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Microsoft pouring cash into data centres
Fear of Google driving expansion?

By Reuters

Published: Monday 16 April 2007

Microsoft's is power up its largest server farm to date - big enough to house seven soccer fields - and a physical manifestation of the company's giant ambitions to be a force in the world of web services.

The world's largest software maker will officially flip the switch on tens of thousands of computer servers at the facility in Quincy, Washington, today and Microsoft is already at work on a massive $550m data centre in San Antonio, Texas.

Those facilities are among the first new data centres to come online since the software behemoth surprised investors last year with an aggressive spending plan to enhance its web services business.

It is a strategic shift for a company that built its business selling out-of-the-box software and a testament to the growing threat posed by software applications from Google and other web-based rivals to Microsoft's Windows and Office monopolies.

Morningstar analyst Toan Tran said: "Data centres are the basic infrastructure that enable web services, so if Microsoft wants to compete in services this is the price of admission. The software industry is headed toward web services, so this is what Microsoft has to do."

The data centres provide the base infrastructure upon which Microsoft can create a range of web services such as its Xbox Live online video game system to its upcoming CRM Live business software.

Web heavyweights such as Google, Microsoft and Yahoo! are competing to engage internet users with a variety of web services from online video to hosted email to news. The growth of online marketing has made web services supported by advertising more lucrative than ever.

At the same time, the cost of computing power and data storage has fallen sharply, encouraging deep-pocketed companies to build enormous data centres to handle and control all of the traffic.

At a Goldman Sachs conference in February, Microsoft's chief software architect, Ray Ozzie, said the company will continue to invest in new data centres, building enough capacity to eventually allow other companies and developers to build web services on top of its infrastructure.

The software industry is traditionally a low capital expenditure business but the building of these facilities is changing that business model.

Morningstar estimates Microsoft's capital spending will rise 50 per cent to $1.5bn this fiscal year and expects that figure to grow another 50 per cent next year to $2.3bn. It is still only a small portion of Microsoft's estimated $50bn in revenue this fiscal year.

The Quincy facility will consume up to 48 megawatts of electricity - enough to power 40,000 homes.