Japan's Data Centers Offer Promising Markets for North American Energy Management Technologies

Rapid Growth of Data Center Market
February 2012 -- The global market for data centers has increased rapidly in the past few years. The exponential growth in digital visual content, cloud computing, and social media requires ever-increasing amounts of ditital data storage, and the data center industry is expanding briskly in response.

In Japan, this technology-driven increase has been compounded by the impact of the Great East Japan Earthquake. Because of the disaster, many businesses, especially IT companies, began to review and rethink their data strategies. Existing users of external data centers now seek more security and emergency capability through backed-up and distributed data storage. At the same time, more companies seek new external data sites for their emergency business continuation needs.

Some overseas companies are also locating data centers in Japan because of increased business needs there and in the rest of Asia. For example, Amazon, working to serve its cloud service customers in the Asia-Pacific region, built a new data center for Amazon Web Services (AWS) in Tokyo in March 2011. Japan is the fifth region in the world where AWS has a presence.

Local Governments Aim to Attract Data Centers
Recognizing the powerful growth of this emerging industry, local governments in Japan are seeking to draw data centers to their area, often enticing companies through incentives like financial and other types of support.

For example, Ishikari City in Hokkaido is attempting to attract data centers to its newly developed port area. It claims that a confluence of factors -- including cool climate, proximity to the island's major city of Sapporo, and the availability of large amounts of low-cost land -- make it an optimal location for data centers.

Another example is Akita prefecture, also in northern Japan, which offers paticularly attractive incentives for data centers, call centers, and other IT service businesses. It provides subsidies of up to one billion yen (approximately $13 million) for certain expenses of companies that locate the centers within the prefecture.

Environmental Footprint Is A Major Issue for Data Centers
The expansion of data centers brings concomitant growth in power demand. According to Mic Research Institute of Japan, in 2010 data centers in Japan consumed 7.7 terawatt hours of electricity, up more than 30% in three years. With IT companies continuing to build new data centers, the research company estimates power consumption will reach 10 terawatt hours by 2015.

In one respect, the rapid increase of data centers and the accompanying growth in power consumption is raising concern. A reduction in the centers' environmental footprint, through improved efficiency and the use of renewable energy, is an increasingly pressing issue. The energy crisis engendered by the Earthquake and subsequent Fukushima nuclear incident have made the need for efficient energy management throughout the IT sector even more acute, and the vast energy consumption of data centers puts them among the top industries targeted for power reduction.

Advantages of 'Made in USA' Technology for Efficient Data Centers
Even though Japanese IT companies offer advanced energy efficiency solutions, opportunities also exist for firms from overseas. The energy management systems (EMS) of data centers provide, among other benefits, enhancements in power usage, monitoring, and control. These improvements are made possible by advanced software systems, which many U.S.-based technology companies can offer.

For example, last year IBM Japan worked on reducing the energy consumed by air conditioning at a data center owned by Asahi Mutual Life Insurance, resulting in an approximate 40% cut in power consumption in the two-month May-to-June period -- a significant decrease at a time when Japan was severely energy challenged, following the Fukushima incident.

Other North American companies offer various technologies and know-how in efficient air-conditioning design, virtualization, and module-based efficient data centers. The continuing expansion of Japan's data centers and accompanying growth in power consumption, coupled with the need to reduce overall energy demand, should create significant potential markets for green data center technology suppliers.

Note: This article was written by Cando Advisors -- a consulting firm supporting clients on international business development, strategic alliance, and investment, focusing on the Japanese market -- and co-author Bob Schneider.