The key constraint in data centers now is not rack space but power supply. Manufacturers have increased server density over the past few years by producing physically smaller servers. The smallest, a Blade server, stands upright in a chassis containing up to 8 Blades. But it is all for nothing. Smaller servers still use a lot of power and produce a lot of heat, so there is a limit to how many you can fit in one place, regardless of the rack density. You may well see a rack containing only one blade chassis. At that point the effort to reduce server size is redundant. It may as well be a full size server with more space and more airflow.
As the processing power of servers has increased, so has the energy consumption. It is close to a linear relationship. We are familiar with the heat and battery life problem from laptops. But the more fundamental problem is that computers are using more power, and power is becoming the constraining factor in computing capcity. It is a constraint because of cost, cooling capacity and standby generation capacity.