Data Processing & Hosting

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Industry Structure, How Firms Opertate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Quarterly Insight, Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 10,700 data processing and hosting companies in the US provide outsourced information technology services to businesses and other organizations. These services include automating business processes, website hosting, providing business software applications via the Internet, video streaming services, time-shared computer capacity, and data entry and reporting services.

Protecting Security of Customer Data

High profile incidents of computer hackers gaining access to social security and credit card numbers housed on a customer's behalf has increased security concerns for data processing and hosting companies.

Cloud Computing

Widespread adoption of cloud computing has increased demand for data processing and hosting companies.

Industry size & Structure

The average data processing and hosting company has about 33 workers and $20 million in annual revenue.

    • There are about 10,700 data processing and hosting companies in the US that employ 355,000 workers and generate revenue of $215 billion.
    • 61% of firms operate out of a single location.
    • Large data processing and hosting companies include Automatic Data Processing, FISERV, Rackspace Hosting, and Alliance Data Systems. Web hosting and cloud computing services are also provided by units of large companies, such as AT&T, Amazon.com, Google and SS&C Technologies.
                              Industry Forecast
                              Data Processing & Hosting Industry Growth
                              Source: Vertical IQ and Inforum

                              Coronavirus Update

                              Apr 28, 2022 - Demand Surged In 2021
                              • Demand for data centers set a new record in 2021, according to professional services firm JLL. The US absorbed 885.7 megawatts (MW) across 14 domestic markets – a 44.3% increase compared to 2020, which itself set a record of 614 MW, an increase of more than 70% from 2019. Data center lease capacity is increasingly measured by energy consumption rather than another metric, like square feet of computing space. Absorption was particularly impressive in Northern Virginia, more than twice as high as runner-up Phoenix, with 338 MW leased in that region alone.
                              • The data center supply chain is extremely strained in early 2022, according to Brad Alexander of edge colocation data center operator DartPoints. Transportation bottlenecks, massive labor and material shortages, and the increasing cost of critical components are causing roadblocks in both new construction and expansion. One of the company's projects is 14% over budget due to increased labor and components costs and is five months delayed because of generator shortages. Smaller components such as servers and storage are being delayed an additional eight weeks. The company has seen delays as long as seven months for various pieces of core networking equipment. Nearly every hardware vendor has increased costs by 7% to 12% since the beginning of 2022.
                              • Almost two thirds of accounting firms plan to adopt some form of cloud technology in the next two years, according to a survey by software provider CaseWare International. One third of the firms are accelerating implementation within the next 12 months. Respondents cite the rise in remote working spurred by the pandemic as a key driver.
                              • Near-record growth for the data center industry throughout the first half of 2021 centered around the traditional data center hubs of Northern Virginia and Silicon Valley, but analysts at real estate services firms JLL and CBRE suggest that a more decentralized data ecosystem is being developed with future growth focused on regional hubs and secondary markets. Areas like Hillsboro, OR, Columbus, OH, Miami, and Salt Lake City, UT, are all seeing significant data center development, offering affordable land and power and, increasingly, tax benefits. A hyperscale facility in a region often paves the way for further data center development. Experts cite an expected shift toward so-called edge infrastructure, driven in part by pandemic-related changes like increasing telecommuting, and growing fiber rollout across the country as key drivers of decentralization.
                              • Investment in edge computing infrastructure slowed during the first half of 2021 due to lockdowns that pushed work and education online and forced spending on infrastructure to be redirected to core operations. Small, unmanned “edge computing” data centers in modest cities are often the only way to provide super low-latency services to residents in such locations. Otherwise, their Internet traffic must travel first to bigger data centers in major cities, adding precious milliseconds to delivery of services that need to be almost instantaneous, like virtual reality streaming. Ericsson shuttered its Edge Gravity business for edge computing in 2020. Startup EdgeMicro has reportedly entered liquidation. The company had planned to build mini data centers for edge computing in locations all over the US, but it only managed to build around half a dozen in markets including Austin, TX, and Raleigh, NC. EdgePresence said in 2019 that it would build EdgePods – its own mini data centers – across almost two dozen markets. The company lists just 11 locations that are up and running in late 2021.
                              • The Union Bank tower, a landmark office block in Portland, OR, will be converted into a multi-story data center. Industry experts say that the project may be on the leading edge of a trend driven by the need to move data centers closer to customer facilities, but the number of office buildings suitable for conversion to data centers is limited. Union Bank tower is on the central junction where most of Portland's fiber links meet. It already has a meet-me room, a place within a colocation center where telecommunications companies can physically connect to one another and exchange data without incurring local loop fees. It also has about 18 existing data center spaces amongst its office tenants.
                              • Data processing and hosting services may benefit from pandemic-driven increasing interest in reshoring. Many manufacturers who say that cost reduction is essential to successful reshoring are exploring the use of autonomous and semi-autonomous machines, sensors embedded into physical infrastructure and objects, streamlined data-processing, and even mixed reality applications on the factory floor. Use of this technology would likely boost demand for data storage and processing, which is a key element of autonomous and semi-autonomous technology use.
                              • Some enterprises are seeking shorter data center lease terms as they re-evaluate their IT needs in the wake of the pandemic, according to commercial real estate services and investment firm CBRE. Hybrid models, where some workloads are handled on-site and others in the cloud, are gaining traction, according to Prime Data Centers CEO Nicholas Laag. “Large enterprises were already migrating many workloads to the cloud. The concept of a distributed workforce has accelerated that adoption, as well as the decision to deploy hybrid cloud models and consider sale-leaseback scenarios to reduce overhead and focus on their business,” Laag said.
                              • A panel of investment bankers who advise data center operators said that the industry appears set for a sustained boom, fueled by the acceleration of digital transformation across the business world as a result of the pandemic. Much of the growth will be driven by hyperscale cloud service providers, which will have deployed 2.1 million new IT racks between 2020 and 2025. The expected deployments translate to roughly $62 billion in capital spending on data center infrastructure, according to 451 Research’s projections. “These incremental deployments … won’t be made solely by the cloud players themselves,” Jonathan Schroth, research analyst for data center services and infrastructure at 451, said. “They will need to work with these data center providers and operators to expand their footprints, especially in the markets where they are not located today.”
                              • Data storage requirements are rising due to increasing use of data-generating IoT products like remote connected health monitoring solutions, packaging and shipping trackers, and streaming devices. Use of IoT products is rising due to greater reliance on telecommuting, telehealth, and telelearning. Industry experts say that many companies are now looking at establishing smaller locations closer to the customer, reducing reliance on larger data centers with central data resources. For medium- to large-size companies, deploying many more of those edge data centers means they need their own specific storage. It is a fundamentally different architecture that is required to increase the speed at which data can be accessed and processed.
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