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Summary:

Google continued its heavy infrastructure spending in the first quarter of 2014, to the tune of more than $2.3 billion. It’s the third consecutive quarter the company has topped $2 billion in capital expenditures.

datacenter-efficiency
photo: Google

Google announced its first-quarter earnings on Wednesday, which included — as usual the past few quarters — an unparalleled amount of spending on data centers. The company spent $2.35 billion on infrastructure in the first quarter (much of which goes to building and filling data centers), up from $2.26 billion in last year’s fourth quarter and nearly double the $1.2 billion it spent in the first quarter of 2013.

We have been following Google’s spending for years, because it’s such a good example of how much money web companies need to spend on infrastructure if they want to achieve massive scale in terms of users, services and data. Just think about Google’s products — search, cloud computing, Maps, Drive, Gmail, Google+ and more — and consider how many servers it takes to run them and ensure there’s enough capacity to scale them, handle failures or just experiment with new stuff. Inadequate infrastructure (in terms of both hardware and software) means a poorer user experience and less room to innovate.

That’s why Microsoft spends so much on infrastructure, too, and why Facebookis ramping up its spending. In Microsoft’s latest earnings report (announced on Jan. 23, for its fiscal second quarter), the company reported it spent $1.73 billion on infrastructure.

Here’s what Google Senior Vice President and Chief Financial Officer Patrick Pichette had to say on Wednesday’s earnings call, according to a transcript published by research firm Morningstar:

As it relates to CapEx, listen, you’re right, that we – and I’ve mentioned this in the last couple of quarters, where we have – and just a reminder to everybody, right, if you think of the CapEx categories, right, data centers first and data center construction, then production equipment, then all other facilities is kind of like the hierarchy of needs. In the case of data center construction, we have found that the option value of having more capacity on standby and available to us to grow versus not having it is actually a real strategic issue for the Company. In that sense, if for whatever reason, we had a spike in demand that was really pronounced and sustained for a couple of quarters and we did not have the capacity, it would be a real issue strategically for us relative to the quite low cost of having the infrastructure in place. So that’s why we’re really pushing ahead of the curve, and so it’s with this view of long-term. So, from that perspective, you’re also right that, that’s the mindset we’re applying. And we’ve always said that CapEx was lumpy, so you have a good manifestation of it right now right here.

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  1. They’re going to need it when they start doing some of the more advanced video processing and NLP… and when billions more people come online.

    Speaking of video recognition — have a look at this just-announced paper by some Googler’s and Stanford:

    http://cs.stanford.edu/people/karpathy/deepvideo/

    I don’t think it is up on the official Google blog yet (if it ever will be).

  2. Most people do not appreciate or understand the vital importance of infrastructure. Google should be commended for investing / re-investing in itself and its infrastructure. The Google Cloud event held this past March 25th was telltale: Urs Hölzle said only 1% of the world’s IT is in the cloud (perhaps to the dismay of regular GigaOM readers who might have developed a case of reality distortion considering how much cloud coverage GigaOM provides every week you’d think it to be 10% or greater), and revenue from Google’s cloud services may one day surpass its ad revenue. Cloud “landlord” Jeff Bezos might be feeling good about AWS currently being the “supreme” cloud deity but he’s got his work cut out for him with Google’s investments and probably Microsoft’s too. While oligarchs are not desirable, its better to have the oligarchs competing with each other than having a monopolist where the U.S. gov such as the DOJ is slower than a turtle and the only ones faster are the EU and forget non-Japan Asia to give a crap about regulating (Microsoft’s lingering monopoly on Office and Windows).

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