Hyperscale Data Centers Bring a Model Shift in the Server Space


Sep. 23 2015, Updated 12:08 p.m. ET

Emergence of hyperscale data centers

In the previous part of the series, we saw that the cloud is changing the face of data storage. The rapid cloud growth is increasing the demand for hyperscale data centers that support cloud services. Hyperscale data centers use inexpensive off-the-shelf servers and have the flexibility to scale up quickly in a cost-effective manner.

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A strategic shift in the server market

The ever-increasing investment in hyperscale data centers by cloud companies is influencing the business model of original design manufacturers (or ODMs). ODMs are companies that design and manufacture white-labeled servers that are then branded and sold by technology vendors such as HP (HPQ) and EMC. Instead of selling servers to technology vendors, ODMs are selling them directly to large cloud-based providers such as Google (GOOG), Microsoft (MSFT), and Amazon (AMZN).

As seen from the above graph, ODMs selling directly to hyperscale data center operators saw their 1Q15 revenue increase by 23.1% to $1.8 billion, according to an IDC (International Data Center) report. ODMs accounted for a 28.8% share in the Cloud IT infrastructure market.

ODMs leverage Facebook’s Open Compute Project

In some cases, ODMs are making use of Facebook’s (FB) OCP (Open Compute Project), an initiative where a group of companies share efficient server and data center designs online. Facebook and Google design their own servers and get them built by ODMs that are based in Taiwan and China (MCHI). OCP has helped Facebook achieve savings of $2 billion since its launch in 2011. Big companies like Microsoft and Goldman Sachs use OCP-designed servers.

Facebook’s director of infrastructure, Jason Taylor, said, “I think that there’s starting to be a movement of people adopting server solutions that are a tighter fit to the problem. Overbuying hardware doesn’t help any organization.”

ODMs are expanding their customer base and making the hardware built on OCP designs available to smaller companies as well. The success of the OCP initiative is encouraging tech leaders like HP and Cisco (CSCO) to join the open-source initiative.


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