TORONTO, November 3, 2022 – The digital infrastructure industry is undergoing a disruption brought on by hyperscalers, companies who build cloud service platforms on hyperscale computing.

Hyperscalers, an increasing used buzzword in the cloud computing industry, are able to provide and add compute, memory, networking, and storage resources on a node that makes up a larger distributed computing environment.

As part of the broadband buildout that is part of digital infrastructure investment, hyperscale data centers embody the communications and computation environment necessary for scaling broadband capacity.

Hyperscalers gathered in Toronto

As North America and the rest of the word begins to exit the COVID-19 pandemic, the computing power embodied by hyberscalers has been in much demand. And one key element of the physical community of digital infrastructure operator and investors gathered at the infra/Structure summit here to discuss hyperscalers’ ability to accelerate the the digital transformation of cloud computing globally.

Hyperscale computing is increasingly used in cloud and big data infrastructure systems, and is often associated with the clouds used to run Google, Facebook, Twitter, Amazon, Microsoft, IBM Cloud and Oracle.

And according to Structure Search, which sponsored the infra/Structure conference here on September 14 and 15, the estimated global data center colocation market size will reach $109 billion in 2027, at an average annual growth rate of 12%. As such, businesses in the industry are fighting to position themselves and to claim a piece of this growing market.

“The market is big enough that you will see different tier businesses looking for different solutions,” said Sherri Liebo, senior vice president and head of marketing at Flexential, a data center company. “Small businesses are cloud native and designed to run on public cloud. Mid-market businesses need a hybrid solution of private and public cloud, and the large corporations prefer to have a private cloud where they have more control over the system.”

Hyperscale computing is a type of computing architecture that is flexible to add additional computing, memory and networking resources. It supports seamless software scaling and enables cloud and “big data” technologies. Some notable names are Amazon Web Services and Microsoft Azure.

Though hyperscale data centers excel in computation and storage, they alone cannot facilitate communication across data centers. Hence the need to collaborate with transit centers, a type of data center where physical connections and cables allow traffic to travel between different data centers across the globe.

Wholesale third party providers, such as Equinix, CoreSite and Digital Realty, provide transit center services to these hyperscalers.

The losers from the rise of hyperscalers

The rise of hyperscalers directly impacts retail data centers – also known as colocation centers or carrier hotels that serve small-and-medium enterprises. Hyperscalers provide significant value to their smaller customers by helping enterprises reduce capital expenditures and maintain stable operational expenditure.

This allows smaller businesses to focus on their core business rather than investing and managing infrastructure. The time ahead will be challenging for retail data centers – and a revision of their value proposition will be necessary to remain relevant.

The winners

In the midst of the cards reshuffling, there are two players benefiting from the growth of hyperscalers: managed service providers and real estate developers. MSPs are consultants who recommend and implement digital infrastructure services for their large or small enterprise customers.

“We have seen five times growth per year in our revenue by helping on-prem customer developing data strategy to support adoption and enablement of hybrid hyperscaler on-premesis and private cloud,” said Sean Charnock, CEO of Faction, a cloud data services company.

Another winner is real estate developers who work closely with hyperscalers in their global expansion journey to design and build data centers for them. As the right hand of the conquerors, real estate developers undoubtedly benefit from the fundamental growth of this digital transformation wave.

The next target

According to Structure Search, in 2022 more than 50% of the hyperscalers’ data centers capacity including space, cooling, and connection is provided by the wholesale thirdparty in colocation sites. However, there is a growing trend of self-build activities in planning by 4 major hyperscalers – Google, Microsoft, Amazon and Meta.

If hyperscalers decide to integrate upward by building more data centers of their own it will significantly reduce the value captured by the wholesale third party providers. The silver lining for third party providers is that they still provide high business value as transit centers, which are a vital piece for supporting hyperscalers’ edge infrastructure development needs as they integrate upwards.

Are hyperscalers unbeatable?

One might think that hyperscalers, with their scale, capital and technology, can grow without any constraint. Yet, to maintain hyperscale computation, hyperscale data centers consume enormous amounts of electricity.

In fact, data centers use 1% of the global electricity supply annually. They also require large amounts of land and water, and can be susceptible to natural disaster.