insights and data to drive critical technology decision-making. In February 2022, S&P Global and IHS Markit completed their merger, creating a leading information services provider with a unique portfolio of assets across data and analytics, ratings, benchmarks, indices, commodities and energy, transportation, and engineering.