What Does It Mean On The Ground When Netflix Moves To The Cloud?

Image representing Netflix as depicted in Crun...

Staying informed about the operations space needs of technology companies gets harder as technology evolves.  Let’s take a look at a recent announcement for a recognized tech brand and try to process what it means in terms of commercial real estate and data center space.

Netflix is a movie rental and media powerhouse that has, over the past few years, moved the bulk of its business from DVD rentals-by-mail to streaming movies across the internet on a subscription basis. In an announcement today, the company said it was going to “gut” its data center and shift its operations to “the cloud”.

Netflix no longer wants to run a data center in support of its in-house corporate IT services. It is shifting internal applications to Amazon’s cloud, as well as using software-as-a-service (SaaS) providers for business services.

Mike Kail, vice president of IT operations at Netflix, said he wants to move as much as 95% of Netflix’s corporate IT services, now run in an in-house data center, to the cloud, but the goal is 100%, he said.

These corporate IT operations are separate from the Netflix streaming service, which operates from Amazon’s cloud.

The intent is to focus IT operations on providing services to the business, and not managing hardware, said Kail. “Part of my charter is to reduce my data center footprint as much as possible,” he said.

The bolding above is mine.  I point it out because this affects Netflix’s floor space requirements radically going forward. In order to operate — that’s just internal operations, not even counting the need to send streamed movies to customers —  Netflix has until now needed to operate thousands of servers – about 2,500 are mentioned in the piece.  Operation of rack after rack of servers means heavy duty power, cooling, physical security, redundancy and scaling all needed to be carried on Netflix’s commercial property portfolio as an irreducible cost of doing business.

Technology has a funny way of redefining the word “irreducible”.  With the announcement, Netflix has become an even bigger customer of its cloud provider, Amazon.  This means Netflix no longer needs the physical space they once did, and the accompanying reduction in square footage comes off of their books in the near future.

But where does it go?

No Magic In Data Centers

The fact is those 2,500 servers Netflix will soon no longer need to put a roof over represents a data processing capacity that endures beyond the deal.  That capacity is what is moving from Netflix to Amazon.  Which means that in terms of commercial square footage, Netflix’s decline in demand is now Amazon’s rise in demand.  Not necessarily at a 1:1 ratio, but not terribly far away.  No matter what, when data needs processing, the hard requirements never omit space, power, security, scalability and redundancy.

Amazon’s cloud services are growing in space need roughly at the minimum rate corporate property owners who are reducing their footprint like Neflix are jettisoning square footage.  I say minimum, because much of the business Amazon sees is not conversions/migrations from existing, owned data centers, but rather enterprises that were born using cloud computing service and will likely not use another method in the foreseeable future.

Amazon has physical facilities in at least a dozen locations worldwide and they are but a single player in the cloud business.  Consumers of data center square footage are proliferating, driven by the shifts toward cloud computing.

So the next time you see a story where a company has discontinued its data center, remember that computing capacity has to go somewhere.  Demand for space didn’t evaporate into the cloud — it only moved to another location.


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