Data is arguably the most valuable commodity in the modern world. It is the life-blood of e-commerce and rapidly-evolving technologies like artificial intelligence. How companies handle consumers’ sensitive data, as well as their own intellectual property, can be the difference between profitability and bankruptcy.

In this installment of Kinzer’s 2018 Trends and 2019 Predictions series, resident data center expert Marcelo Garces discusses how data’s essential role in business is impacting firms’ decisions on security, storage options and C-suite executives.

Marcelo also looks at the growing wave of investment into artificial intelligence start-ups and its potential impact on Seattle’s skyline.


Partner Marcelo Garces

Broker: Marcelo Garces

Joined Kinzer Partners: 2018

Main focus areas: Data centers, life sciences, tech


Notable trends of 2018 

Data Centers & Privacy Concerns

Cyber security and data privacy are considerations that have become much more significant in a company’s decision-making process. We’re in an era where cyber attacks are successfully gathering large amounts of private consumer data and monetizing it in the dark web. We’ve paid closer attention to this since the very public Yahoo and Target events from 2013, to the most recent Marriott data breach of 2018.

Concurrently, more companies are recognizing the need to leverage customer data to better understand and improve their ability to reach and serve more consumers. Ultimately, it is quickly becoming the new minimum ante to compete and succeed in the digital marketplace.

Consequently, any company that captures consumers’ profiles must have an effective cybersecurity plan and infrastructure in place. One breach can cripple an entire company. Proper management of data and customer interaction and interface will be more crucial from now on. As a cautionary prediction moving forward, data breaches and cyber-attacks are becoming more physical.


Rise of the CIO

Knowledge of the dire effects a data breach can have on a company magnifies the job of a cyber security team or a Chief Information Officer (CIO) and its complexities. How they choose a data center, a data center operator, or a colocation provider will have a growing level of sensitivity.

The CEO and CFO roles have been the most recognizable titles, historically. In the coming years, the CIO is going to be right out there with them. The CIO will play a more dominant and public-facing role. The IT- and technology-related expense line items are getting exponentially higher with the adoption of apps and IoT into the workplace.

Now more so than in the past cycle, CIOs and their IT colleagues are right alongside Human Resources during real estate exercises. This trend will only become the new norm, and the CIO decision-making process in data center selection or cloud architecture will carry a heavier fiduciary impact.

 

The Westin Building Exchange in downtown Seattle is a major data center and colocation facility. Physical security and redundancy of critical systems are key pieces of the facility’s design. Photo from Costar.

2019 Predictions:

Migrating servers

The rising importance of data paired with the growing risk of costly cyber attacks is leading small and medium-sized businesses to take a closer look at how to store and protect their data.

Even small businesses now need customer profiles to do business online, but they may not have the budget or expertise to establish effective security parameters or firewalls to protect that data.

This is one of the many reasons we see some firms migrating from their own, traditional data centers to the cloud. According to Gartner’s IT Advisors, 10 percent of firms have already shut down their own data centers. This will continue and exponentially expand in 2019.

Companies are also recognizing the need to rely on specialists in cloud architecture for guidance during this transition. With their knowledge of prices, structure and scalability of public and private cloud components, these advisors can help companies design how to store different aspects of their data and intellectual property.

Each company will have to tailor the best data architecture design for them. The right answer for many will be trusting their “secret sauce,” the intellectual property that makes their business run, to experts in cloud security at Amazon, Microsoft, and Google.

 

The Age of AI

We are in the middle of an Artificial Intelligence revolution and it’s only going to get stronger. I think the number of AI-based startups will multiply and front-runners are going to expand rapidly.

A number of venture capitalists are feeling pretty generous and their scrutiny levels are lower for AI-based startups. It seems similar to the dot-com explosion of the early 2000s, where everyone was amazed at all the things you could do online. Instead of going to a strip mall down the street to visit a travel agency, you could buy online. Now there are no travel agencies in any strip malls, only apps on smart phones – Expedia, Trivago, etc.

In a similar way, AI is the next wave. Venture capitalists are pretty loose with their checkbooks in investing in AI-based ideas and startups, and I think that’s going to affect the real estate skyline of the future. As a quick point of reference, venture capital funding for AI hit over $9.3B in 2018 in comparison to $5.4B in 2017.

Translating this data into commercial real estate impact, 2018’s funding was focused in expansion-stage AI opportunities. With numbers, this happened at a steady increase from 19% in Q1 to 32% in Q4. There are many start-ups working in the AI space right now, and as they become more successful and hit their funding milestones, they’ll be moving into larger office spaces.

Expansion-stage venture capital investment in Artificial Intelligence rose steadily in 2017-2018. Graphic by CB Insights.

Seattle and the Greater Puget Sound are uniquely positioned to support AI. The Allen Institute for Artificial Intelligence (AI2) is bringing some of the top talent in the world together to solve tough challenges and spin out companies. This incubator, combined with UW’s groundbreaking AI program and a concentration of high-skill tech and mechanical engineers, make this area a hotbed for development in the AI vertical.

In terms of data centers, AI generates a massive amount of data. Just like in “The Matrix,” there will be millions of computers, and computers need a lot of power. Whether they will use humans as batteries is a different dilemma altogether. Ultimately, the data center market will remain healthy and growing for many years to come.