02-12-09 | Blog Post
Michigan Business Review (see link to original article below)
Reprinted article by Sven Gustafson
Related Coverage: Online Tech’s Yan Ness says Michigan is Cool.
The trend toward outsourcing the hosting and management of business-critical IT functions is adding up to big business for Michigan companies that operate data centers.
And Ann Arbor-based Online Tech Inc. said it added 10,000 square feet of data center space in 2008 with a third data center along with 10 employees.
“It’s one of the secrets of Michigan,” said Yan Ness, Online Tech’s CEO. “Everybody’s got bad news and stuff. I’ve always said whether there’s an upslope or a downslope, there’s an opportunity.
“Right now there’s a downslope in the banks and the credit markets. Companies that basically help other companies avoid capital deployment are acutely in demand.”
For businesses, the ability to outsource the hosting of enterprise resource planning (ERP), customer relationship management (CRM) or supply chain management software to offsite data centers adds up to money saved on IT staffs and server banks.
Ness said data centers can cost between $1,000 and $2,000 per square foot to construct, equating to 10- to 20-year investments.
A report released in November by independent research firm Tier1 Research found that demand for multi-tenant data centers grew 14 percent in 2008, fueled by the popularity of software as a service, online gaming and even social networking sites. Yet capacity rose by just 6 percent, the report said.
The report also concluded that problems in the credit and financial markets were likely to further complicate the supply side of data centers and that demand, fueled by Internet-based applications and services, was likely to outpace supply during the first year of an economic recovery.
“It takes actually a pretty decent amount of capital to build these things, which is more difficult than ever,” Ness said, adding that both Google and Microsoft have recently shelved plans to build new data centers. “That’s good we think, because that’s going to drive up demand.”
Online Tech (formerly Online Technologies Corp.) has benefited as insurance companies, banks, health care and biotech companies that are either unwilling to build their own data centers or are out of cooling capacity or space to do so, Ness said. The company is looking to see its five-year annual growth rate cool slightly to around 20 percent for 2009 and hire perhaps a half-dozen new workers.
“We’ve been able to secure all the capital we need to grow even in this tough time,” said Ness, one of five co-owners of the company. “We think this is a pretty good place to grow.”