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Yahoo's Big Bet on the Cornhusker State

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Yahoo said today it plans to invest $100 million to build a data center and service center in two Nebraskan cities — a few days after is said it would cut expenses and lay off 1,500 people. The Internet portal company qualified for millions in tax breaks there, according to a Lincoln, Neb., paper, but the report didn’t say how much, or what the incentives entailed.

But Yahoo (s YHOO) must invest at least $100 million in the state and create a 100 jobs with a minimum average salary of $68,700 to keep its economic development cash. The La Vista Sun, which covers the town where the data center will be, says the data center should employ about 50 people.

What puzzles me about the announcement is why a government would offer incentives for a data center to be located in their state. A customer service center with its many, mid-level jobs — that I get. But data centers don’t employ all that many people and can be huge drain on power resources. They’re not glamorous and don’t offer a community a lot of visibility with which to attract other knowledge workers. They don’t consume a lot of local goods and send money back into the local economy. What am I missing here?

8 Responses to “Yahoo's Big Bet on the Cornhusker State”

  1. It’s not about the power or tax advantages. Its about latency. Colos built in states like Nebraska offer equal latency between east and west coasts. So, in the future, you don’t need both west coast and east coast colos, just one huge colo in the midwest.

  2. Stacey Higginbotham

    @Rich and Nickh, thanks for the perspectives, although could a municipal power company sell their extra capacity back to the grid? Nevada is a state with no income tax, and so the property taxes could be a good source of local revenue if abatements weren’t a huge part of any Yahoo deal. Regardless, Rick your point about “your mileage may vary” is likely the best answer to my question.

  3. Om: It’s a great question. Here’s one version of the answer, from coverage of a new Nationwide data center in New Albany, Ohio:

    The Nationwide facility would create just 40 jobs, but generate more than $470,000 in annual property and income taxes for the community, about $300,000 of which will go to the New Albany-Plain Local School District. “That certainly will be a source of revenue for us with the potential of not going back to the voters so frequently for operating money,” New Albany school board President Diana Goedeking told local media. “We understand that it will not create revenue for us immediately, but it will create a long-term funding and help maintain stability for the district.”

    A key wrinkle in the deal: The locals gave Nationwide a 65 percent break on their real estate taxes, but since it was a $90 million project, the remaining taxes were enough to have a meaningful impact in the community.

    There are some data center incentive deals that are making more sense than others … your milage may vary.

  4. one more thing:

    Mel says:
    Hell, the state legislature even changed a law to allow power companies to not report large industrial customers’ power use.

    Power consumption numbers for companies with large scale datacenters are a huge strategic secret, and publishing them would tip off competitors.

  5. Two counterpoints.
    While a datacenter consumes ton of power, usually, in small municipalities, there is an overabundance of generation capacity. The way power plants work, they either generate power at capacity or not at all. Small towns with municipal power plants (like La Vista, Nebraska) are great for datacenters when you find this output mismatch. if the plant generation capacity is say, 50 megawatts, and the town is using 2 megawatts, there is 48 megawatts of wasted power being generated. A datacenter will pay for this excess capacity consumption.
    On the job front, while it may not be that many jobs, these are skilled jobs. You are talking union electricians, union plumbers, engineers, and techies. People who are going to work there are going to get training and skills much beyond what you could ever get in a call center. Call me crazy but in a small town of 16k, where the median household income, 100 jobs averaging $68k/y looks a lot better than the $25k/y call center people make.

  6. I was the same way when Google announced their data center in my home state of Oklahoma. It was all over the news there and my parents and friends couldn’t wait to tell me about it.

    My response was “so what”. They came for tax breaks, cheap land, and cheap power … that’s it. They won’t be bringing many jobs to the area (200 on the high, long-term end).

    Hell, the state legislature even changed a law to allow power companies to not report large industrial customers’ power use.