North Carolina Sweetens the Deal for Apple’s New Server Farm

According to a report in Friday’s Charlotte Observer, North Carolina lawmakers are falling over themselves to entice Apple to build a state-of-the-art server farm in their backyard — specifically, Catawba or Cleveland county. The carrot they’re dangling? In this case, nothing short of a multimillion-dollar tax break.

According to a “state official” with knowledge of the state’s efforts, the server farm would represent a $1 billion investment.

The proposed tax changes aren’t just because North Carolina loves MacBooks and iTunes and quite fancies a bit of an Apple super-presence. Rather, the changes are proposed as a means for improving local economy and standards of living. In detail, companies qualify for the tax break if:

  • They relocate to one of North Carolina’s poorest counties
  • Provide employees with health insurance
  • Meet a minimum wage standard
  • Waive all other grants and tax breaks from the state

If the new server farm remains active for over 30 years, Apple would have corporate tax savings of more than $300 million. Why 30 years? The state already agreed to a similar incentive deal with Google, which opened a server farm in North Carolina last year, and expects to run the facility for 30 years, making a tax saving of over $260 million.

Software as Services

Apple has been moving progressively toward the Software as Services (SAS) business model for some years now. The iTunes Store and original .Mac products have long required robust server-infrastructure to support (at least in the case of the iTunes Store) millions of requests every minute.

The introduction of MobileMe saw a bold commitment from Apple to provide essential services to customers, and much of the instability and pain users experienced in the days following MobileMe’s launch were possibly due to an inadequate server backend.

The little-discussed, seldom-used web-based collaboration service (currently in beta) will also demand a sturdy and reliable server infrastructure. While customers might tolerate the odd, fleeting instability in their MobileMe Photo gallery, a malfunctioning document collaboration service would be unforgivable.

Worth noting, however, is that Apple’s MobileMe and subscriber-bases are tiny when compared with its iTunes customer base. The massive sales success of the iPhone (particularly Apple’s recent share growth in the smartphone market) means millions more hourly connections to the iTunes Store. Think of Apple’s recent download milestones — 1 billion apps, 6 billion songs — and the need for much-expanded server infrastructure becomes clear.

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