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Data Storage in Space? Here's What Investors Should Know

Feb 23, 2021 by Matthew DiLallo
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We're creating an enormous amount of data each day. Companies are trying to store as much data as they can, often turning to data center REITs (real estate investment trusts) and other third-party data center operators to house their excess information. However, data storage isn't cheap, which is why some companies are opting to throw extra data away.

Enter LyteLoop, which is looking beyond the clouds for an affordable place to store data. The five-year-old start-up recently raised $40 million from investors to help turn its vision for space-based data storage into a reality.

The cloud above the clouds

LyteLoop is developing technology to store data on satellites orbiting the Earth. The company believes this method will be more environmentally friendly, scalable, secure, and private than Earth-based data centers.

The company's technology stores data on photons (light) that would move in a continuous loop between satellites. LyteLoop aims to launch six proof-of-concept satellites within three years and have a data storage service live within five years.

It will cost a lot more to launch satellites and build out a space-based data storage service than to construct a traditional data center on Earth. However, LyteLoop estimates that it will be about 90% cheaper to operate and manage a similar amount of data. As a result, LyteLoop forecasts that the total cost of ownership of a space-based system will be lower over a 10-year period compared to a traditional data center. Further, it will be more environmentally friendly since it will run on solar power and won't need to use millions of gallons of water to cool the equipment.

Are Earth-based data centers a thing of the past?

LyteLoop isn't the first company looking to disrupt the traditional data storage sector. Besides trying to build a cloud beyond the clouds, others have tried to put it under the sea. Microsoft (NASDAQ: MSFT) has tested an underwater data center. It submerged a cylinder-shaped container with 864 servers off Scotland's coast powered with above-ground wind and solar. That data center had a much cleaner emissions profile, and the servers had greater reliability. Microsoft has also turned shipping containers into portable data centers while others have built floating data centers.

However, most of these data center alternatives are in their early proof-of-concept stages, meaning they're years away from impacting the data center sector. That's certainly the case with LyteLoop's project since it's at least five years away from offering a data storage service that can compete with those currently provided by data centers.

Because of that, traditional data centers aren't likely to go away anytime soon. Instead, the industry will need to continue building new facilities to meet the ever-expanding need for data storage. That's enabling data center REITs to grow at a brisk pace. For example, Equinix (NASDAQ: EQIX) opened four new expansion projects during the fourth quarter of 2020 while adding seven projects to its expansion tracking sheet. On top of that, it bought land to develop new projects in five major global cities during the period. Digital Realty (NYSE: DLR) also continues to break ground on new facilities and acquire land for future developments.

Data center operators are also working to reduce their operating costs to make data storage more affordable. One of the biggest expenses of a data center is power. Worldwide, data centers use 1% of all energy consumed. However, they've become more energy-efficient over the years and are increasingly turning to low-cost renewable energy, which is helping reduce their emissions profile. If those improvements continue, it will be harder for outside-the-box solutions like the one LyteLoop is developing to disrupt the sector.

Data storage is booming

Businesses, individuals, and machines produce so much data that companies are running out of storage space. That's driving the need for new data storage solutions, powering growth for data centers. While LyteLoop believes it can build an even more affordable data storage solution in space, it's years away from competing with its Earth-bound peers. Because of that, data center REITs appear poised to continue producing out-of-this-world returns.

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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Matthew DiLallo owns shares of Digital Realty Trust and Equinix. The Motley Fool owns shares of and recommends Digital Realty Trust, Equinix, and Microsoft. The Motley Fool has a disclosure policy.