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Microsoft's Data Center Push

The software giant is building and leasing data center space worldwide to bulk up its Azure and Xbox Live services.

With a data center war among cloud service providers in full bloom, Microsoft is going all in.

Anticipating significant demand for its Azure cloud services and the upcoming Xbox One home entertainment system, Microsoft has been busily investing in data center development and expansion around the globe, either building or renting data center space.

In addition to a new $250 million data center in Finland announced in conjunction with its acquisition of Finnish phone maker Nokia, the company is also investing nearly $700 million to expand its data center operations in Iowa, building a $100 million-plus data center in Wyoming and constructing new data centers in Singapore and Australia, states Jeff Paschke, an analyst with 451 Research, in a recent report.

Microsoft also is thought to be the undisclosed tenant behind leases recently signed by Dupont Fabros Technology in northern Virginia and Silicon Valley, according to Paschke. Dupont Fabros is a real estate investment trust that owns and operates wholesale data centers, and it counts Facebook, Microsoft and Yahoo among its clients.

Microsoft’s data center push is part of a rapid recovery in its capital spending, which dipped to a low of $376 million during the last quarter of 2009, Paschke writes. In the past year, he adds, Microsoft’s capital expenditures were a whopping $4.26 billion, much of which was devoted to data center development and expansion.

Clifford Grossner, directing analyst at Infonetics Research, said via email that an Azure backed by more data center heft is well-positioned to become a platform-as-a-service cash cow for Microsoft.

“Azure is competing with other cloud service providers and is certainly preparing for business growth,” said Grossner. “IT developers as well as regular data center operations can look to Microsoft as a major player when they consider outsourcing to cloud service providers.”

[Read why Major League Baseball decided to build a second data center in Omaha in "MBL Boosts Streaming With New Data Center."]

What’s more, he expects Azure to become a more appealing platform on which game developers can build content for the new Xbox, which will be available Nov. 22.

It certainly doesn’t hurt that Infonetics believes Azure is the strongest PaaS offering other than Google’s App Engine. Or that Microsoft says it’s beefed up the infrastructure underlying its Xbox Live service from 15,000 servers to 300,000.

Meanwhile, Paschke’s colleague at 451 Research, Daniel Bizo, said via email that the new Xbox console is fueling an expansion of the related Live service, with Microsoft expected to offer developers access to its cloud for hosting development and gaming servers, as well as supporting in-game computing such as artificial intelligence and streaming graphics.

“All of this points to a much more infrastructure-heavy Live cloud,” Bizo said.

The planned Finnish facility, in particular, should deliver “lower latency for European customers, better perceived compliance with European data protection laws and cold external temperatures that can cut down on cooling cost,” Paschke wrote: “We expect the company will use outside air and airside economizers for cooling.” Doing so, will help Microsoft achieve stated goals related to power usage effectiveness, Paschke added.

[Get insight into the complexities behind the hybrid cloud model in "Hybrid Cloud: Myths and Realities" at Interop New York Sept. 30-Oct. 4. Register today!]

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