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How mega data center construction is tied to taxes

Massive data center construction is happening in places where power is cheap and taxes are low, like Dublin, Ireland. That’s where Microsoft built a 300,000-square-foot data center to support European cloud services on the Windows Azure platform. Mega data centers are becoming the trend — Intel says a quarter of the chips it sells will go into them by the end of 2012.

People can wax poetic about the cloud, but the services flying over the Web touch down on a piece of physical equipment somewhere. Consider Digital Realty Trust, a provider of data centers (move-in or custom) with more than 15 million square feet of space in 70 locations worldwide. Its data center facility in Chicago is the city’s second-largest consumer of power, behind O’Hare International Airport.

What’s scary is the prospect of a bomb being able to wipe out a mega data center and all the information in it. Or a hack. Granted, these data center behemoths are paired — mirrored to a secondary site that’s close enough to avoid latency, depending on the application and connectivity — so that if a disaster occurred at one site, the company could recover data from the other. Still, that’s a far cry from the distributed nature of the Internet, which was designed with ubiquitous connectivity so that no single (or multiple) node failure could disrupt operations. Of course, high-quality connectivity is still very expensive, so a distributed network of bandwidth-hungry mega data centers may not be the best way to go.

Physical security is just one issue; another concern is the threat of taxes that may be imposed after a mega data center is complete. When Washington state ruled last year that data centers were no longer covered by a sales tax break for manufacturers and imposed a 7.9% tax on new construction, Microsoft migrated its Windows Azure cloud computing infrastructure from its data center in Quincy, Wash., to its 475,000-sqare-foot facility in San Antonio before opening a 700,000-square-foot mega data center in Chicago.
Google is thinking of moving out of North Carolina for similar reasons, according to Mike Manos, Microsoft’s former director of data center services, who is now senior vice president of Digital Realty Trust. In his blog, Loose Bolts, Manos writes, “While most people can guess the need for adequate power and communications infrastructure, many are surprised that tax and regulation play such a significant role in even the initial siting of a facility.”

And when other parts of the country — or world — begin to offer tax incentives for building mega data centers in their backyards, being able to move workloads from one data center to another would make good economic sense. However, this requires a software layer that Google and others are still working on. “Something this cool is powerful,” Manos writes. “Something this cool will never escape the watchful eyes of the world governments.”

Reading Manos’ post, I thought of the PODs (point of distribution data centers) being marketed by the likes of IBM and Hewlett-Packard — virtual shipping containers redone with all the CPU power, network and cabling, water, and air cooling within. I imagined them stacked on barges, anchored in the world’s cheapest ports. But Manos had already thought of that — “Whether boats, containers or spaceships, all of these solutions require large or large-ish capital solutions. Solve the problem in software once, then you solve it forever.”

Let us know what you think about this post; email Laura Smith, Features Writer.

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