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Summary:

Google and Microsoft might have disappointed investors in the last quarter, but they didn’t disappoint their equipment manufacturers and data center partners. Both companies spent boatloads on infrastructure.

gs screen

Google and Microsoft both announced their latest quarterly earning on Thursday, and while neither was ideal from an investor point of view, both companies did invest large sums of money into building out their web infrastructure. Microsoft invested $1.79 billion in “property and equipment” during its fiscal fourth quarter, while Google’s second quarter saw it invest $1.61 billion.

I’ve been tracking infrastructure spending by web companies over the past couple years — quarterly checkups on Google, for example, and deeper looks at how difficult it can be to recoup those costs (GigaOM Research subscription required) – but the issue has taken on a life of its own this week with Microsoft CEO Steve Ballmer’s assertion that his company manages more than 1 million servers. That would give it the second largest server footprint in the world behind Google, by most estimates. That volume seemed to take some by surprise but, as I pointed out earlier this week, Microsoft has certainly been spending on par with Google.

Here’s a version of the chart I published on Wednesday, updated with the latest assets and investment numbers from Thursday’s earnings statements.

This represents another record quarter for Google in terms of spending on infrastructure (save for when it plunked down $2 billion for a massive data center/office space in Manhattan in 2010) and almost certainly a record quarter for Microsoft. The company only spent about $2.3 billion each year for its fiscal years 2011 and 2012.

I also spotted one other data point this time around, which I guess I’ve just been ignoring in quarters past. Here’s what Google had to say about the cost of running its data centers:

Other cost of revenues, which is comprised primarily of manufacturing and inventory-related costs, data center operational expenses, amortization of intangible assets, and content acquisition costs, increased to $3.05 billion, or 22% of revenues, in the second quarter of 2013, compared to $2.08 billion, or 18% of revenues, in the second quarter of 2012.

Microsoft’s statement has a few nuggets of its own that give a glimpse into what it’s spending to run its web services:

Cost of revenue grew $1.4 billion, or 35%, primarily reflecting product costs associated with Surface and Windows 8, including the charge for Surface RT inventory adjustments of approximately $900 million, higher headcount-related expenses, and increased online infrastructure expenses, offset in part by decreased traffic acquisition costs.

And:

Server and Tools operating income increased $285 million, or 14%, primarily due to revenue growth, offset in part by a $165 million increase in cost of revenue driven by higher datacenter costs to support our online services offerings, and increased headcount-related expenses.

  1. Christopher Thompson Thursday, July 18, 2013

    This would be even more interesting if Amazon broke out their numbers for AWS so that we could see the side by side.

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    1. I immediately thought the same thing.

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      1. Derrick Harris Thursday, July 18, 2013

        It’s hard to do a solid comparison. Amazon, for example, includes “internal-use software and website development” along with property and equipment investment. I’m not sure how much this adds to infrastructure investment. And it’s very vague, generally, about what it’s spending where.

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  2. Microsoft is preparing for battle

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  3. Interesting stuff… 20 years from now, we will have MSFT/GOOG/AMZN/AAPL still battling it out with their “ecosystems”. I doubt if there is going to be one winner here – there are going to be multiple winners with their individual niches/pros/cons.

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  4. Amazon, google, Facebook, and Yahoo all generate profits from their huge data center investments. Microsoft loses money on their data center investments (bing, azure are probably the biggest users of these data centers). How does one go from a track record if losing money on services to challenging established the heavyweights and making money? Consumers and businesses will be clear winners while the heavyweights divert their profits from other places to compete with each other on services.

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  5. Khazret Sapenov Saturday, July 20, 2013

    It’s more about ROI, than numbers game. You need to take into account the utilization rate of the infrastructure that is directly involved in generating revenue (sold on pay per use basis to third parties), as well as indirect savings when it’s been used for own needs (e-commerce etc.).

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