The explosive growth of data center startups across Europe has attracted a lot of attention in the digital infrastructure sector. These innovative companies are at the forefront of meeting the growing demand for cloud services and high-performance computing solutions in the new AI economy. João Marques Lima, Media Consultant at JSA Europe, explains.
These startups are reshaping the industry by focusing on cutting-edge technologies like edge computing and liquid cooling, prioritizing the reduction of carbon emissions and adoption of renewable energy. One of their greatest assets is their lack of assets. A fresh start without encumbrances allows these new fleets to innovate without barriers or constraints.
European data center startups are making waves in the market by leveraging their agility to implement AI infrastructure and optimize IT systems. These companies are challenging incumbents by offering advanced colocation services and pushing the boundaries of data center storage and UPS technology.
As the digital economy continues to expand, these startups are increasingly well positioned to capitalize on the growing demand across the continent for robust, efficient and sustainable data center solutions.
The evolution of data center infrastructure in Europe
The European data center infrastructure sector has undergone a major transformation driven by technological advancements and changing market demands. This evolution has revolutionized the way businesses approach their digital infrastructure needs, resulting in a clear shift towards more efficient and sustainable solutions.
The market is experiencing a major shift from traditional on-premise infrastructure to cloud-native solutions. This shift is impacting how businesses operate and scale their IT resources. Cloud computing technologies now play a strategic role in the global economy, providing essential infrastructure and services that enable organizations to remain competitive in an increasingly complex digital environment.
According to Gartner, by the end of 2024, more than 45% of IT spending on systems infrastructure, infrastructure software, application software and business process outsourcing is expected to move from traditional solutions to the cloud. There are several reasons for the rapid shift to the cloud, but the main driver is the pursuit of improved efficiency. Enterprises now have access to off-the-shelf resources provided by third parties on the cloud, and gain technology with enhanced security, scalability and high performance.
Edge computing has also sparked a revolution in Europe, highlighting the importance of processing data closer to its source. This approach, rooted in pragmatism, emphasizes the importance of efficiency and autonomy in data processing. The term “thick computing” refers to the integration of high-performance chips into connected objects and systems, allowing them to process complex computational tasks locally. We can also consider IoT to have evolved to a new stage, as the infrastructure is now fully IoT-ready.
A recent study by DECISION suggests that Edge Computing in Europe has great growth potential, especially in the area of Professional IoT, where European industry can be globally competitive. The European Commission has acknowledged the importance of Thick Computing in Industrial IoT, allocating 45 million euros for a pilot action on a Digital Platform for Cloud Edge IoT under the research and innovation program HORIZON EUROPE.
Furthermore, sustainability is a key driver of innovation in the European data center industry. With the urgent need to address climate change and increasing pressure from local communities and governments, the data center sustainability agenda has become crucial.
Many organisations are now targeting significant reductions in carbon emissions from data centre construction, primarily aiming to provide their customers with 100% renewable energy by 2030, which aligns with Europe's ambitious goal of becoming the first climate-neutral continent by 2050.
The industry is faced with the challenge of decarbonizing traditional data centers and addressing end-of-life emissions associated with building materials. Achieving this will require significant investment and innovation, with a focus on increasing energy efficiency while maintaining availability.
Emerging technologies driving data center startups
All this is leading to the rise of startups on the continent not seen in years. Data center startups across Europe are revolutionizing the industry by harnessing the power of AI and machine learning. These technologies are impacting many aspects of data center operations, from optimizing supply chains to enhancing engineering processes.
For example, Transmetrics uses predictive analytics and AI to improve logistics planning and asset management, and PhysicsX is using generative AI to transform engineering across automotive, aerospace, and renewable energy sectors.
European tech startups are seeing strong adoption of AI, with 68% already leveraging the benefits of AI and 58% planning to invest in it in the near future. Startups are using AI for data analysis (67%) and plan to expand its scope of application (53%). This overwhelming interest in AI confirms that it is recognized as a key tool to drive innovation and business growth.
Quantum computing is driving further demand in the European data center sector. IBM's announcement that it will build Europe's first quantum data center in Germany marks a significant milestone. This initiative, coupled with the European Commission's €100 million investment in quantum computing development, will create a robust quantum infrastructure that is crucial for Europe's future quantum computing ecosystem.
The IBM European Quantum Data Center will be home to multiple quantum computers, each with a minimum of 127 qubits. With more than 65 European organizations accessing IBM's quantum hardware and software through the cloud, the demand for quantum computing resources is clear.
As a result, data center startups are developing innovative cooling solutions to address growing power demands and environmental concerns. Liquid cooling technology has emerged as a popular solution, with almost 40% of data centers employing it in some form. Companies like Deep Green are reusing waste heat from computers to heat swimming pools, and Infinidium has developed the Vortex Vacuum Chamber, a next-generation cooling and power infrastructure.
Immersion cooling is another advanced technology that is gaining attention. Startups such as Asperitas and LiquidStack have developed immersion liquid cooling systems that do not require air conditioners or IT fans. These solutions not only improve energy efficiency but also reduce the carbon footprint of data centers.
Funding and growth strategies of European data center startups
The European data center market is influencing venture capital investment trends. Although overall venture investment is slowing in 2023, AI startups are set to raise approximately £39.5 billion, up 9% from 2022. This surge in AI funding is revolutionizing the data center industry, creating both opportunities and challenges. The European AI market is forecast to reach £63.8 billion in 2024, with an expected compound annual growth rate of 15.9% through 2030.
Data center startups are forming strategic alliances to expand their reach and capabilities. For example, AtlasEdge, a pan-European edge data center provider, has partnered with Inflect, a digital infrastructure marketplace. The collaboration enables AtlasEdge to leverage Inflect's online marketplace and research tools to connect with U.S. companies looking to expand into Europe. Partnerships like this enable startups to address growing demand for data and build out Europe's next-generation edge platform.
European governments also offer a range of incentives to support data center development, particularly ensuring the sustainability of these facilities. For example, Ireland offers tax breaks to investors through its Jobs and Investment Incentive Scheme, and Denmark provides grants for clean technology research and development. In Germany, Berlin offers tax breaks for companies investing in energy-efficient technologies, and in northern Sweden, the “Drive Sweden” initiative offers grants and loans for investments in sustainable technologies. The UK's Enhanced Capital Allowances Scheme provides accelerated tax incentives for energy-efficient technologies.
Additionally, over 100 data center operators and industry associations are committed to the European Green Deal, aiming to make data centers climate neutral by 2030. This commitment includes targets on renewable energy use, energy efficiency and material recycling, and is aligned with Europe's goal of becoming climate neutral by 2050.
As the digital economy continues to expand, European data center startups are well positioned to capitalize on the growing demand for robust and sustainable solutions. The evolution from traditional to cloud-native infrastructure, along with the influence of edge computing and sustainability-driven innovation, has laid the foundation for these startups to thrive.
With strong support from venture capital, strategic partnerships and government initiatives, these companies are poised to play a key role in shaping the future of Europe's digital infrastructure landscape.
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