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Data Centers are Incubating the Digital Economy and Hybrid Cloud Growth in Silicon Valley

In the Bay Area, Silicon Valley is known as California’s technology hub. Today, many people include San Francisco when they reference Silicon Valley. Born in Santa Clara, I reference Silicon Valley as the Bay Area, a geographic triangle spanning from San Jose to San Francisco to Oakland. 

Silicon Valley has a legacy of innovation, entrepreneurship and technology leadership. The name comes primarily from the semiconductor boom, created by the early tech pioneers such as Intel, AMD, HP and others. This initial boom started attracting technology workers and opened up business opportunities. 

The next Silicon Valley boom was the internet boom (circa 1993) – the start of the commercialization of the internet. Internet service providers (ISPs) enabled consumers to get connected; initially, the internet was used formally only by higher education and government. The ISPs, along with the advent of HTML and the World Wide Web, paved the way for mass adoption by consumers and businesses. During this time, I was VP of Sales at Netcom and Best Internet, two of the pioneers that helped start national connectivity for consumers and domain web hosting for businesses. 

As of 2020, 30% of the Silicon Valley’s and San Francisco’s workforce was in the tech industry, according to MarketWatch.¹ That’s approximately 620,000 tech workers in a very concentrated area (even more when you include other Bay Area metros).  

Silicon Valley’s history has set the stage for innovation, technology and venture capitalism to flourish, and now the data center boom is incubating the digital economy and hybrid cloud growth.

Funding Your Idea, the Silicon Valley Way

Venture capital (VC) goliaths fuel the growth of Silicon Valley innovators, including most of the tech giants in the Valley. These elite investors – you can usually find them eating lunch at the Rosewood on Sandhill Road – are big winners from investments that helped fund the massive internet ecosystem over the last 25 years. Silicon Valley and San Francisco are home to 13.5% of all global startup deals,² and Silicon Valley accounts for one-third of all of the venture capital investment in the United States.³

Companies large and small support the Valley’s interconnected economy of networks, cloud computing, storage, applications, mobile, cybersecurity and just about anything-as-a-platform service you can imagine. VCs continue to play a big part of this growth and product evolution.

The Data Center Boom in Silicon Valley 

The Silicon Valley data center market has seen exceptional growth over the last 10+ years. Data center technologies, along with the concentrated population of businesses, high-tech social consumers and powerful interconnected ecosystems, continue to drive the digital economy. 

The Bay Area is one of the largest data center markets in the world. In the late 90s, the first global market leader in the data center space was Exodus Communications, headquartered in Santa Clara. The market took a big hit with the dot-com bust and 9/11, and in 2008 during the financial crash. However, the market catapulted back with the emergence of fast-growth cloud hyperscalers, social media and SaaS providers. 

Santa Clara became the focus of land acquisition by several mega-data center operators. This was due largely to the Silicon Valley Power’s (SVP) capability to deliver large-scale power capacity at a much lower cost than the incumbent utility, PG&E. The dominant power company in the San Francisco Bay Area is PG&E; however, in Santa Clara, SVP is the primary provider to the city. Power costs vary among cities, but this a good guide:

  • SVP cost is approximately $.11 cents per kWh (city of Santa Clara)
  • PG&E cost is approximately $.17 cents per kWh (rest of Bay Area) 

When I was at Exodus and serving as VP, Service Provider Sales, colocation pricing was primarily determined by asking, “How many cabinets or space do you need?” Now the demands on data center providers are power-driven. The question is, “How much power and density per cabinet do you need?” Although real estate in Silicon Valley is at a premium, power is an expensive commodity that drives the conversation. To put this into perspective, a normal user cabinet with equipment ranges from 2.4 kW to about 4 kW per cabinet. Today, we’re regularly asked about – and we deliver – much higher density builds, from 10 kW to 34 kW+ per cabinet. 

CoreSite Data Center Scale and Growth in Silicon Valley

CoreSite operates in three cities within the Silicon Valley region: Santa Clara, San Jose and Milpitas.

  • In Santa Clara, CoreSite owns and operates a campus made up of six data centers covering 1,000,000 sq. ft. with approximately 120 MW of power. We’re constructing a new facility in Santa Clara (SV9) that adds approximately 250,000 sq. ft. and 48 MW of power to the SV campus.
  • In downtown San Jose, CoreSite owns and operates the famous internet exchange facility known as MAE-West, the big gold building at 55 South Market. Our data center (SV1) is networked with 60+ providers and covers 85,000 sq. ft.
  • In Milpitas, CoreSite owns and operates a data center (SV2) covering approximately 76,000 sq. ft. that runs on both PG&E and Bloom Energy power. Bloom powers about one-third of the facility and offers green energy and an alternate redundant power source.

CoreSite builds a strong total cost of ownership (TCO) model for companies looking to scale over time. Unique in the market, CoreSite provides both retail and wholesale colocation solutions, offering standard flat-rate pricing or metered pricing models that are typically driven by larger power requirements. In general, the metered model provides customers with “pass-though” power pricing at cost from the utility company, based on actual usage. 

As the market moves toward hybrid cloud and hybrid IT, TCO is becoming a key decision factor, along with power and adjacent cloud environments.

Crazy Cloud Spending and the Increasing Hybrid IT Environment

Over the last decade, enterprises and innovative startups have made a big bet on the cloud. Let’s face it, cloud computing is the biggest technology growth segment in the world. For one thing, it’s easy. Simply create an account and you can start setting up your compute, storage and virtual environments with hundreds of cloud-native apps to use. Companies can start developing software and running apps without getting an IT team involved or purchasing equipment. This enables the on-demand scalability that DevOps teams need to develop faster with better resilience. 

But many companies, especially those born in the cloud, hit an inflection point at which cloud costs become prohibitive, and they need a more predicable operating model. Costs add up for open servers (used or not), data egress fees, storage, unused applications and so on. Many in the industry call this “runaway cloud bills.” Also, it can be difficult to understand the monthly charges. In one case, I saw a customer’s cloud bill grow from $20,000 per month to $180,000 per month over a 10-month period. 

Unless the company’s revenue margins are growing equally, how does a CEO deal with this high-growth burn rate for cloud services? The answer: hybrid IT. 

We see companies making a big shift to hybrid cloud, multicloud and private cloud architectures. Rather than an all-OpEx model in the cloud, companies realize that a CapEx model gives them predicable operating costs. By combining OpEx and CapEx, hybrid infrastructures allow customers to build applications and utilities in the cloud while maintaining a predicable cost environment in the data center. Enterprises will also require their own infrastructure for legacy apps, compliance and security requirements. 

For example, CoreSite customers house their servers and digital infrastructure in our data center and have direct access within the facility to the cloud and network providers. The CoreSite Open Cloud Exchange® (OCX) enables customers to have a direct fiber cross-connect to their favorite cloud provider(s), enabling a high-performance, low-latency connection into cloud or multicloud environments. Customers maintain their infrastructures with a secure, predicable cost model while still taking advantage of the cloud for on-demand services and edge applications.

Not “Everything Cloud,” the Data Center Is Humming  

Today, customers are increasing their infrastructure demands on data center providers, requiring much more power density, larger space and greater network capacity in cloud-adjacent environments. 

People ask, “Why is there so much growth in the data center market?” and “Isn’t everything going to the cloud?” Think about this:

  • Save everything. Your things are now connected – data from watches, airplanes, automobiles, music, email, photos, analytics data, medical records, financial and insurance records. Everything is archived, maybe forever, and the storage infrastructure continues to grow, grow, grow.
  • High-performance computing (HPC). HPC servers cannot be housed in your office building (or wannabe data center). They require high-density power with adequate cooling. Plugging these HPC devices into an office building can and will take down the power of the entire building.
  • AI is happening now. Next-gen apps, big data service platforms, video conferencing and autonomous driving vehicles all require low latency with bigger, faster compute, networks and cloud connectivity. There seems to be no slowdown in sight for AI and other innovations that require the “bigger, better, faster” that colocation enables for these services.
  • Continued public cloud and private cloud growth. Hyperscalers (cloud companies) and private cloud environments continue to grow, as do their data center footprint requirements. We see this growth in CoreSite’s wholesale offerings, which cover the large-scale custom data center spaces we build for the hyperscalers.

What’s on Your Data Center Checklist?

In Silicon Valley, if you have a good idea, you can fund it! Then you can build it. Most companies start building their technology stack with a local data center and in the cloud. Today, that’s not enough. Companies are looking for an interconnected ecosystem to take advantage of APIs, peering exchanges, partner platforms and direct access to cloud providers. Also, the new builds are bigger with higher power requirements, greater network performance demands and multicloud capability. And, companies want the ability to scale their footprints across multiple geographies.

Bring your checklist to CoreSite, and let us walk you through our data center and hybrid cloud solutions. We offer best-in-class operational excellence, a 100% uptime SLA, in-house security and operations staff, predictable cost models and a robust interconnected ecosystem of networks, technology platforms, cloud optimization services and hybrid cloud technologies with trusted solution partners that provide cost-saving opportunities. 

To learn more, take a tour of a CoreSite data center and read about intermarket connectivity. Also, you can connect with me on LinkedIn or contact us to start a conversation about how colocation can help you meet business objectives.

Bob Fasano | Senior Director, Channels Sales and Technology Ecosystem Partners
Bob Fasano is Sr. Director of Channel Sales, Strategic Alliances and Ecosystem Partners. He is a Silicon Valley native who has been a technology entrepreneur for more than 25 years in the internet data center and cloud service provider industries, in start-up to Nasdaq market-leading service providers.