New Microsoft data center powers web services push
In a century-old farming town in central Washington state, Microsoft Corp. has built a farm for the Internet age.
But rather than corn or cows, this farm teems with computer servers and data storage systems that will serve as the backbone of Microsoft's effort to combat escalating competition on the web from Google Inc. and others.
Microsoft's new data center in Quincy, Washington, is its largest "server farm" to date -- big enough to house seven soccer fields -- and a physical manifestation of the company's giant ambitions to be a force in the world of web services.
The world's largest software maker will officially flip the switch on tens of thousands of computer servers at the Quincy facility on April 16 and Microsoft is already at work on a massive $550 million data center in San Antonio, Texas.
Those facilities are among the first new data centers to come online since Microsoft surprised investors last year with an aggressive spending plan to enhance its Web services business.
It is a strategic shift for a company that built its business selling out-of-the-box software and a testament to the growing threat posed by software applications from Google and other Web-based rivals to Microsoft's Windows and Office monopolies.
"Data centers are the basic infrastructure that enable Web services, so if Microsoft wants to compete in services this is the price of admission," said Morningstar analyst Toan Tran. "The software industry is headed toward Web services, so this is what Microsoft has to do." The data centers provide the base infrastructure upon which Microsoft can create a range of Web services such as its Xbox Live online video game system to its upcoming CRM Live business software.
Web heavyweights like Google, Yahoo and Microsoft are competing to engage Internet users with a variety of Web services from online video to hosted e-mail to news. The growth of online marketing has made Web services supported by advertising more lucrative than ever.
At the same time, the cost of computing power and data storage has fallen sharply, encouraging deep-pocketed companies to build enormous data centers to handle and control all of the traffic.
At a Goldman Sachs conference in February, Microsoft's chief software architect, Ray Ozzie, said the company will continue to invest in new data centers, building enough capacity to eventually allow other companies and developers to build Web services on top of its infrastructure.
It's a strategy that online retailer Amazon.com has already embraced.
The software industry is traditionally a low capital expenditure business, but the building of these facilities is changing that business model.
Morningstar estimates that Microsoft's capital spending will rise 50 percent to $1.5 billion this fiscal year and expects that figure to grow another 50 percent next year to $2.3 billion. It is still only a small portion of Microsoft's estimated $50 billion in revenue this fiscal year.
Data centers are nondescript buildings filled with racks and racks of computer servers, data storage and network systems. Since all that computing power gets very hot, they require elaborate cooling systems to prevent overheating.
Operating costs, however, are quite low since most of the work in the data center is automated. A large chunk of the operating costs come from electricity to power the facilities.
The Quincy facility will consume up to 48 megawatts of electricity -- enough to power 40,000 homes.
Microsoft has a system for finding potential data center sites. It takes 31 factors into account such as access to cheap, renewable electricity and fiber optic connectivity before coming up with a handful of locations.
"I kind of view it as a treasure map," Mike Manos, Microsoft's director of data centers, said in an interview.
The company discloses the bare minimum about the facilities since it views every aspect of the data center from location to layout as a competitive advantage.
Microsoft is not alone in its reticence. Google's annual report with the U.S. Securities and Exchange Commission acknowledges that the company operates data centers in major regions of the world, but reveals nothing about exact locations or costs of operations.
Google and Yahoo are also actively building data centers all around the world. In fact, the two companies are building facilities in the U.S. Pacific Northwest -- home to some of America's cheapest electricity.