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Summary:

In the wars of the web, hard goods (or hardware) have become the ammunition of choice. Specifically we see major web and technology companies building their own data centers, a move that appears to be a prerequisite to competing with Internet giants.

Facebook's planned North Carolina data center.

Facebook's planned North Carolina data center.

In the wars of the web, hard goods have become the ammunition of choice. Specifically we see major web and technology companies building their own data centers, a move that appears to be a prerequisite to competing with Internet giants.

Since the early days of Internet hosting, and now with the prevalence of cloud computing, there have always been relatively simple ways to rent data center space, and even to rent servers to power web properties. So why the recent trend to own that infrastructure directly? There are several factors I believe driving the moves of companies like Facebook, Apple, and others in their data center land grab.

Removing “That’s Not Possible”
Without owning the data center and the equipment, web properties must rely on third parties, service agreements, and untold restrictions in the build out of their infrastructure and web site capabilities. For engineers that know what is physically and logically possible with hardware and software, restrictions on server configurations, or power consumption, or available space can be a hard pill to swallow. So instead of complaining to the boss that the job cannot be accomplished within a set of constraints, companies ultimately decide to remove them. Facebook said it will be able to try out more energy efficient options in its own center, while Twitter said it will be better able to optimize its site performance by controlling everything.

Keeping Companies Close to Their Data
As evidenced by the popularity in corporate enterprises for private clouds, it is hard to separate companies from their data. Whether because of perceived, or actual security concerns, companies like to own and control their infrastructure with a hands-on approach. And for companies that live by the operational up time and revenue from web operations, having the hardware close at hand, and directly under company control can make all the difference.

The Wall Street Effect
While web properties should be judged by user numbers, engagement statistics, and revenue, they are also subject to the scrutiny of Wall Street perceptions. One would think that the investment community could sort through the pros and cons of operational versus capital expenses, but data centers are the capital goods of the Internet era that can be touched, seen, and valued perhaps more easily than abstract areas like software intellectual property.  It might be just a perception bias, but if Wall Street is involved, you want to do everything you can to look good and if hardware is what they want to see, then hardware is what you show.

Fitting the Conventional Corporate Finance Model
It might make perfect sense for a company to start its web operations in hosted data centers, but eventually the monthly bill gets to be big. Regardless of the industry, businesses have a tendency to want to capitalize large recurring monthly expenses. Particularly when the company thinks it can get a better return on its cash. So while technology restrictions and their removal might be a major driver from the engineering side of the house, the finance team is always looking at ways to optimize the use of company cash. And a physical data center is more easily financed than a large monthly bill from Amazon Web Services.

The Green Angle
The current public perception around energy use and climate impact is also driving a big part of the build-your-own-data-center trend. Referencing the new data center in North Carolina, Barry Schnitt , Director, Corporate Communications and Public Policy at Facebook said, “This project continues Facebook’s strategy of moving from leased data centers to owned facilities that are customized to be more cost-effective and efficient.” As the web and technology giants maneuver to control their image, staying in control of the green angle becomes even more important.

These are just some of the themes driving the build-your-own data center trends. Let us know if you have other ideas about what is behind these moves.

Gary Orenstein is Host of The Cloud Computing Show

Image courtesy of http://www.facebook.com/rutherforddatacenter

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  1. where did you gain your expertise in datacenters and infrastructure from?

    most of what you mention is wrong, or only bits of some of the smaller reasons companies to this. this post wreaks “i dont know what i am talking about”

    this is also not a new trend, and has been happening for quite some time.

    the only reason you hear about it more now is because now you have many more companies that are in the spotlight, operating at such a large scale, that they have no choice but to do this.

  2. I do agree with the “Wall Street” and “Convention Corporate Model” reasons. CFOs would definitely like to see a smaller bill from the Data Center Provider if they could do it — specially if the company’s business is very much dependent on the data center. It’s the same reason why many pure-play Indian application software vendors build their own office buildings.

  3. There seems to be a perception that when a company builds its own data center, they can bring a large portion of their CDN costs in house (see here: Apple could cut back on Akamai, Limelight: http://goo.gl/2wc2J). Is this true? I don’t really understand why creating a large new centralized data center changes the need for distribution to the edge of the network?

  4. The roof of that North Carolina data center is a light gray color (see image in the article).

    If they used 100% white roof, it would be a bit glaring to view, but would reduce the inside temperatures by around 3º c / 5º F.

    So just a better colored roof would save Facebook a significant amount of energy, which they don’t seem to want to do.

  5. Sandra: -3°C from black to white maybe, but from light gray to white? Any source for that number?

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