Not Your Father’s Data Center - The Data Center 2020 Bounce-Back

Episode Date: March 19, 2020

On this episode of the Not Your Father's Data Center podcast, guests Buddy Rizer and Dave Liggett join host Raymond Hawkins to look ahead to 2020. Rizer has been in the data center business since the beginning. Before he took the leap, Rizer took time to get to know the industry, then filled the data centers. Rizer said that it was “such a new industry” that he was the only economic developer at trade shows. He also said that he was lucky to have investors and management “give him the budget and authority to get it done.” On the topic of the industry’s inception, Rizer said that some entrepreneurs started in AOL and are still “driving the business which is exciting to us.” Dave Liggett said that it’s neat that Rizer has the perspective of where it started and where it’s going. The conversation shifted toward the future and where the industry is headed in 2020. Being a capital intensive business, 2018 was a great year, but 2019 didn’t feel very good, and this had them worried a little. The question came up: was it as bad as they thought? Liggett said that, in 2019, the industry players were “victims of their own success.” He said when investors see a great year, they ask, “How good can you do the next year?” Fortunately, Liggett said he was “encouraged already for 2020 with the data we’re receiving.” The host said to keep some perspective, as “there aren't many 53% increase industries.” Rizer then talked about the benefits and jobs that his data centers bring locally, turning the thought that data centers don’t bring jobs on its head. Rizer predicted that, for the next east coast data centers, there is “still room to grow in Loudoun County, Virginia,” where he is located, or Atlanta and communities in Georgia. He said that partnerships with power companies are key, and a distributed model could provide opportunities across the country and world.

Welcome to Not Your Father's Data Center podcast, brought to you by Compass Data Centers. We build for what's next. Now here's your host, Raymond Hawkins. Thank you for joining us, everybody, for another edition of Not Your Father's Data Center podcast. We're glad to be joined with a couple of guests today. Before we get into that, we just want to remind you what we're trying to do here at the Compass podcast. We sit down and we go to dinner with our friends and we talk about politics, we talk about religion, we talk about sports, and we talk about work. And what we hope this podcast is, is your opportunity to sit down

and just hear us talk about work. We're grateful to be in a great industry that's constantly growing and working with great people. And we want to sit down with those folks and talk about what makes their world go around and have you listen in with us and maybe join us for a future broadcast. We are joined today by Loudoun County's finest, Buddy Reiser. I think he's too modest to tell you that he was a famous Orioles broadcaster before he helped revolutionize the data center industry. So, Buddy, can you give us a little history there and tell us your story before we get rolling? Sure. First of all, thank you for having me. This is going to be a lot of fun. Really looking forward to the conversation. I've been with Loudoun County Economic Development in Virginia now for 13 years, and it's been

the ride of a lifetime. I've really enjoyed working with the data center industry to build Data Center Alley into really the largest concentration of data centers anywhere in the world. Before that, Act One was on the radio, sports and rock and roll disc jockey and eventually radio station owner. And, you know, kind of taking those skills that I learned doing that and kind of brought it to the public sector. And I've just had a wonderful time. So, David, you and I are going to sound like the rank amateurs on this call. Yeah, no surprise there. All right. Hey, buddy, before we get rolling with David's introduction. So I think this is a little bit like rarely. So I've not

gotten to sit in the room with Michael Jordan ever, but that would be in the room with the greatest basketball player ever. I've not hung out with Michael Phelps, the greatest Olympic athlete ever, I think, based on gold medals. So talking to you today is like talking to the greatest economic development guy ever. I think that's a fair characterization, wouldn't you? Listen, I don't know about that. I mean, I think that what we've been able to accomplish here in Loudoun County has certainly been in game changing. I mean, in 13 years, we've been able to take the commercial tax base from 19 to 36%. And a large part of that is thanks to our friends

in the data center industry. So I think there's the opportunity to be lucky and maybe being able to be smart enough, whatever that level is, to be able to take advantage of the luck and do something special with it. And I think that's what we've accomplished here. Well, there are TikTokers and Snapchatters and tweeters all over the world that don't

know how much gratitude they owe you for what you've done, buddy. So we appreciate getting to spend some time with you. Now it's my pleasure. So David, let's take a few minutes and tell us a little bit about you and where you started. I know you weren't an Orioles broadcaster, but we still want to understand the beginnings there in the Liggett household and how Data Center Hawk got off the ground. Yeah, that's, you bet. And I would have loved to have been an Orioles broadcaster.

You and me both. You and me both. We started Data Center Hawk five years ago, really with the goal of helping provide data center professionals with the best information in the market. You know, this is, as you know, both of you know, and then those that are listening as well, this market has grown exponentially over the last five years. You know, a lot due to Buddy and his team's hard work and other groups across the US and the world. And so I originally started out in the brokerage business. I shared with you all on a call the other day that I did not know anything about the

data center industry before starting 12 or 13 years ago. But what I quickly realized was that information in the space was really hard to come by. And there was a lot of money being spent on big decisions. And so we have really aimed over the last five years to build an online platform that allows data center investors and brokers and consultants, providers, users to access information that can help them make decisions faster. And that's where we're focused. So we started in North America and focused there for three years. We have just now delivered information on Europe and we're seeing a lot of obviously

growth in those markets today. And we'll have Asia Pac and Latin America information coming online here the next year or so. So a lot going on here. And, you know, to just to echo what Buddy said, I am very excited to be and just thankful to be a part of this industry. It's been fascinating to watch it grow. And we're excited to see what happens in the future. So just to date myself a little, David, so you are the Encyclopedia Britannica of the data center industry, right? Is that fair? Well, that's a, you know, I appreciate the sentiment and it's a, we'll take it. And without a doubt, the smartest and most handsome of the Liggett brothers, I just want to add, and I'm not taking a shot at Jeff, just want to state that. I appreciate that. I'll make sure that we send him a copy. Yeah. I just want to know he's going to listen. I just raised our listenership by 50%.

Absolutely. All right, guys. Well, I want to, I want to agree with both of you. I stumbled into the technology business in the late eighties and amazingly as the world digitized, I got to be part of that rising tide, lifting all boats, and then transitioned into the data center business five years ago. And I agree with both of you, Buddy, you've had a much longer run at what you've helped the world do there in Loudoun County. And David, your sentiment about what a great time to be in this space. It is, right? It's fun to have a business growing faster than all of us can candidly service it, right? It's outrunning all of us. And that's a fun space to be in. I joke with my kids when they talk about what they want to do. I said, you know, guys,

someone today is still making a living selling buggy whips. A lot more people were making a living doing that in 1900 than do it today, but someone's still doing it. I just feel bad for the guy that's making his living doing that. And for us, we're like buggy whip salesmen in the 1900s, or we can't make them fast enough. And it's fun to be in that kind of a business. So, so buddy, can, can you go back to, to 12, 13 years ago when, when you came over from the when you came over to the economic development world there in Loudoun County and said, hey, I got this idea. What was there? What was the beginning? What was the nucleus? How did you see it? How did that happen? Well, you know, when I first started here in

Loudoun County, I was the first proactive salesperson that the county had brought in. And like any good salesperson, I wanted to know, well, what's my product? So we started trying to figure out, where did we have that opportunity for growth? We had AOL here from the late 90s and UUNet and MCI WorldCom built their headquarters here. And right before the tech bubble burst,

they started building up some buildings here that were going to be, I guess what you call today data centers, but they had been empty for a very long time. So that really made some sense to me. It's like, well, we've got these empty buildings. Why don't we try to fill those first? And so we tried to learn about data centers. I went and got a certification, spent some time really getting to know the industry and then use that information to determine

how we as a county would go forward to set up a program that would be something that the data center industry would be interested in. Like David said, this is such a new industry. When I was going to data center conferences back in the old days, I'd be the only economic development person there. Now, you go to conferences and sometimes there's more economic developers than there are data centers there because everybody sees that this is such a transformational industry to bring into your community. So I'm very fortunate to work in a community where I went to our board of supervisors and I said, this is what I want to do. This is my plan. And they gave me not only the budget to do it, but they gave me the authority to be able to make sure that we are doing the things inside the county,

like processing, like making sure that we do all the right things to get people to market in time. And it's been a tremendous run for us. So, Buddy, as you presented the idea and you went and educated yourself and dug in and understood the opportunity. And I love the comment, we had these empty buildings. By the way, what great references to who were some of those early guys that had buildings. AOL, UUNet, and MCI Rural Comm, talk about blasts from the past and how quickly our business changes. I don't know if my children would have any idea what AOL is today. Well, you know, there's still so many entrepreneurs here that got their start at AOL or UUNet that are really still driving the business.

And that's really exciting for us. Yeah, yeah. And the draw of brainpower and expertise and whatnot, that continues even if the businesses and the names on the walls change. That's pretty awesome. So, Buddy, you talked about getting an education yourself and pitching to the county fathers there. How much did the network and the internet exchange, because like I read the book tubes and I read about how the internet grew and how data centers grew, and they talk about sub-C cables and they talk about the network. How much did that play a role in your making the pitch for the county to the county fathers there as well as to customers coming to the county? I mean, it's everything.

I mean, when we were starting out, distance to Equinix was like the thing. You know, how close are you to the interconnection hub? So we had that asset, which was really important. Then we would layer on top of that a great relationship with Dominion Energy. You know, we would do our planning together. We would look at these markets and try to figure out exactly where and how long it would take us to get energy to them, then put the right zoning in place and work with our water provider to have recycled water in a data center alley. And we just tried to layer on top, but really, I mean, the base that all this was built on is the connectivity that really came here because of AOL and UUNet and PSINet and on and on and on.

So, guys, I can remember the great name for the West, Mae West. What was the East Exchange name? It's Mae East. Mae East, yes. I couldn't remember if it was or not. All right, guys. Very cool stuff. And neat to have the perspective of being there when it started and the why and where it's headed today.

Guys, one other just as fascinating as this is about where Loudoun County started and where it's come. I get the sense from the folks in our business, this is such a capital-intensive business. There's lots of smart people with big pools of assets pursuing our industry. And 2018 just felt awesome, right? It was an incredible year. I think 52, 53% growth year on year. And I think 19 didn't feel like that. Tough compare year. And so I get asked a lot of questions in my role by our investors and our capital partners. What's the future look like? David, do you mind just, I think you have as good a lens globally as anybody on our industry. Let's just take that premise as it is for now that 19

didn't feel very good. What does 20 look like? And then we'll come back and talk about what was 19 really as bad as we think. Yeah, that's a great, it's a great question. And it's something I think the entire industry is trying to get their arms around or have a, you know, good understanding of so that they can make the best decisions they can, you know, moving forward. You know, when, when 2019 began, we actually did a podcast here in our studio that, you know, was, we basically said, hey, we don't think 2019 will feel like 2018. And here are some of the reasons why. And I think at the end of the year, it played out that way. But, you know, the data center industry of the last three years has really been a victim of its own success. And I guess what I mean by that is every time the, you know, people in Buddy's seats would outpunt their coverage and do even better than they did the

year before, everyone was asking, okay, how good can you do the next year? And so it just kept ratcheting up, ratcheting up. And, just had a massive year in 2018, not just in Northern Virginia, although that was a very large piece of it, but across the industry. And if you follow the space a lot, you'll hear things like we're in 2019 was more of a digestion phase where we had some very large cloud service providers that took some pretty large footprints, not just in the US, but other markets as well. And, you know, they've been filling those assets over time. And so I certainly think that's a part of it. But, you know, we are encouraged already in 2020, just by some of the data that we're tracking as it relates to, you know, absorption in,

which is a, I don't know, real estate fancy word for to, you know, absorption in which is a, I don't know, real estate fancy word for just, you know, tracking demand. But certainly we're seeing some good, you know, positive signs in the first quarter, not just in Northern Virginia, but other markets as well, places like Europe. Certainly companies are looking to get more mature in areas like Asia, PAC and Latin America. So, you know, from an industry as a whole, we believe that 2020 will be either equal to or stronger than what we saw in 2019. And I think we're starting to see the, you know, beginning pieces of the puzzle put in place to bear that out. So, David, we appreciate that perspective. It's interesting that in 19, you were already

concerned at the beginning of 19 that it may not look like it. The numbers, the best numbers I can find, it looks like it was about a 9% year-on-year growth year. Well, of course, after a 53% year, 9% doesn't feel good. But I mean, I just think our industry needs to keep some perspective. There aren't many 53% growth years in any industry. Sure. And it's a great, you know, Raymond, that's a great point. I think the hardest thing is just helping everybody remember back to times like, you know, 2010, 2011, when the market was literally coming out of, we traditionally, you know, companies would say, we've owned these assets ourselves. And you're telling me now that I don't have to spend that initial capital on,

you know, doing it myself. And I can actually, you know, lease this infrastructure. And there's people that do this every day that my CIO can, you know, come through the space and go, this is a well run, the operational team, the facilities well run, the operational team does a good job. And so, you know, when we can kind of take the industry back to, you know, three to four or five years ago, it's helpful. But I think what that points out is our industry is very young. You know, the fact that we only have this history of about 15 to 20 years. And what I mean by that is just, you know, the growth of not just, you know, the leasing of data center infrastructure, but also cloud infrastructure and how much it's grown. You know, we've got about a 15 year look at that. And so it's it's a fascinating time.

And to your point, Raymond, it is important to help everyone remember the big picture and where we are in the cycles. So, so buddy, I, when I think about the supply of our products to our customer base I think that the, the I think of you at the beginning of that supply chain, right? I've got to find land. I've got to do it in a in, in a municipality that understands what I'm doing. You talked about access to water and access to zoning and access to power and the things that you do to set up for success for our industry. Buddy, do you track the other end? Because when I think about the two of you, I think of you at the beginning of the supply chain. And I think of David at the end of the

supply chain talking about here's what's leased. Do you look at that stuff, buddy? Or is business just so good in Loudoun County all the time you're going as fast as you can go? No, we absolutely track that. I would say that, you know, sometimes I would rely more on research that Dave has done than doing my own research. But, you know, it's very important because, you know, we get about 85% of our revenue from the data centers, tax revenue, from the equipment inside. So that's really, when that is brought online, when the absorption happens, that's when our revenue really skyrockets as a community. So, yes, it's something that's very important to us. And, you know, we watch the way that the buildings are developed and it's usually just in time or, you know, maybe not quite as in time as what some of the salespeople would like. But yeah, the reabsorption and the continued momentum

of sales in the market definitely is something that drives our business. So, Buddy, I like that you have that figure off the top of your head. 85% of your tax revenue from the R space comes from the kit inside the data center. I love that. Could you take a minute or two and just tell me how that tax revenue gets used in the county and specifically from what the county is able to do for their citizens? Because I think our industry at times, people look at us as a user of electricity, as a large user of electricity, sometimes as I think that we get wrongly cast as not a terribly sustainable industry. But I think that the industry wrongly cast as not a terribly sustainable industry. But I think that the industry does incredible things for development. And I think you, buddy, might

understand that better than anybody. What does that kind of tax impact do for the citizens of Loudoun County? Well, I mean, you have to remember where we were as a community when I got here, you know, we're talking about 2007 or so. And you start to think about, well, what was the economy at that point? Well, I mean, obviously the economy was, you know, heading pretty far down. 19% of our tax base was commercial business. That means 81% of our tax base was on the backs

of homeowners who were seeing their values dropping almost daily. And so what the data centers have done is, because they don't use a lot of services, they are not intensive for a county or a community because they don't have as many employees. And you put all those things aside, we get about $15 in tax revenue for every dollar they use in services, which is tremendous return on investment. For example, what we believe is that in the year 2020, this year, this coming tax year that we're in, we're going to get about $420 million in local tax revenue from the data centers. 420, that's 36% of the overall tax base in the county. And what does that mean? Well, that means that we have been able to do a billion dollars in road improvements, a dozen new schools, hundreds of new county employees to catch up with the

citizens' needs. We've been able to bring Metro to Loudoun County, the Washington DC Metro. And we did all of that while reducing taxes by 21% in the last 10 years. So, Buddy, I want to make sure I got that right. Did you say dozens of new schools? Over a dozen. Over a dozen. Over a dozen. Unbelievable. Okay. Yeah. So, I mean, it's transformational. I mean, if you just, if our citizens think of data centers as the buildings and, boy, you use a lot of energy and, you know, this and this, then they're missing the entire point that you have to go beyond the buildings to the transformational way that the data center industry has impacted Loudoun County. And it's just,

it's, it's just, it's been something that has been just amazing and has set us up for success in a way that, you know, really is, is a unique economic development success story. Buddy, I got to tell you, listening to you, you sound like you've taken what people often use as negatives about data centers and throw stones at it. And you've turned it completely on its head because I'll hear people say, well, it doesn't offer enough jobs or it doesn't offer enough economic impact to people. And I think what I hear you saying is I don't need to build an eight lane highway to service a data center, right? They're not going to bring 6,000 new employees there that are going to clog my streets and cause me to fall behind from an infrastructure perspective, but they are going to throw off tax revenue that

allows me to serve my citizens that are here today. And I think that's taken a negative and turned it into a positive or a perceived negative. And I love that outlook. What a great story, schools and roads and services, because the data centers don't need all of those things. Well, and I think that that's, you know, when you're a community like us, that still is growing at like 15 new residents every single day, and we're over 402,000 people now, and our unemployment rate is under 2%, you know, it's more about that revenue. And certainly we want to continue to build jobs. And there's more than 13,000 jobs, Justin Loudon,

that are either in the data center, you know, directly or indirectly working with the data center. So that's a lot of jobs. That's a lot of jobs. I mean, I certainly don't want to paint the picture, buddy, that there was no jobs. Just you look at that building and you might go, oh, wow, you could put 3,000 people in there in that regard. Yeah, definitely a job generator as well. And good job generator. No question. Six-figure jobs and, you know, the technical jobs that are really important. Plus- Hold on a minute, buddy. Six figures? I got to put in for a transfer to Loudoun County. Plus. Well, hold on a minute, buddy. Six figures. I got to put in for a transfer to Loudoun County. Exactly.

Yeah. I'm like, I'm going to get ahold of somebody there. Okay. But, but I mean, and then you start thinking about, you know, the impact that it has on construction. There hasn't been a day without construction in Loudoun County in, in almost 12 years of data centers. You know, I mean, this is the kind of thing that really drives communities forward. So David, don't you imagine when they have the economic development conferences that Buddy's like followed around by autograph seekers and people trying to get selfies with him and all that? They're going, when I grow up, Columbus, Ohio is going to look like Loudoun County. When I grow up, Omaha, Nebraska is going to be just like Buddy Riser's Loudoun County.

You've got to know that happens, don't you? You would think. I've been one of those guys seeking one of those autographs. Yeah, so I knew it had to happen. You know it has to happen. No, that's how awesome is that? I mean, Buddy, I know you're being modest, but it truly is an incredible story. I mean, I'm pulling your leg a little, but what an incredible story. I mean, I think because to your point, especially

at Compass, we build data centers wherever our customers want them. And so we often go have these conversations with AHJs and municipalities that don't understand the things that you understand. And the fact that you get it and get it at such a core fundamental level is pretty cool to talk to. Well, I think that for me, you know, I mean, it's just math. And that's one of the things that I actually happen to be good at is math, not many other things, but math. And when you look at the impact, it just makes all the sense in the world. Yeah. All right. That makes one of us on the call. Good at math. That's awesome. All right, David, as we talk about the future, you talked about that you felt like 19 wasn't coming. I want to get us a little better oriented.

I've seen some numbers that project growth in about the 20, 21% range for the next three years in the data center space. One of the things that scares me, I love Sammy Broderie's work at Credit Suisse. He does a nice job with a CIO survey and understanding our industry and looking at the public's. He's got a metric that measures the amount of construction as a percentage of the capacity online today. And we've averaged about 11.5 to 12.5% construction in our industry to capacity for the last half dozen years. That ratio today, we're down to about 4%. And by the end of the year, projected to be right at 2% of active construction compared to capacity. And my fear is that a little bit of an overreaction, that 9% growth last year

didn't feel like 53% the year before, and we're overreacting, and we're going to get constrained. And David, you have such a great global view of the business. Are you seeing that? Does that scare you? What's your perspective from a guy looking at absorption and look at all the markets, not necessarily crunching numbers like our friends at Credit Suisse might be doing? Yeah, I think that's a healthy take on what those numbers would indicate. I think certainly we've seen in the last several years a lot more capital interested in the space and some of that capital actually enter the space. And so there's some, you know, there's been some dynamics around that that have and some people that were maybe a little late to some of the 2018 demand that, you know, I think probably would pause for a minute.

But, you know, what we've seen this happen before where, you know, there's a good amount of supply delivered. Maybe the pre-leasing, which is something that's pretty common in our industry, slows down a bit. And so that brings some interesting dynamics to the way that future supply is delivered. And so that's something certainly we're watching, paying attention to. But I do think that one of the things that we saw transform the market three to four or five years ago was large cloud service providers deciding not only that they didn't want to necessarily only be in rural markets. So in areas where the population was lower, you could get maybe a lower power cost and regressive tax incentives. But they decided that they wanted to pull a significant amount of demand towards major data center markets, like a Northern Virginia, like a Northern California, Chicago, Dallas, Phoenix, Atlanta, those type of markets. And so what we saw is a tremendous opportunity for growth in those markets. And I think that is a watching that dynamic in 2020 and 2021 will be interesting to see. And that will play a big part in how well the industry does as it relates to

those users growing to the scale that they need to. It's, you know, I think one of the other interesting things is, you know, for a long time, a lot of the international demand has been, you know, company, US based companies going into other markets and deploying their IT infrastructure footprints. And, you know, we're now seeing larger, you know, companies actually come into the U.S. with larger demand. And I think that's certainly an interesting trend to watch in, you know, 2020, 2021, which will increase that number that you previously mentioned. The other thing I wanted to mention was, you know, Buddy had talked about the growth in Northern Virginia. And so when we started our company at Datsun or Hawk, I just pulled these numbers off of our insight tool, but you know, the, the amount of,

you know, multi-tenant commissioned data center power in 2015, our market, the market size that we were tracking in Northern Virginia was 456 megawatts. And so that's a, you know, for those that aren't familiar with the power game, that's a lot of power. That is a lot of commercial leasing of power. So it's 456 megawatts in 2015. In 2020, it's 1,209 megawatts. So the market has grown significantly. That's one thing I wanted to point out, which really just shows how much Buddy and his team and others in that market have told the story of the robust infrastructure and the strategic location and the competitive market. And then the other thing

that's really interesting, in 2015, we were tracking about 200 megawatts of planned projects in the market. And again, this is just opportunities that could happen in the future. And in 2020, we're tracking over 2,500 megawatts of planned projects. And all that means is, you know, companies recognize that this is an area where growth will continue to happen. And we certainly see that not only in, you know, Buddy's commentary and the things that we know about the market as a whole, but also in the numbers as well. So I want to make sure I got this right. Buddy has grown Northern Virginia from 456 megs in 15 to 1209 in 2020, and he's only going to get 200% more of that in the next few years,

another 2,500 megs. So Buddy's not going to need any to be on government assistance anything anytime soon. Is that what you're saying, David? Not at all, yeah. Okay, good. All right, Buddy. But when we talk about Northern Virginia though, I mean, certainly the bulk of it is here in Loudoun, but, you know, you start to look at Prince William and Henrico and Stafford and, you know, Virginia generally is a pretty good place to do data centers. And you're starting to see that grow throughout the Commonwealth, which I think is very healthy as well.

All right, buddy. So let me ask you, see if I can give you a little bit tougher one because you've handled, you've slayed all the other questions. I do get asked this occasionally by customers. Being in Loudoun scares me. Being in Northern Virginia scares me. There's so much concentration. What's the next East Coast location? When customers ask, so I'd ask you to answer it two ways. When

customers ask you that, what do you say? And if you had to guess what would be the next East Coast data center hub, what would you say? Well, I think that, first of all, I think that we still have a lot of growth that can be had here. I mean, certainly if you're looking in data center alley proper, there's not much land left. But like you guys have done, Compass has done, they're out on building a great new campus out on the Greenway. There's plenty more land out there. There's plenty more land over at 50 and 606. So there's still opportunity here. But if you had to push me to where I thought that there was going to be more opportunity outside of Virginia, you know, I start to think about, you know, places like the great power people that are, you know, the power companies that do such great work in those communities, having a power partner that does that is probably, you know, one of the most important things that you can have. But I don't know, and I'd be

interested in hearing both of your takes, particularly David's on this. I don't know that we're ever going to see a concentration like we have here in Loudoun County and Data Center Avenue. I don't know that that's the model going forward. So I think it's a more distributed model. I don't know that you're going to recreate this on this scale, but I think there's going to be opportunities throughout the country and really throughout the world. Yeah, I mean, I would agree, you know, because I think there's while there's, you know, an opportunity in places across, you know, the U.S. and world to grow opportunities. There's a couple of things that, you know, I think make the Northern Virginia story

very unique. One is just the infrastructure that was there. I mean, Buddy mentioned it before, the network and how close can we build around that network. And this is certainly a trend that we see in other places, but the scale, it kind of reminds me, all the things had to be in place for that growth to take place. You had to have the network, you had to have a mature company that delivered power that could understand what the requirements were. You had to have people on the economic development side that could blend all these groups together and understand how to tell the story right so the growth could take place. So I think, you know, what we've seen in Northern Virginia is it's a really interesting study on, you know, getting the story together and being able to tell it well and then letting the market do what it does.

You know, Atlanta certainly has similar components as it relates to, you know, a maturing data center market. They certainly have a, you know, a large business base that is located there that traditionally most data center users, you know, they find comfort knowing their infrastructure is closer than it is further away. So, you know, there's land there that you can grow, you know, certainly to the, both to the, you know, all directions of the city center. So, I believe that Atlanta is always to do that. Most of the requirements over the past three to five years have really been more, most of them more retail focused, but, you know, certainly, you know, certainly some that have been wholesale in nature.

But I think what it also speaks to the distributed model that Buddy mentioned is just the maturing data center user. You know, we have seen over the last, you know, five to 10 years, the data center user understand different technologies, understand their business better, be able to get more data back that really helps them determine, you know, where from a location standpoint is the best spot for this part of their requirement, while this part of the application could be better served in certain other areas. So I think, you know, all that said, areas like Atlanta certainly have the the DNA and the things in place to grow in the future. And, you know, wouldn't surprise me if, and we, we have already seen some of the growth take place in the last, you know, couple quarters, but wouldn't surprise me if 2020 is, you know, a great year for that market as well. So, Buddy, you, you asked, you know, what would be mine and David's take around the, will there be another Ashburn? Will there be another level of concentration? So, let me run this theory by both of you and tell me what you think.

At Compass, we firmly believe that compute is squeezing from the middle out toward the edges. And here's what we mean by that. If you think of wholesale data centers, frankly, the industry, all three of us make a living in today, depending on whose study you read, but let's just mash up everybody's studies together, makes up about 32% of global compute is in a wholesale off-site data center today. And that leaves about 68%, but not quite 68%, about 67% of global compute still resides in an on-premise corporate-owned, the company who owns the compute also owns the land and the building today. And clearly we all agree in a hybrid IT world, hybrid cloud world, that on-prem 67 number is going to shrink and keep shrinking. I don't think it's going to get to zero, but it's going to keep shrinking. But it's not going to go 32, 67 to 99, zero. We think that 32 number is going to grow 55, 60. We think that middle number is going to

get really small, you know, 5, 10%. But we think the rest of that is going to get shoved to the right side of the, you know, the visual, meaning the edge, meaning distributed compute. And because of that, I think what both of you are saying, Buddy, where I think your question was going of, hey, guys, I'd love to get your take. Will there be another concentration like Loudoun County? I think the answer is no, and no meaning because we're going to get rid of that middle layer, not to zero, but largely compress that middle enterprise layer of compute, that on-prem corporate-owned middle, and we're going to shove it out to the two ends, which you're going to have this core compute that looks like Loudoun County, but you're going to have a good third, maybe 40% of compute that is

edge compute. And today we don't all know what that looks like, right? Edge means different things to different people. But what I think it means is tier two cities, tier three cities, and even tier four cities. I'll just tell you, we have some large technology partners who are asking us about help in places like Billings, Montana, and, you know, Boise, Idaho. Those kinds of markets are coming. Do you guys, conceptually, do you think that's accurate? Love to hear you both comment on that. Yeah, I think you're dead on. I mean, I think that the way we are using and creating and consuming compute these days is going that direction. And I think that,

you know, there's still going to be hubs, right? There's still going to be, you know, Dallas and Santa Clara and, you know, Seattle. There's still going to be hubs. But, you know, I think that a lot of the compute is going to go where the users are. And I think that that's going to be an important evolution in our industry. And people always say, well, do you worry about that as a county? I really don't. I mean, I'm mostly concerned about the health of our industry because the better the industry does, the better we're going to continue to do. So I think that I think you're dead on there. And yeah, buddy, I think your business where you're the core of the core, I think the core

keeps getting bigger, right? I think that 32 number gets bigger and gets bigger by probably at least a single order of magnitude. But that middle gets really, really thin. And then the distribution really matters. David, what do you think, bud? Yeah, I think everybody can win here. You know, and as it relates to, you know, where the compute goes and where it serves companies best. And it really speaks to, you know, I go back to just my comment about the maturing user, you know, really speaks to the companies that are really starting to understand their infrastructure in different ways. And, you know, I give a lot of credit to the data center industry for really trying to get to where, you know, the puck is going and not where it is today. I do think it's been a little slower than I anticipated. And I think there's a number of reasons why, you know, because we have been talking as an industry about, you know, edge compute for a while.

And I don't think the maturity is there just yet. as well as the infrastructure that it would take to, you know, enable some of the upcoming technologies to work in ways that benefit businesses, you know, in the most efficient way possible. So, you know, logically, it makes sense. I think it's just, it'll be interesting to watch over the next, you know, several years and decade, how the compute gets pushed out and, you know, and then geographically actually where that happens. So I think, David, you used a phrase I jotted down, there's enough that we can all win. This is another one that I think the foundational aspect of our business, I think, is hard to get your arms around. And so a couple numbers that I remind my friends who don't understand what

we do for a living of where our industry is headed. At the end of the day, all three of us get paid to either warehouse ones and zeros or talk about people who warehouse ones and zeros or convince people to put warehouses for ones and zeros in their county, right? We're just a storehouse for ones and zeros. We run warehouses. We store data instead of other things. And today, globally, there's about 44 zettabytes. I have no idea what a zettabyte is. It just means a lot. But in the next five years, that number is going to quadruple in the next five years. So the number of places to put all those ones and zeros has to go up, right? I mean, so I liked your phrase, David.

You said there's enough for all of us to win. The amount of tailwind at the backs of our industry, I think at times are hard to comprehend how fast data is proliferating. I think today we're at 22 billion internet-connected devices, rapidly going to get to 50 billion probably in less than three years. Our ability to produce data is accelerating, not decelerating, and that's what we all get paid to do. And I think it's hard to comprehend how big those numbers are. One of the ways I think that's a funny way to think about it, there are more cell phones globally than there are toothbrushes. It's one of my favorite statistics. 3.7 billion cell phones, only 3.5 billion toothbrushes. So there are more people creating data online every day than that are brushing their teeth. So

strong tailwind our industry, guys. Yeah. Yeah. David, another thing you alluded to, you talked about the edge, um, and that our industry has been talking about the edge, uh, and that there are, there are things coming. I think you're a hundred percent right. We're still early. I think that industry is still in a nascent phase. Uh, I think we're still two or three years away from the real beginning of that becoming a commercial thing. But I also think that it's coming. And we can talk about all the interesting, cool things that people talk about when they talk about autonomous driving and things like that. But the reality is, I think the amount of the sheer volume of data and the cost to backhaul that data to where it needs to go

is going to force us to solve this problem. And I think most of us don't have any idea the sea change of data that's coming when we switch our handheld devices from 4G to 5G. It's a hundredfold. And if we think we're growing data fast now, wait till my kids can generate a hundred times the data on their phone every day that they do today. Yeah, and that's certainly you know, certainly I think coming, you know, and, and the, the, you mentioned a point, which I think is good. It is hard to quantify future demand. And obviously every industry tries to do it because people are making capital decisions around those projections. But do you think there's obviously an interesting study on, you know, as technology gets better,

traditionally you can put more into less and then you take that approach, but then you compare it to what you're saying, which is the data growth that's taking place is almost too much to comprehend, you know, but it just points to refurbished and revitalized strategies around how this data gets used, where it's being transferred, you know, where are the most efficient places to store, you know, normal compute and, you know, if you have other applications

where you can put it. So, you know, I am excited to watch, you know, if you have other applications where you can put it. So, you know, I'm, I am excited to watch, you know, right now we talk about major and secondary data center markets in our platform and in our world, as we track the sizes and the vacancy percentages and the absorption and all those things. I think what I I'm excited to do is think about where our platform will be in the next five years, as we start looking in those other places. And we do it from a geography perspective, but, you know, where the edge will grow and how it will grow and the different products that the end user finds most helpful to their overall network strategy. So it'll be really fun to watch. And guys, I, you know, I agree with both of you on this.

And, you know, one of the things that excites me as an economic developer is watching the businesses that are being built on top of the internet and utilizing the data centers. And I'm talking about like health IT and the wearables and big data and the analytics and the predictive analytics that can come as part of this. And all of the, it's just, it's like, you know, everything from e-commerce to cybersecurity, it's all enabled by the infrastructure that has been built, education, public safety. I mean, the list just goes on and on. And it's this industry that we're all part of that is really driving that economic development growth on a global scale. Yeah, hear, hear, hear. David, you alluded to,

in one of your comments, you said that, hey, people are trying to predict how much, how big, how many, making large capital bets. And it's hard for us to get our arms around what does 176 zettabytes of data mean. And you talked about that as the components get smaller. I get asked this one a lot by investors. And I just want to take one crack at it with the two of you and tell me if this line of thinking checks that box for you. I get asked, Raymond, as the components in the data center continue to shrink, don't you think it's irrelevant how fast data grows because it can't outgrow the shrinking components in the data center? So this, just let me run this thought by both of you. I think there

were three significant events in the data center that allowed us to shrink data center footprint. And just to give you guys some context, I started in the data center business when we used to call them DP, data processing rooms or computer rooms. So it's a really long time ago. When you say data processing to your kids, they have no idea what you're talking about. The first hard drive I ever sold as a computer sales guy was five megabyte hard drive. And it was about the size of a Volkswagen Rabbit. It was a big piece of equipment. And the leaps forward that we've taken in shrinking the compute footprint were really threefold. The first was that we virtualized servers. So the average utilization of a server in a data center pre-virtualization was about 12%. So that means you could have

eight machines lined up in a row and each one of them running at 12% and you really only needed one machine. But because our applications didn't like to play well with each other, we would always stand them up independent of each other. So the first problem was we had to virtualize all of that utilization. So the virtualization of computers allowed us to take average data center utilization of compute from 12% up to the low 90s. Most people in the high 80s, but you'll get some really, really good performers above that. So that allowed us to shrink the compute footprint by 8x in the data CERN. That's big improvement number one.

Big improvement number two is when we got to put multiple processors on a single core. That changed the world. That allowed us to shrink the form factor of servers to where we could do blades and where we could do pizza boxes. You hear people talk about pizza boxes, one-use servers. That allowed us to compress the physical space a single computer took up. Now I could compress that computer and I could virtualize it. And then the biggest one was we took that Volkswagen Rabbit hard drive

that was a big spinning platter, and we put it on what's called flash storage or solid state storage memory, no longer a spinning disk. And that caused another eight to tenfold compression. Guys, those three things have all already happened. And I go through those three C changes, and I'm talking about from 2003 to about 2014 or 15, they've all already happened. And you go walk in a data center today, I don't know what other thing is going to happen that's going to cause 8x, 10x, 20x orders of magnitude shrinkage. And so when people ask me, well, Raymond, don't you think compute is getting smaller? And I'm like, yeah, it did that. We already, we did the three biggies. Um, and, and I don't know where else we could go. So, so David, let me just let both of you respond to that thought process. Am I off? Am I crazy? Or does

that, does that make sense? That whole. No, I think, I think it makes a lot of sense. And, you know, I listen, we have, I mean, I think we, we all know we have some very smart engineers in our, uh, in our business, not just the data center infrastructure business, but the, you know, software and the hardware development side of things. And to your point, I mean, we, the question is how much more can we do? And, you know, I'm somewhat in the same, and I don't want to get over my skis here, but I would say, you know, from a similar perspective, you know i don't know how much uh efficiency tuning you can continue uh to dramatically impact the physical and the physical footprint as well as the you know the the power

utilization that's taking place and where we are today. So, but it, but it certainly is, you know, I would say outsiders that are looking into the space, you know, sophisticated investors that are trying to understand the market, that is one thing they will bring up and just trying to get their arms around because it, it is a watching the growth over the last, you know, several years, I think just speaks to the exponential utilization and belief by companies that our market is continuing to grow. And that's been, I mean, for us tracking the market, seeing it change, it's been fascinating. I mean, I can't, you know, even it's hard to even put into words how much the industry has changed kind of beyond what we originally thought

or what we thought three to five years ago and what we've seen. So I think you're, you know, moving down the right path. Yeah, I think I completely agree. And, you know, one of the things that I get all the time is, you know, the community critics who like to say, well, you know, Moore's law and somebody's going to invent this or somebody's going to invent that, you know, Moore's law hasn't really been Moore's law for a long time now. And I think you reach a point where, you know, the innovation is coming on different areas. The innovation, to me, I think the next innovations are around energy generation and storage and usage. You know, I think that's where we see the next real big steps in evolution. But I think that the

thing we all have to remember is, and you use the numbers and the way that we are expecting to go from 44 zetabits and that will quadruple in five years, just the demand is going to be so high that there's no way that the technology can keep up with that. The demand is going to outpace the supply, I think, for at least the next dozen years. Yeah. Hear, hear. Hear, hear. Well, guys, I really, really appreciate both of you joining me and just letting us have a conversation about our industry and one that is exciting and fun and keeps all of us in groceries. I'm really grateful for that. I did want to tell you that the staff here informed me just as we came in that we had just gotten some incredible deals on Big 12 basketball tournament

tickets and ACC basketball tournament tickets. So I wanted to be sensitive to both your geographies. So we are going to sponsor you guys tickets for the finals of both the ACC and the Big 12 basketball tournaments. Yeah. Yeah. So we want you guys to enjoy that. Compliments of Not Your Father's Data Center podcast and Compass Data Centers. That's awesome. Well, I just, Raymond, I'd just like to say, you know, again, from, you know, an industry perspective at Data Center Hawk, you know, one, I would just say, there's a reason that things have grown the way they have in Northern Virginia. And, you know, there's a lot of people that are behind the scenes doing different things. And, and, you know, Buddy, obviously, is one of those people, the leader of that group. And it's been

fun to watch that, you know, part of the country grow. So from our perspective, you know, we keep a close eye on it just because there's so much happening and we believe there will continue to. And then I would just flip to the, on the Compass side and Raymond, what y'all's team, your team has built and what you're continuing to build.

You know, I think as a user looking at the data center operator community, you have to look at the team that has built these facilities and their operational expertise. And it's clear to us that Compass has invested in a solid and well-experienced team that has the potential to deliver not just capacity today, but capacity for a long time. So from, from Dennis and Hawk's perspective, you know, we thank very highly of, you know, both the Northern Virginia area and Compass. And, and, you know, David,

you know, thank you for that. I will tell you that one of the things that is most rewarding about this whole experience has been the people and and it's for you know to see the group of people that really has driven this industry forward and and and from from what you do david to you know what you guys are doing at compass to it it is an amazing group of people and and working together it's just incredible what has been accomplished. And it's been the joy of a career and joy of a lifetime to be part of the data center industry. Well, guys, thank you so much. We think highly of both of you.

And I thought before this podcast you were my favorite Liggett, and now, David, without a doubt, you're my favorite Liggett brother. I love it. I've accomplished my goal. Buddy and David, thank you so much for spending some time with us today, sitting around the dinner table and talking business with us. We're grateful that you're both here. And if you'd like to listen, find our podcast, you can find it at Apple Podcast or Spotify.

Thank you so much. Thank you. Thank you. Thank you.