Last week we talked about the booming demand for mobile data.
The numbers are astronomical. We’re looking at trillions of dollars.
The fortunes made from it all will be astronomical.
You see it playing out every day.
Just yesterday Comcast (CMCKA) announced is going mobile too. The cable giant will be making its content available on mobile devices including tablets and smartphones.
It’s just another step forward in mobilization of content and part of the soaring consumption of data.
That news and the more like it which will surely follow in the months and years ahead is why we’re back again with more specifics on this growth mega-trend and how specifically to invest in it.
Up 13,907%...More Gains Ahead
In order to really understand where the opportunities are in this megatrend, you’ve got to understand how the modern Internet works.
Now, it hasn’t really changed too much over the years. It’s still fundamentally the same as it always has been. It’s a giant network of connections with trillions of data packets being sent through it.
The main difference in the last few years is how and where the major intersections of the Internet can be found.
To see what I mean, let’s go how a Netflix movie makes it onto your iPad.
A Netflix movie starts out in a data center.
From there it must be then sent through the web network, across all the major fiber optic cables, central Internet Service Provider hubs, and possibly through mobile cell towers on it’s way to the end user.
It then arrives on your iPad ready for viewing.
Every step of this process, from the data centers to the final transmission to your device must be expanded to meet the 500% growth of mobile data in the years ahead.
Today we’re going to focus on the starting point of it all -- the data centers.
A data center is basically a centralized storage center.
It’s like a warehouse of content and processing power power.
Here’s a stock photo of the inside of one of Google’s data centers (source):
As you can see, it’s a giant conglomeration of processing power, storage, and the some of the most advanced cooling systems in the world to keep them from overheating.
Over the last few years data centers have been popping up all over the world and making a killing for their owners in the process.
Take Amazon (AMZN). It is one of the leading data center companies in the world.
Amazon’s Web Services (AWS) business segment has been a massive success for the company.
AWS customers include Comcast, Pinterest, Airbnb, Netflix and many more.
Their customers demand a lot of data. Amazon’s data centers are where it’s provided from.
The growth in the AWS segment has been exceptional. In the first three months of 2014 AWS generated $1.05 billion revenue. In the first three months of 2015 AWS revenue soared to $1.57 billion.
That’s annual growth of 49% and it’s been enough to power this once-tiny segment of massive Amazon to account for nearly 7% of its annual revenues.
Amazon is just one of the companies riding the data center boom though.
One of the most successful data center pure-plays has been Akamai Technologies (AKAM).
In October 2002 its shares were trading for 56 cents. This year they set a high of $78.44.
That’s a gain of 13,907% and is another example of how far the data center business has grown because of users demand for more data.
Any way you look at it, the data center business has gone through massive growth.
Regrettably, the data center boom is probably nearing the end of it’s run.
In a research study from technology research and consulting firm Gartner, they forecast the golden age of the data center business will over soon.
Gartner reports (emphasis added):
An uneasy peace exists among the incumbents (Protectors and Evolutionary Disrupters).
While there is some heightened tension as former partners now compete, no one wants an all-out slugfest because everyone is addicted to the high 50 percent or more gross margins in storage and networking hardware and [data center] infrastructure software.
The margins in the data center business have been extremely high and it has propelled massive investment in the data centers around the world.
Simply put, big margins drive big investment.
Eventually capacity catches up, competition increases, and margins take a hit.
That all could be happening to the data center market within a year and it’s not a place I’d want to have money tied up when it all does hit.
But data centers are just the starting point for the global mobile data consumption boom.
There are still many stages in the delivery process which are much less developed and are therefore much better opportunities for investors right now. Next time we get together we’ll look at the specific opportunities.