Originally posted on VMBlog

By John Nolan, Chief Development Officer, Bluebird Network

As we step into 2024, the landscape of the internet, connectivity and data center service industry is poised to deliver an exciting – and challenging – year ahead. With a surge in government investment and an unprecedented flow of funds, the industry finds itself at a unique crossroads. However, not all companies will navigate this transformative phase with the same level of success. The following insights are derived from our observations at Bluebird Network, a communications infrastructure provider and operator of two data centers and more than 11,000 miles of fiber, providing a glimpse into the trends that will shape the sector in the coming year.

The industry is witnessing a flurry of government-funded investments going toward building out digital infrastructure. The Broadband Equity, Access, and Deployment (BEAD) Program has been instrumental in allocating funds from the $65 billion earmarked by the government via the Infrastructure, Investments, and Jobs Act to go toward ensuring widespread access to high-speed broadband for citizens in rural areas. This allows for a wealth of opportunities in 2024 to springboard service expansion into hard-to-reach areas, but it is a double-edged sword. ISPs and network developers will need to exercise foresight supported by a strong business plan and the ability to execute these plans in order to not overextend themselves in the process.

For example, one Northeast ISP invested $100 million across various cities but is now grappling with the financial challenges of not “owning” those markets and fighting uphill to sell within them. The lesson learned here is the importance of measured growth; companies must not bite off more than they can chew. A nuanced and strategic approach in the face of heightened competition is needed as we see more of this type of construction in the coming year. Regional variations, as seen in Phoenix, AZ, with several Fiber-to-the-Home (FTTH) providers vying for a significant market share, highlight the need for realistic market expectations. Not all providers can claim a substantial portion of the market and because of simple math, some of them are going to fail. There needs to be a focus on specialization and identifying unique strengths.

These programs offer significant incentives to growing companies because of the difficulty in securing debt as a consequence of the Federal Reserve’s proactive measures to control economic growth. As interest rates remain high in 2024, companies must be judicious in their spending. The winners in this challenging environment will be those spending wisely, making informed financial decisions, and maintaining access to a steady stream of cash.

Embracing new ideas and technologies is always a pathway to keeping an eye on growth. The industry will witness experimentation, with a focus on edge computing, ever-increasing bandwidth, and continued interest in alternatives to SD-WAN. Artificial Intelligence (AI) and quantum computing are set to drive substantial shifts, reshaping server room operating environments and demand for more bandwidth.

When it comes to the evolution of data center services over the next year, we will see a shift in enterprise preferences. The largest companies are increasingly leaning towards private clouds while some will look into bare metal servers – the middle ground between cloud and data center colocation. Cloud services, once viewed as the pinnacle for data storage, are beginning to encounter budgetary challenges, which will continue to grow in 2024 and beyond. Many enterprises find themselves exceeding their projected budgets due to unexpected costs associated with cloud services, which has led to a trend of businesses seeking more cost-effective alternatives such as colocation services and private cloud access.

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