In Data We Trust: How Companies Select Data Center Locations

June 13, 2017

Data Centers

As “big data” comes to the world of commerce, we’ve seen a major spike in the creation of new data centers for companies like Facebook, Amazon, Apple, Microsoft and IBM. To gain insight into this trend, we arranged an interview with Joe Suppers, Principal of NodeCom, Inc.

Joe is the only consultant we know that is solely focused on data center site selection. He has worked with companies like America Online, Metromedia Fiber, 360 Networks and Switch since 1995.

Patience Fairbrother (DCI):   In the last six months, we’ve observed a major spike in site selection projects involving data centers. Switch announced a \$2.5 billion data center in Atlanta, Facebook announced a one million square foot facility in Sarpy County, Nebraska, I love that name, which is its ninth data center in the U.S.A. And IBM announced four new data centers this year. Two in Dallas and two in Washington.

Andy Levine (DCI): To borrow from the lexicon of a certain U.S. president, the capital investment in these projects is huge, but the job numbers associated with these announcements are much more modest. Switch will hire 65 people. Facebook expects to hire 100, for this one million square foot facility in Sarpy County. But state economic development groups around the country are still passing incentive legislation aimed at attracting the next big data center.

Patience: So we wanted to get a better handle on this, both for ourselves and for our listeners. So we turn to a man who has spent the last 20 years focused on site selection, specifically for data centers. So, welcome to Episode 19 of The Project: Inside Corporate Location Decisions. To better understand the latest trends in data centers and site selection, Andy sat down with Joe Suppers. Joe is the principal of Node Com Inc.

Andy: Joe is solely specialized in data center site selection. He’s done this since 1995. He’s worked with companies like America Online, Metromedia Fiber, 360 Networks, as well as Switch. Here’s our conversation with Joe.

So, Joe Suppers, President of Node Com. We’re delighted to have you as a guest on The Project today. Welcome, Joe.

Joe Suppers (Node Com): Andy, thank you. My pleasure to be here.

Andy: Great, great. So we’re here to talk about data centers and site selection. Before we dive into that, can you tell us just a word about your background and your work at Node Com?

Joe: Sure. That would be great. What’s kind of interesting is I’ve been doing this for about 20 years now. Node Com was officially launched in 1995. I came out of the corporate real estate department’s first major corporations, in the early days, starting in 1974, and stumbled into doing data center projects while I was with one of those companies, doing black box type work for the federal government. And subsequently, decided to launch Node Com.

Andy: And that was 20 years ago.

Joe: 20 years ago.

Andy:  Wow. Okay. Good. Good. Good. So we wanna get a better sense of how the site selection criteria for a data center is different than, say, a manufacturing or an office facility, that sort of thing. In simplest terms, what would you say are sort of the top three factors a company considering a data search, you know, what would they look for in a new data center that they were trying to establish?

Joe: You know, it’s kind of interesting to see how this whole industry has changed and evolved over the last 20 years. Actually, since the 1996 Telecommunications Act was passed, when there was such a proliferation of telecommunication companies. It evolved as a result of that act. And in the early days, it was all about locations that had primarily existing buildings, heavy floor loads, high ceilings, and connectivity. That was pretty much it. It’s amazing to see how things have changed in some ways, but not in a lot, because connectivity is still really key.

But more and more companies are doing Greenfield type projects, as opposed to retrofitting existing buildings. And instead of high ceiling heights and heavy floor loads, it’s become more an issue of fiber availability, power, and taxation. So those are the main drivers today with site selection for larger data centers.

Andy: So, let’s talk about each of these. Let’s unravel each of those individually. Why don’t you start with the first one you mentioned, which is fiber availability? So what do you look for in that area?

Joe: So, when companies are looking for locations for data centers, the real life blood for data centers today is fiber. Telecommunications has got to be transmitted on fiber optics. In the early days, it was all about copper and T1 lines. But today, as more and more transactions are moving faster or at the speed of light, we need to have fiber not just from one carrier, but multiple carriers for redundancy. So fiber has become much more important, and the more carriers going into a location, the better.

Andy: Talk about power as well. That was the second one on your list.

Joe: In the early days, power was important, but the robustness of power was not as a critical factor as it is today. Before, companies would go into facilities with just a minimal amount of power, knowing that they could always get additional power from the utility. That’s not always the case today. So, companies today are looking for 1, 2, 5, 10 megawatts or more. And with the larger mega data centers that you’re seeing being built by Facebook, Apple, Microsoft, and others, these are locations that are 50 megawatts or more.

They may start out with 50 megawatts and ultimately, may get up to 200 megawatts over time. So these are the mega centers that are really running the operations for those companies, that are providing the social type networking services that we’ve all become accustomed to.

Andy: And is cost of power a central and critical issue in making a decision?

Joe: Yes, it is. And not only is the cost of power critical, but more important today, as we all start looking at reasons to become more sustainable, so is the source of that power. So, more and more companies today are looking for power to be generated from renewable sources, as opposed to coal.

Andy: And is that because of the optics before their consumers? They wanna be able to say that they’re a green company?

Joe: I think a lot of it has to do with that. More and more companies are trying to become more socially conscious to demonstrate to their customers that they do have that as a mindset. I think in addition to that, there is a cost factor. The payback is a little bit longer, but more and more companies see it as a way to sustain their operations, in the event of some sort of outage on the grid.

Andy: The third element you talked about was taxation. Sort of talk us through that, Joe.

Joe: So, incentives and taxation have become important for many, many manufacturing companies over the years. And as data centers are being looked upon more as manufacturing type operations, they, like others, are looking for tax incentives and inducements in order to locate in various communities. One of the biggest aspects today that companies are looking for is that sales and use tax. And it’s become more and more important to the attraction of data centers to communities.

And as you see more and more data centers going to locations, isn’t it interesting to see that those locations that they’re going to are in states that have very attractive tax and incentive packages for data centers, that oftentimes waves sales and use taxes.

Andy: So who’d be at the top of the list in terms of states that you think are sort of ahead of the curve in, you know, tax policy that is attractive to a data center?

Joe: I say that North Carolina certainly is one that has attracted a number of data centers, as has Virginia. When you look at the Ashburn area is in effect being the heart of data center alley, if you will, with Silicon Valley probably being the second. So, those two locations are important, but look at what just happened in Michigan with the Switch locating a major facility in Michigan.

And just last week, Florida passed new legislation that waived taxes and sales and use tax for data centers in that state. So more and more states are recognizing that, not only do the data centers provide a boost to their economies, even though there are very few jobs that come along with these data centers, oftentimes, there are spinoff opportunities and spinoff jobs that come as a result of these large data centers locating in those states.

Andy: So you jumped ahead a little to a question I was gonna ask you Joe, in terms of, you know, you look at the capital investment involved in some of these new data centers and there are huge sums of money, lots of construction jobs involved, you know, big power users, lots of positives there. But the number of jobs created are quite small compared to, say, a manufacturing operation.

Does that create some criticism from, maybe not the economic development sector, but maybe from local journalists who are saying, “Gosh! You gave this company X as an incentive, but they’re only gonna create 50 jobs or they’re only gonna create, you know, 25 jobs.”

Joe: It is an issue and it is a controversial one, where companies often look at the number of jobs being created and tend to question the justification for giving companies robust tax incentives. It’s not going away. And more and more companies are looking at these tax incentives because they feel that these data centers are really not imposing the same types of burdens on communities that a large manufacturing operation might pose on them, if they’re bringing thousands of jobs.

Well, now you’re impacting the schools, you’re impacting roads, and things like that, which oftentimes, justifies reducing or getting lower incentives and tax abatements. But with data centers, because there are very few jobs, the communities are looking at this saying, “There’s not a lot that we really need to do.” And so, it doesn’t really burden the community from that standpoint. That tends to be the justification for relaxing or abating some of those taxes.

Andy: So, you mentioned a moment ago sort of some of these companies that have set up these very, very large centers recently. You know, Facebook is a good example. I think they have six facilities. Amazon has a number of facilities. Is that a trend that you’re seeing some of the major players, you know, just creating these mega centers?

Joe: Well, keep in mind that these players that are creating these mega centers are really using it as the backbone in effect for their businesses. When you look at Microsoft with their network for cloud computing, and all of this has to do primarily with cloud computing. Apple, the same thing, and Facebook. I mean, I look at these locations and these facilities as being anomalies because the cloud computing is being driven by a lot of these firms, but there’s a whole another slate of companies that are also building data centers, but they’re not as large.

They are banks, they are other manufacturing companies, and other firms also have data centers, but we tend to kind of see only the larger ones that are cloud-oriented. The Googles, and the Facebooks, the Apples, etc. But we don’t tend to see the data centers that are being built by some of the other smaller companies.

Andy: So final question, Joe. I want you to imagine you were advising a community interested in attracting data centers and I know you do some of this. What would you tell are the most important steps to become an attractive location for data centers?

Joe: Well, obviously, we have to go back to the tax incentives that are available in the states. I think that positioning themselves from a taxes standpoint is one of the most important things, at least on the front-end, because that gets you the attention. And I have worked with various communities around the United States to try to help them position themselves to attract data center users to their communities.

I’m working on one right now that’s very interesting in Colorado, which is known as the Niobrara Energy Park and Data Center Campus. This is a 662 acre parcel and I’m working with the property owner to help attract the data center users to this facility, with the advantage that this location would be the most robust location from a power generation standpoint, because more and more in the future, as these companies like Apple, and you mentioned Apple, are looking to become more sustainable, they’re tying into wind energy, they’re tying into solar energy.

Well, the Niobrara project is one of those kinds of projects that will have onsite power generation, which we really think is the future for energizing and powering these larger data centers around the globe.

Andy: Interesting, interesting. Joe, an absolutely fascinating conversation.

Joe: Well, you’re very welcome Andy. I don’t think that we’ve seen the end of data centers. Started many years ago with nodes being connected around the United States so that you and I could get connected to the internet with that electronic handshake. Once again, we’re kind of like going back to the future, where more and more we’re gonna be seeing rural data centers being developed, maybe even having our own data centers in our home, as more IoT-type devices get deployed around our homes and businesses.

Andy: Well, we’ll see what the future holds. Joe, thank you for your time today. Really appreciate it.
So that is a wrap on Episode 19 of The Project: Inside Corporate Location Decisions.

Patience: A sincere thank you to Joe Suppers for taking us into the world of data centers and data selection. We also thank our DCI colleague, Kat Saunders, who helped set up our interview with Joe.

Andy: The Project is sponsored by DCI. We are the leader in marketing places, and have served over 450 different cities, states, regions, and countries. You can learn more about us at aboutdci.com.

Patience: Our next two episodes will take a decidedly international bent, profiling corporate location decisions from Chinese and Indian companies. We hope you will keep listening. There are many more projects to come.

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