A considerable portion of an investment in Internet stocks often goes to something intangible, but today flashy capital investments in physical data centers embody the latest computing trend. Developments in the Internet, social media, mobile devices and tablets are all fueling cloud computing. Computing devices will continue to shrink, as data processing moves out of bulky personal CPUs to huge data centers. Internet companies are making big investments in these novel facilities to support the expanding computing cloud. Some of these buildings cover tens of thousands of square feet, and are located all over the world.
Take Google’s (GOOG) new $273 million data center in Hamina, Finland. The data center will help Europeans with their search engine queries, allowing users to more quickly find the closest kiosk or to figure out when Def Leppard was founded. But why did Google set up this data center in a Nordic country, instead of near its European headquarters in Dublin, Ireland or better yet, in scenic Italy? The reason is economic. Much like an overheating laptop, data centers need to stay cool, and the energy used for this cooling is the single greatest operating cost for data centers. Nordic weather and chilly waters from the Gulf of Finland will help keep the equipment cool. Also, Finland shares a border with Russia, a growing market where Intel (INTC - Free Intel Stock Report) has built a data center of its own. While Google’s data center was converted from a 60-year old paper mill (underscoring a broader trend away from print media to the digital one), another web giant recently built a similarly priced data center from scratch.
Facebook’s Prineville, Oregon data center covers an area equal to five football fields, and the company is already planning the center’s expansion. Google, Amazon (AMZN), and Microsoft (MSFT - Free Microsoft Stock Report) all have data centers in Oregon as well, taking advantage of cool weather and inexpensive hydroelectric power. Facebook’s data center is helping the company perform tasks fundamental to its operations, such as storing images of the sweaters from a company’s last Christmas party for posterity. The hot air the facility generates in the blue-lit aisles between servers is reused to heat office space. Building its own facility from the ground up allowed Facebook to choose blue LEDs, which are more expensive than green ones, to light the data center, but the design still went green in its own way. In April, Facebook stated on its website, “The result is that our Prineville data center uses 38 percent less energy to do the same work as Facebook’s existing facilities, while costing 24 percent less.”
The previously mentioned data center investments are dwarfed by Apple’s (AAPL) one billion dollar facility in Maiden, North Carolina. The company stated at its last annual shareholder meeting that the purpose of this data center was to support iTunes (where one can actually buy a Def Leppard song) and MobileMe, a cloud computing service now replaced by iCloud. Local tax incentives and cheap coal nearby smoothed the progress of Apple’s choice. IBM (IBM - Free IBM Stock Report) also has one of its more than 450 data centers in North Carolina as well.
Many companies are choosing to outsource their data center work to Equinix (EQIX) or Rackspace Hosting (RAX). Rackspace, for example, hosts half of the Fortune 100 and considers itself the leading specialist in the hosting and cloud computing industry; Equinix offers global data center services and boasts that by setting up in its data centers, one can have access to ten out of the top ten Internet content companies, 400 buy- and sell-side firms and over 150 financial service providers. Equinix specializes in data centers, and has already established a presence in Latin America in Brazil. Both Equinix and Rackspace enjoy a global reach.
Other players are angling for position. Dell (DELL) has announced an initiative to spend one billion dollars on its cloud capabilities, an investment that aims to build ten data centers around the world. Dell is traditionally a hardware company, so it may look to partner with data center software providers such as Brocade (BRCD), SAP (SAP), Microsoft, Oracle (ORCL), Juniper (JNPR), EMC (EMC), or BMC (BMC).
Whether set up by niche firms looking to profit by helping companies move onto the cloud, or by Internet giants looking to support their own massive computing demands, data centers are popping up all over the world. The growth of these sprawling data centers offers investors a physical reference for the cloud computing phenomenon that they did not quite have during the Internet boom of the late 1990s.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.