Economic Development

Betting the Farm

by | February 28, 2007

The small city of Lenoir, North Carolina, is more High Country than high tech. Snuggled against the Blue Ridge foothills 70 miles northwest of Charlotte, Lenoir lost most of the textile and furniture plants that employed its residents for much of the 20th century. So when Google recently came to Lenoir looking for a site to build a new data-storage facility, local and state officials were eager to accommodate. They offered the Internet giant a tax-incentive package worth a staggering $260 million. In January, Google accepted the deal.

It sounds like any city's economic development dream: A fast-growing company, one that is defining the second Internet boom, plants a massive $600 million facility in your backyard. But it's doubtful that the city of Lenoir and the state of North Carolina will see much direct return from that investment. That's because the generous property tax abatements they gave Google last for 30 years. Moreover, only about 200 people will work there, mostly administrators and technicians. Google will pocket state and local subsidies worth more than $1.2 million per job.

The type of facility Google is building in Lenoir is known as a "server farm." It's a warehouse of thousands of computers, all humming away day and night, processing and storing the millions of Web pages, e-mails, songs, photos and videos that flit across Internet users' computer screens every day. Server farms are the backbone of what's come to be called "Web 2.0." When you (or perhaps your grandchildren) upload a video to YouTube, it doesn't float around in some kind of Internet ether. It's stored on a server. Internet companies such as Google, Microsoft and Yahoo can barely build enough server farms to keep up with the explosion in all this data.

Cities and states are eager to capture a piece of this Internet industry. What they're finding, however, is that this part of the "new" economy doesn't look so different from the old one. Like any manufacturing plant, server farms require massive amounts of power. A mid-sized server farm built a bit larger than a typical Costco consumes as much electricity as the Sears Tower. Not only do governments need to ensure that there's enough electric capacity available, they also must wrestle with the environmental consequences of their power choices.

Meanwhile, to attract server farms, governments are resorting to old-school smokestack-chasing tricks. In January, San Antonio landed a Microsoft server farm by offering tax abatements and grants worth more than $25 million. Cities along the Columbia River in Washington State and Oregon have grown a cluster of server farms by offering ultra-cheap hydroelectric power. North Carolina officials deemed the tax breaks necessary because Google was also considering rival sites in South Carolina and other states.

If server farms drain electricity and don't provide that many jobs, why are states and localities scrambling to attract them? Lenoir's leaders believe that Google's cachet will draw more technology firms to town. T.J. Rohr, the only city councilman to vote against the tax incentives, hopes that's true. But he doesn't think the generous package was worth it. "We probably could have driven a better bargain," Rohr says, noting that he's philosophically opposed to tax incentives of any kind. "I don't have any problem with Google. Who could? Who would? But Google didn't come here because of our incentives. They came here because there's cheap land and cheap electricity."

A Thousand Thousand Gigabytes

For all their importance to the Web 2.0 economy, server farms look like banal industrial-park warehouses. They can be absolutely massive, sprawling up to 1.5 million square feet. Inside, the facilities are filled with thousands of servers -- small boxes that transmit and store all the pieces of information within a certain network of computers. The servers are lined up row upon row, stacked high on racks, and connected to the Internet via fast fiber-optic lines.

With so many compact, high-powered computers jammed together, these facilities give off an enormous amount of heat. Just one rack of servers creates as much heat as a 7-foot stack of toaster ovens. "From an energy standpoint, it's all just a big building full of heaters," says Mark Mills, an industry analyst and co-founder of Digital Power Capital, a venture capital fund that invests in digital technologies. Because a computer's productivity slows as it heats up, air conditioning is critically important. That's why server farms use so much electricity, and why they're so expensive to run. For every dollar spent powering a server, a company must spend another dollar just to keep it cool.

Demand for data storage is skyrocketing because of an integral shift in the way people use computers and store media. While traditional computing tasks such as word processing took place on the desktop computer, those functions -- as well as new applications such as blogging, Web-based e-mail, video sharing and music downloading -- are increasingly being hosted online. Threats of terrorist attacks and natural disasters also have changed ideas about data storage. Companies and governments are now looking to keep data safe by backing it up and storing it in multiple locations. If the hard drive on your computer at home or work is measured in gigabytes, storage at server farms is measured in terabytes (a thousand gigabytes) and petabytes (a thousand terabytes).

According to the research firm IDC, the number of servers worldwide is 28 million -- a figure that has doubled since 2000. Google alone is believed to operate as many as 1 million servers, although the company won't discuss details about its facilities. What's clear is that demand for more is growing fast and that online companies are building server farms at breakneck speed. "The number of server farms and data centers being built today is higher than it ever was in the Internet bubble" of the late 1990s, says Mills. But today's server race is different. "It's not like the bubble in terms of speculative dollars. These servers are being built on the backs of large multinational corporations."

Clicks Equals Bricks

For a hundred years, Lenoir was the furniture manufacturing capital of the South. The Broyhill and Bernhardt furniture companies both started there. But Lenoir was hit hard as manufacturing jobs moved overseas. The jobless rate soared to 13 percent a few years ago, although it's since settled to about 8 percent. Most people in Lenoir see the new server farm as an opportunity to shake up the stagnant local economy with a hot new industry. When Google finally announced its intent to locate in Lenoir, the mayor called it "a once-in-a-lifetime opportunity."

The wooing began in the state legislature. Last year, Google requested that lawmakers in the North Carolina assembly add a provision to the state budget, eliminating sales tax on electricity and equipment for data-storage centers. Legislators happily complied. Given the massive amounts of electricity the server farm will consume, the state will forgo nearly $90 million over three decades. The state offered other tax credits and investment grants totaling an additional $7 million.

Local governments also pitched in. Lenoir and surrounding Caldwell County both agreed to waive 100 percent of Google's business property taxes and 80 percent of real-estate taxes for 30 years. One public estimate filed on behalf of the county pegged the cost of the local tax breaks at $165 million over three decades. All in all, the million-dollar-per-job payout for Google is 10 times more generous than the blockbuster offers that other Southern states have made to lure auto manufacturers over the past decade. The jobs at Google's facility will pay well by local standards -- an average of $48,300, almost double the average salary in the county. The majority of the new hires will be technicians, administrators and hardware-maintenance staff -- not software engineers who develop new products.

Most people in Lenoir nevertheless think that having Google certifies their town as a high-tech hub. Even T.J. Rohr, the councilman who opposed the tax breaks for Google, believes in the transformative power of the server farm. "Lenoir is no longer going to be viewed as a dying furniture town," he says. "It's going to be viewed as a city on the cutting edge of the Internet in the 21st century."

The most important thing Lenoir had to offer was an abundance of affordable electricity. With a power grid built for departed furniture manufacturers, powering the Google server farm will be easy. "We're an attractive location because we have an infrastructure set up for large loads," says Paige Sheehan, a spokesperson for Duke Energy, which draws most of its power from nuclear and coal plants.

Not every community has such plentiful power to offer. The energy consumption by server farms is likely to become a big and perhaps contentious issue -- especially as states weigh capping carbon emissions from power plants and other sources to prevent global warming. Congress recently ordered the U.S. Environmental Protection Agency to study conservation measures for data centers and recommend ways to make them more energy-efficient. Even those in the Internet industry agree that their hunger for power is a problem. In a 2005 paper, Google engineer Luiz Andre Barroso said the need for improved server efficiency was paramount. "The possibility of computer power consumption spiraling out of control could have serious consequences for the overall affordability of computing, not to mention the overall health of the planet," Barroso wrote.

For people who envision the Internet economy as pure, tidy and democratic, it's difficult to think of the Web as an energy-hungry warehouse filled with air conditioners so loud that the workers must wear earplugs. But the fact is, your e-mail and iTunes and those photos of your cousin's new baby -- they all require bricks and mortar and a whole lot of electricity. "The industry of the 21st century is clearly IT, but it's about more than just information," says Mark Mills. "It's about actual infrastructure. People think of the Internet as this invisible thing. Server farms epitomize the notion that it ain't invisible. And it ain't free."


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