2020
Working Paper
HBS Working Paper Series

Where the Cloud Rests: The Economic Geography of Data Centers

Format:Print
| Language:English
| Pages:48

Abstract

This study provides an analysis of the entry strategies of third-party data centers in the United States, an industry with assets worth hundreds of billions of dollars. We examine the market in 2018 and 2019, and compare with the physical entry of private data centers for services on demand, including those known as cloud services. We find evidence that providers of third-party data centers trade off the tensions between buyer distaste for distance, which creates localized demand, and costs of supply, which vary with density. We find considerable evidence that localized demand and economies of scale shape entry decisions. We conclude that data centers display tendencies towards urban-biased technical change, and cloud services mildly work to ameliorate such biases. We see little evidence to suggest data centers will spread to any but a small number of low density locations.

Keywords

Data Centers; Cloud Services; Information Technology; Market Entry and Exit; Strategy; Geographic Location

Citation

Greenstein, Shane, and Tommy Pan Fang. "Where the Cloud Rests: The Economic Geography of Data Centers." Harvard Business School Working Paper, No. 21-042, September 2020.