Iowa Wants Even More Data Centers

Google and Microsoft have decided to invest more than $1 billion in building giant data center campuses in Iowa. Apparently that's not enough for Iowa officials, who are continuing to pursue more huge "server farms," according to the Des Moines Register. The question is this: after you've landed Microsoft and Google, how many more data center projects do you need?

The same factors that make Iowa attractive to the technology industry's largest companies also make it ideal for single-tenant enterprise data centers, according to John Boyd of The Boyd Group, who has done several major studies of the cost of operating data centers in different regional markets around the United States. Iowa has fared extremely well in Boyd's surveys, with Council Bluffs, Ames and Des Moines all ranking among the lowest-cost locations, with annual operating costs of between $12 million and $12.4 million.

Data centers are highly-automated operations that typically don't come with a large number of jobs attached. Google says its $600 million Council Bluffs data center will create 200 jobs. Some industry observers have questioned this number, noting that competitors like Microsoft and Yahoo operate their facilities with between 30 and 50 employees. Microsoft recently indicated it will build a major data center in Iowa as well.

In many instances, the economic rationale for offering incentives to data centers is that it will establish an area as a desirable location, attracting more projects. "With big dogs locating in Iowa, other companies will likely follow," said Clyde Evans, economic development leader in West Des Moines.

The phenomenon of data center clustering around hubs for fiber, cheap power and skilled labor has been well-documented. As we've noted, not all data centers are created equal when it comes to data center clustering, as Microsoft's data centers have generated far more follow-on data center activity than Google's.

The other factor is that Iowa now faces more competition for these projects, as many states are now offering incentives for data center developments. Yahoo looked at sites in Iowa, but appears poised to locate its data center in Nebraska.

Competition among states allows large technology companies to pit states against one another in a "can you top this" bid to craft the most advantageous tax deals. Not all states are playing ball, however. Last year Washington state said that data centers no longer qualified for a key tax incentive for manufacturers, which had been among the factors in the strong growth of the data center cluster in central Washington around Quincy.

The good news for Iowa is that it also has an active home-grown data center industry, with growing providers like Team Technologies and Involta, with smaller ambitions than Microsoft or Google but a strong focus on local business communities - a trait that came in handy as they helped Iowa businesses recover from the recent flooding in the state. Team, which has a facility in Cedar Valley, plans to $15 million in a new data center in Waukee, Iowa.