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Google, Microsoft Back Off on Datacenter Plans


With the economy in the shape it's in, even Microsoft and Google are thinking twice before dropping $100 million on a new datacenter. But the two tech giants are easing off the funding pedal for different reasons.

Google (NASDAQ: GOOG) has delayed breaking ground on a planned Oklahoma datacenter by 12 to 18 months, and appears to be going a little slower with a planned North Carolina center. It decided to pass on a $4.7 million state grant to build a data center in the town of Lenoir, N.C.

In the case of Microsoft (NASDAQ: MSFT), a source close to the construction of its planned Chicago, Ill. datacenter said work has been scaled back and many modular containers being used at the site are just being parked but not hooked up. Also, the company has yet to begin construction on a West Des Moines, Iowa datacenter despite announcing it with much fanfare last year.

It's no surprise such projects would be delayed. Datacenters are about the most expensive capital project a company can undertake. A raised floor datacenter costs between $1,000 to $2,000 per square foot, making it the most expensive piece of real estate for almost any organization, according to Enterprise Management Associates. The cost of a five megawatt data center build-out can easily surpass $100 million.

Microsoft has publicly said it is cutting back datacenter expenses. On the last quarterly conference call to discuss the first fiscal quarter of 2009, CFO Chris Liddell said Microsoft would trim capital investments by $300 million, and he specifically said it would be on the datacenter side.

"We will probably also slow our growth in some of the facilities just by virtue of not having as many people as were expected as well. But that’s likely to be more of an FY 2010 phenomenon," said Liddell.

Notoriously expensive to operate

He also said $500 million would be cut in operating expenses. Datacenters are notoriously expensive to operate because of their power and cooling requirements.

Google on the other hand, has made no such commitment to cut operating expenses. "Capex is lumpy business. Think about datacenters going up. We have no plans of slowing down. You just see the nature of that lumpiness. Every extra unit of capacity is cheaper for us," said CEO Eric Schmidt on the company's most recent conference call.

The delay in Oklahoma is simply because Google has enough capacity now, according to spokesman Eitan Bencuya. "We figured it doesn't make sense to build it out and sit empty," he told InternetNews.com. "We don't feel like we need to turn it on, we have enough capacity elsewhere. So we decided to hold off construction for 12 to 18 months and then bring it online."

[cob:Special_Report]Google's four most recent datacenter projects have been in North Carolina, South Carolina, Oklahoma and Iowa. The North and South Carolina facilities are open, and Iowa will open next year. Only Oklahoma was delayed.

It decided to pass on the North Carolina Department of Commerce offer of a $4.7 million tax incentive from the Job Development Investment Grant (JDIG) program because, rather generously, Google didn't need the money but the state did. "Considering State budgetary constraints as well as the difficulty in forecasting our business climate, we do not believe that JDIGs would be a wise investment for both Google and North Carolina at this time," said Bencuya.

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