Everyone is talking about the “edge” these days. What is your view of the “edge”? How do Digital Bridge and Digital Colony plan to grow in this sub-sector of the digital infrastructure industry?
We believe the edge is an interesting area for investment and growth over the next 5 years, and that will be driven by the proliferation of new applications and an increasing focus on latency and performance. However, the edge doesn’t have a universal definition and its requirements will differ across markets, user groups and applications. As an investor and operator across the full digital infrastructure ecosystem, we see parallels in the evolution of the edge across the different sub-sectors. More specifically, data centers are following a similar trajectory to what we saw with towers—densification driven by tremendous data growth and lower latency requirements in the networks:
Phase 1 (Tier 1 Connectivity) – The rise of data centers in Tier 1 markets around 20 years ago developed around peering points in the market, in cities like San Francisco and Ashburn in the U.S., in Amsterdam and London in Europe, and Hong Kong in Asia.
Phase 2 (Tier 2 Coverage) – This would be the increase in the emergence of secondary or Tier 2 cities, which really only happened a few years ago. “NFL Cities” in the U.S. (i.e. Pittsburgh and Kansas City) as well as smaller European markets such as Madrid and Geneva became prime locations for data center expansions as providers looked to support increasing demand from cloud-based platforms, and content providers pushed into new markets to be closer to the end users.
Phase 3 (Market Densification) – The development of a “new edge,” where a new generation of data centers located in a neighbourhood or office park, or at a base-station or cellular tower, will allow the data to be even closer to the end user as to reduce latency, improve performance and support the accelerating growth of the Internet of Things.
If you then think about the edge, it’s about bringing the network closer to the end user to reduce latency. From our perspective, the edge now is in Tier 2 or NFL cities where the ROI supports the investment and the demand has reached an inflection point.
Certainly, 5G will change where the edge is. As we see demands for near-zero latency and real-time applications, the edge will both need to shift closer to the user and potentially support processing and data management. These demands will drive the evolution of data center landscape.
Digital Bridge is working closely with our operating partners, customers and portfolio companies to identify new opportunities for growth and investment at the edge.