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 “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.

Next page: An ill wind hits Chicago

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An ill wind hits Chicago

Microsoft’s Chicago datacenter is supposed to be for its Live and on-demand strategy, and by all reports from its own blog posts, the site looks very near completion.

The site is being kept somewhat under wraps in that Microsoft has not disclosed all of the details behind its construction. This is not unusual, as Google is equally guarded when it comes to datacenter construction. The Chicago datacenter is reported to be built using modular containers, with Rackable Systems the rumored provider. However, neither Microsoft nor Rackable would confirm this.

A source close to the construction told on condition of anonymity that the work at the Chicago site has been significantly scaled back and much is left uncompleted. He reports the containers are being brought in but not hooked up. “It’s being handled like a big storage facility. They might bring power in, but they are talking about it months from now,” he said.

The containers there are only being wired for environmental controls for heating and cooling. They are not being networked or connected to the Internet at all. The project has seen the number of workers cut in half, the source added.

Microsoft has already disclosed some of these cutback details. It said in October that construction and container testing at the Chicago datacenter had entered into a second phase in Chicago, resulting in a workforce reduction, from 900 construction workers working 24×7 with 3 separate shifts, to approximately 450 construction staff, working one shift of 40 hours a week.

“Online and Live services are a major focus of Microsoft, and as we continue to build out our offerings and the Chicago data center, we’re working to make the right, smart operational and data center investments for today and tomorrow,” said Michael Manos, general manager of data centers in Global Foundation Services at Microsoft in an e-mailed statement to

Things are even murkier regarding the planned $500 million datacenter in West Des Moines, Iowa, which was announced in August. When the Azure platform was announced at Microsoft’s Professional Developer’s Conference in October, the press release contained references to a number of datacenters, including Chicago, but not West Des Moines.

There often is a lag time between announcement and build-out, since these are not trivial undertakings. Microsoft told the blog Data Center Knowledge that it is in the design phase of the datacenter and plans to open it in the coming years. Beyond that, it would not discuss the facility any further.

Why delaying makes sense

Andi Mann, senior analyst with Enterprise Management Associates, isn’t surprised at the delays in datacenters. “Both companies are looking to expand their services, cloud services specifically, but the potential client base for them is holding off. Industries like financial, manufacturing and retail are all taking a hit with the recession at the moment,” he told

Given the huge cost for these facilities – Google’s South Carolina facility was $600 million – he’s not surprised they are trying to save. “There’s no reason why they should be immune to this slow down. IT is well positioned to weather the recession, People are just looking to see what they can delay,” said Mann.

The industry, said Mann, learned its lesson after the dotcom bubble burst and everyone was left with too much inventory, capacity and hardware. “IT is not running fat. IT is already running lean. IT cut back earlier in the decade and never expanded to the huge proportions of the late ’90s,” he said.

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