Why Facebook's IPO is Good for the Data Center Industry

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An aerial view of the new Facebook data center in Forest City, North Carolina. (Photo: Facebook).

When Facebook goes public today on the NASDAQ exchange, the offering will be good news to many of Facebook's employees and investors. But it also is a positive development for the data center industry, providing Facebook with lots of capital and motivation to wield it in ways that satisfy Wall Street analysts and the company's investors.

And that means building data centers. Facebook's existence and growth relies upon Internet infrastructure. Facebook  has already invested more than $1 billion in the infrastructure that powers its social network, which now serves more than 900 million users a month around the globe. The company spent $606 million on servers, storage, network gear and data centers in 2011, and expects to spend another $500 million this year.

That spending has boosted data center construction, added jobs for IT and facilities staff, and driven innovation in the hardware ecosystem. Facebook has released its server and data center designs through the Open Compute Project, further influencing spending and innovation in the industry.

The company currently has announced three huge data center campuses where it is building new server farms, each of which can support at least three 300,000 square foot buildings.

Thus far, Facebook has opened only two of these facilities - one in Prineville, Oregon and another in Forest City, North Carolina. The company has commenced construction on its first data center in Lulea, Sweden and its second buildings in Oregon and North Carolina. Once these are completed, Facebook will have space to build four more buildings across the three sites.

$210 Million Invested in First Prineville Site

Facebook spent about $210 million to build 28 megawatts of data center space in Prineville, which works out to about $7.5 million per megawatt. The most efficient providers are building scale-out data center space at between $5 million and $9 million per megawatt.

Building data centers is a capital intensive business. Just ask Google. Since the beginning of 2007, Google has invested more than $13.5 billion in capital expenditures, a number that is dedicated predominantly to Internet infrastructure.

Facebook’s requirements don’t yet match the scale required by Microsoft and Google. But its costs are also lower because it originally opted to lease space. The social network currently spends more than $70 million a year leasing “plug-n-play” wholesale data center space from at least four providers, including Digital Realty Trust, DuPont Fabros Technology, CoreSite Realty and Fortune Data Centers.

Now that Facebook is building its own data centers, its changing needs will continue to impact the market. The social network says that it will gradually shift its server capacity from leased data centers to company-owned facilities, migrating out of many third-party facilities as its leases expire.

Facebook Still Leasing More Wholesale Space

In the period from 2015 to 2018, Facebook will be vacating a significant chunk of wholesale real estate. The company says it intends to shift capacity to company-owned space, but will evaluate each lease on its merits as its needs evolve – meaning it could keep some of its leased space.

In fact, even as it builds its own data centers in remote parts of the country and world, Facebook is continuing to lease more data center space in key markets. That includes Silicon Valley, where the cost of power and land make it unlikely that Facebook will ever build a new company-owned data center.

One thing’s for sure: Facebook’s network is only getting bigger. “We plan to continue to significantly expand the size of our infrastructure, ” the company said in its IPO filing. “We are investing in additional Facebook-owned data centers in the United States and Europe and we aim to deliver Facebook products rapidly and reliably to all users around the world.”