ReadWriteWeb has put in-house data centers on their Deathwatch, but over on the near northwest side of Atlanta there's a very quiet boom taking place.
What were called "telecom hotels" in the 1990s are now pushed as "cloud computing centers." These are buildings run by third parties that contain thousands of PCs from a variety of Internet service providers, private cloud owners, and even (in some cases) public cloud owners. These public data centers are going to boom, JoeMcKendrick writes at Forbes, because enterprises are starting to replace their in-house data centers with private clouds.
McKendrick's source for this is a Navint Partners whitepaper titled "Trends in Cloud Adoption." It shows CIOs very happy (ecstatic even) on the return they are getting on their private cloud investments, with most seeing real impacts on how their businesses run.
Security is their chief concern, which is one big reason I think third-party centers are going to grow. Third-party centers can afford first-class security and can contract for first-class data security services as well, spreading this cost across the customer base. This can be part of the standard offer, or it can be an up-sell.
In terms of investment, the only play is CoreSite (COR), listed here under the somewhat-misleading name Coresite Realty Corp. This is not a real estate company. It's a technology outfit.
The company is barely profitable, but its top line is growing quite quickly, increasing by a factor of 10 since 2008. Despite its weak bottom line, the company's stock is up 53% this year and has nearly doubled in value over the last year, currently sitting at $27.27. Oh, and did I mention the 18-cent/share dividend, a yield of 2.64%? On a stock that's doubled in value over a single year?
Over at ZDNet, Dennis Howlett offers an interesting case study on what's happening. He says Sears Holdings (SHLD) is moving off IBM and Oracle hardware, building its own "open source" system based on cloud technologies. In other words, it's building a private cloud. It has to host that cloud somewhere, doesn't it? And it makes economic sense to make that a number of different somewheres, most likely private data centers like those operated by COR.
My guess is that private equity has a lot of other, better investments in this area squirreled away, companies like Qualitytech.com and Telx Group, which walked away from an IPO last year in favor of a private equity deal. Enterprise customers may in fact prefer that these companies stay private for as long as possible, because publicity is anathema to those worried about security. If you drove by the Qualitytech.com site in Atlanta, for instance, you'd think you were on the wrong side of town -- the county jail is right down the street. But there's money being made inside those gates.
As the private cloud expands, look for some of these guys to go public. And watch COR closely. If Navint's prediction of a private cloud explosion proves accurate, there will be money to be made.