Microsoft Plows Into Iowa

By Richard Martin and J. Nicholas Hoover, InformationWeek, August 4, 2008, 2:00 PM

The corn grows taller in Iowa -- and the data centers, too. Google (Nasdaq: GOOG) is investing $600 million in an under-construction data center in Council Bluffs that's slated to go into operation next year. Now, Microsoft Corp. (Nasdaq: MSFT) plans to build its own data center 130 miles to the east, in Des Moines.

Adding to the data center land grab, IBM Corp. (NYSE: IBM) last week said it's spending $360 million on a new data center in North Carolina's Research Triangle, aimed at delivering cloud-computing services to businesses and university researchers. IBM's already partnering with Google on a major cloud-computing project for specific universities. And it's opening a new center in Tokyo, its eighth, focused on helping businesses build and test online computing resources.

Microsoft's Iowa data center is the latest in a massive infrastructure build-out to support the company's software-plus-services strategy. It opened a new data center earlier this year in Quincy, Wash.; two more are slated to open this fall in San Antonio and Chicago; and another is being built in Dublin, Ireland.

Microsoft's fourth-quarter earnings, released July 17, show the growing investment in computer hardware and other IT infrastructure needed to back the emerging services strategy. Microsoft's Online Services Business (advertising, Live Search, MSN) attributed a $251 million cost-of-revenue increase, in part, to increased data center and equipment costs, while the Microsoft Business Division (Office, Dynamics) pointed to increased online services infrastructure expenses as being partly responsible for an $87 million cost increase. "Additional investments of several hundreds of millions of dollars are worth the cost, given the opportunity to participate in a market where the opportunity is measured in the tens of billions of dollars," says Microsoft CFO Chris Liddell.For years, Microsoft leased much of its data center capacity, but it's increasingly building and managing its own as it anticipates growing demand for online services, including from business customers. Today, it sells single-customer versions of SharePoint Online, Office Communications Online, Exchange Online, and CRM Online; later this year, it expects to market SharePoint Online, Office Communications Online, Exchange Online, and Dynamics CRM Online through a true software-as-a-service, multitenant model. Microsoft's consumer services -- search, MSN, and Windows Live, for example -- are likewise hosted in its data centers.

It also wouldn't be surprising to see it push into Amazon.com Inc.