First, what is a data center? It’s a slightly archaic term, meaning where the firm aggregated its computer data. It’s from the age of centralized computing. While desktop computers were intended to run on household current, shared computers (mainframes, VAXes, Enterprise databases, etc) were to be installed in rooms with commercial power and air conditioning. These were often installed with special raised floors, allowing cables to run beneath your feet. The space where we put servers has changed, but not radically. Modern servers, although they use processors that are of the same instruction set as desktop and laptop processors, have constantly screaming fans and power requirements that can strain a typical 15 amp household circuit or typical office circuit. And rather than a raised floor, the cabling is now overhead.

The first big change was going from on-premise to hosted infrastructure. Prior to the 2000s, if you went to an internet company, you would likely be taken to their data center. It would be in the same building, or one building over, from their offices. Was there a server problem? Walk over to the data-center and take a look. (Tip: if the servers all looked the same, you could eject the CD ROM tray to help you find it). Starting in the late 1990s and through the 2010s, the data-center moved to a shared facility. Now, the data center might be hundreds of miles away. You might never visit it, or take the tour once before signing up. You ship your equipment to the site and they put it in racks for you, connecting cables as you specify. Or in some cases, lease the equipment from them. From the 2010s on, the move became to the cloud. In the cloud you are renting the equipment in very short time increments. The cloud provider gives you an API to manage the systems.

When you rent space in a data center you are paying for power, networking, and floor space. Power is a combination of the power your draw and some part of the infrastructure, like the backup generator. In a shared data center, you are generally responsible for your own uninterrupted power supplies. Networking is a function of how much of the bandwidth you intend to consume, or you can provide your own network pipe. Within the category of floor space you can add features like physical security, but it is essentially your portion of the footprint of the data center. All the other costs like staff to make sure the physical structure is operational, or someone to attach a cable, are either baked into those costs or billed separately. If you’re a small company looking to host a set of servers, you would likely pay for a rack (a single tower of servers) or a cage (essentially a fenced in area with a lock on it). That square footage combined with the power and network bill is your monthly fee for hosting your servers.

The cloud obscures all that and layers on management. You no longer have to set up your servers, storage, and networking. The cloud provider does that for you. You can still provision a VM or create a virtual (fake) network, but the physical hardware is hidden from you. Your interface to the computers is the API that cloud provider publishes. The costs can be per hour, minute, or gigabyte to seem ridiculously low. How can you justify managing your own servers when it not only involves all the costs mentioned above, but hiring and managing an IT staff, compared to those low costs. There are times when companies have been nearly bankrupted by their cloud spend, but for many it still feels like a deal. And it’s highly flexible, even if getting the costs down means buying into multi-year, inflexible arrangements more akin to leases.

But that’s not the real draw of cloud. Remember floor space, power, and networking? When a data center runs out of floor space, construction time is measured in years. It may not be practical to deliver more power. And even adding more networking always seems to take the networking providers months just to turn on a bit of fiber. God knows why. If you have your equipment in a data center and need to add more, the answer could be ‘no.’ It requires you to figure out where to put the equipment and how to communicate between the two data centers (although some providers had a solution for this). For all intents and purposes, the power, floor space, and networking in the cloud are infinite. And they handle other issues like fail-over, assuming you are willing to pay for it.

But we may be heading to an interesting situation, should the AI hype cycle crash. We will wind up with a lot of data center space heavily over-subscribed with power and networking, with no clients. We might be in a glut of modern data center space that is re-possessed by PE firms and regional banks lending to the projects. This would be like the glut of dark fiber that made YouTube and other social media initially affordable. You might have a group of lenders that’s suddenly trying to get rid of a largely completed data center at a fraction of what it cost to build. All you need to do is walk in and secure agreements for power and networking. The infrastructure will be there in varying degrees of completion. From powered on to cement slab.

What we lack is a view of operating systems that spans multiple computers. The cloud would still have an advantage for many companies that denuded themselves to system administrators to hire cloud administrators. It’s also hard to cost compete with a company that can smear those costs over a much larger number of systems. The idea of companies taking their data centers back in house isn’t what I think is likely. But it may open the door for newer and cheaper competitors. If not general cloud competitors, then maybe specialty providers that provide storage only or back up facilities in case there’s an outage? These new data centers would already have fat pipes to reach out to AWS or Azure.

Maybe another option is to finish the building and bring computer controlled manufacture. You would have plenty of power for laser cutters or mills. Even industrial processes like powder coating or electroplating require a significant amount of power. These data centers are being designed with more than enough power to spare. Like we divide existing data centers into ‘cages,’ these could also be divided up into cages for specific manufacturers. The data centers are also equipped with loading docks for semis. You want to make something like a bed frame that requires a CNC cutting board after board of MDF and grade ‘A’ plywood? No problem. You have a linear, football field sized building, where it gets cut, finished and packaged in one long assembly line. Maybe it would serve high-tech, multi-modal manufacture? You sit in a suburb of DC as you basically run a CNC cutter in Lousiana?

The down side is the AI chips themselves will have a very limited shelf life. Although using firms are extending the depreciation targets, the goal of the chip makers is to produce a chip so much better than the two generations ago, that it isn’t economically viable to operate the old chip. That’s a three year lifespan. Not because it can’t do the work, but because the electricity cost is too high. Maybe some of them could be used to support vision and robotics tasks related to manufacturing, but that may be only a small subset of what’s being purchased today.