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Infrastructure matters

The pandemic made us rethink what is essential.

Investing newsroom
Michael Bacon, Senior Investment Analyst

Michael Bacon
Senior Investment Analyst | Email Michael »

23 September, 2021

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The pandemic made us realise which workers were truly essential. Not just medical professionals, but supermarket workers, truck drivers, and many more that support our everyday lives.

The acceleration of the digital economy is a less obvious, but still important, aspect of the global pandemic response.

"Stay at home, save lives" has been the mantra, and the rapid increase in cloud computing usage made this possible as many shifted to virtual working and communication. Microsoft CEO Satya Nadella put it well: “we’ve seen two years’ worth of digital transformation in two months”.

Virtual engagement and the digital economy held us together as the world fell apart

“Zoom” and “Teams”, long part of everyday language, took on a whole new meaning in the past 18 months. They’re important beyond work: we can speak to family near and far, compete in a pub quiz, and remain social despite staying home.

Ecommerce too accelerated rapidly: in the UK, already one of the world's largest ecommerce markets, online retail sales rose £40 billion in 2020! The increasing use of ecommerce helped keep the economy afloat and maintained access to essential goods for those shielding at home. 

The surging digital economy prompted a huge jump in data traffic: for example, New Zealand’s fixed broadband usage rose 37% during the initial COVID-19 lockdown last year. This placed a large burden on the infrastructure of the internet - how many other forms of infrastructure could cope? Auckland Airport will take many years to build a second runway; internet infrastructure responded almost overnight. Crucially, it was cloud computing that provided the additional capacity needed by the digital economy.

Cloud computing: landlords of the internet

At its simplest, cloud computing means renting some of your computer storage, processing or networking equipment from a third party (like Microsoft) who manages this equipment offsite. By renting, organisations pay for what they need and can rapidly scale up and down their computing requirements.

Just as organisations become “renters”, so datacentres become the “landlords of the internet”. These facilities house the outsourced equipment serving as the backbone of the digital economy.

The information superhighway

Organisations access their cloud data over the internet. The internet is a highway; essential for traffic reach a destination, but with the risk of traffic jams, crashes and even highway robbery.

In the digital world these risks manifest as slow data speeds (e.g. Netflix videos freezing or taking a long time to load), failed downloads and cyber-crime: ransomware, denial of service attacks and even complete shutdown of systems.

Co-location datacentres: safely navigating the highway

Co-location datacentres allow the exchange of data safely, securely and fast through direct connection (“interconnection”) between parties, avoiding the “public internet” and the associated potholes and pitfalls.

Datacentres enjoy a network effect: as more tenants join, connection possibilities become greater, and potential benefits to all parties increase.

Equinix, recently added to our Property & Infrastructure portfolio, possesses the deepest network in the industry and therefore a wide moat. With more than twice as many customers and interconnections as its nearest competitor, Equinix offers unrivalled connectivity and the ability to take customers global by providing “physical infrastructure at software speeds”.

Critical infrastructure with a long runway for growth

Tailwinds in the datacentre industry are strong: increasing data usage, greater cloud adoption and greater interconnection needs drive an industry growth rate of circa 8%, relative to 5% across our broader Property & Infrastructure universe.

Equinix enjoys a privileged position at the centre of this industry, serving half the Fortune 500 and each of the top 10 firms within key industry verticals. With the deepest network in the industry, Equinix can continue to take market share and will enjoy a long runway for growth.

The pandemic made us rethink just what is essential to daily life. It also highlights datacentre’s role as critical infrastructure for the digital economy. With strong tailwinds and a wide moat, Equinix is just the type of business we love to hold in our client’s portfolios. 

 



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