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The COVID-19 pandemic has forced fundamental change in how Americans shop and work. This week in Data Bytes we are featuring data points on several changes in consumer behavior that are likely to require more infrastructure, and thus are likely to boost investment in data center space and network services.
Ecommerce Transition is Accelerating
There’s been much discussion of how the “retail apocalypse” has been accelerated by the pandemic, which saw malls and stores close down or operate with lower shopper traffic, as consumers turned to online shopping and home delivery. Tiernan Ray at The Technology Letter highlights new data from Merrill Lynch suggesting that this shift buying behavior has accelerated the long-expected transition to an e-commerce economy, “sucking money out of traditional retailing.”
E-commerce worldwide is going to go from 15% of all shopping last year to over 24% by 2025. Ray notes that this will mean profound changes in demand for logistics real estate and the delivery of parcels and food.
The Merrill study homed in on the growing importance of Millennials, who now outnumber the Baby Boomers that have guided trends in the U.S. economy. The transfer of wealth from Boomers to millennials “will make that generation tangibly more important over the coming decade,” write the Merrill analysts, “with an above-average accumulation of wealth compared with other generations, providing large upside potential for online-focused companies.” The brokerage surveyed 1,000 U.S. consumers, and notes 60% of them expect to spend more online “post COVID-19.” Meaning, there is “no going back, from offline to online for good.”
That surge in online activity will require more servers and storage gear, and that means more data centers. The pandemic has accelerated broad secular shifts that favor e-commerce, and it’s a trend that will require lots of digital infrastructure.
More Broadband, Please
Is your home broadband good enough? The answer to that question is changing during the pandemic. Mike Dano at Light Reading summarizes several data points on increased demand for broadband, as the work-from-home transition stress-tests networks that were designed for home users, not business AND home entertainment.
“Customers are flocking to fixed broadband providers like Comcast and Charter in unprecedented numbers, forcing some financial analysts to recalibrate their expectations for the space,” Dano writes. “Some investment firms are warning that the value of broadband assets, particularly in rural areas, are going to remain sky-high ‘for the foreseeable future.’”
“Over the past few weeks, we’ve seen announcements from telcos, both large and small, about their ambitions to deploy meaningfully more fiber into their footprints,” wrote the financial analysts at Wells Fargo in a recent note to investors. The firm said that fiber and installation vendors “should particularly benefit from this renewed enthusiasm around fiber-to-the-home as we appear set for a multiyear investment cycle by multiple operators.”
The appetite for upgrades is being driven by customers who previously made heavy use of smartphones for home data consumption, but now require beefier wired connections. Data from Dell’Oro is cited, indicating that network investment has been stable, meaning the extra demand will likely require fresh investment in additional capacity.
We’ll add an additional point: The work-from-home is enabling a more distributed workforce. A community’s broadband infrastructure will be more closely tied to the success of its economy and real estate market. This could lead cities and towns to demand more from their local broadband providers, and perhaps even invest in it.