According to the Des Moines Register, West Des Moines was selected for the following reasons:
1. Low energy and business costs in the state.
2. Governor Culver recently signed tax incentives on computer towers and other technology worth up to $3 million per year.
3. Des Moines ranks in the top-10 for lowest cost for data centers, and its proximity to national universities (Iowa State and Nebraska-Omaha).
What got me thinking about this Microsoft Project was their reasoning behind the location selection; obviously the above reasons provide incentives. However, after discussing Hurricane Gustav in class, and the need for quantitative and qualitative risk assessments regarding the assets involved with a data center of this size; I can't help but wonder if Microsoft has a plan B (or at least some hefty insurance).
This past year, much of Iowa experienced what meteorologists described as a "100-year flood," which if you ask Iowans is a misleading name, because we had much the same flooding only 15 years ago in 1993. With the Raccoon River (which overflowed its banks in 1993 and 2008) flowing though the city of West Des Moines, and the proposed Microsoft Data Center nearby, I would be very interested to see the qualitative risk assessments and risk analysis done by Microsoft to place a $500 million facility in the area. Added on to that is the propensity for tornados in the Midwest, and it seems like an illogical place to build a data center that would be immobile in a tornado and ill equipped to defend or recoup losses from a flood (electricity+water=FAIL). I'm all for high-tech jobs and more business in my backyard, but would government incentives and tax breaks really be enough to make up for the possible monetary and data loss in a situation like this?
Computer World Article:
http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9113202&intsrc=hm_list
Des Moines Register Article:
http://www.desmoinesregister.com/apps/pbcs.dll/article?AID=/20080821/BUSINESS/80821020
Posts
This comment has been removed by the author.
ReplyDeleteI guess we will never know exactly what Microsoft (or Google, who will open its new data center in Council Bluffs early next year) is paying for their disaster insurance, but I'm betting they did the math here. The Register article gives us a better idea of what their numbers might look like:
ReplyDelete"For example, Google received $1.4 million in state tax credits and nearly $1 million for worker training. Local governments plan to provide Google with $33 million in property tax exemptions over 20 years."
So, if these companies are moving into a place that's cheap to begin with, perfect for building alternative energy sources to power new centers (a key focus for Google especially) and they are receiving multimillion dollar exceptions every year, then the move makes sense as long as those annual insurance premiums don't offset those gains. I'm guessing that those premiums would not reach that high, but then again I have zero experience purchasing large data center disaster insurance. Professor Chapple, what would you guess that their risk payments look like?
That's an interesting question, Brendan. I'm not sure what a policy like that would cost, but I'm sure it's at least in the high tens of thousands of dollars a year.
ReplyDeleteNo matter where you place your data center, you're going to have some kind of risk. As you pointed out, I'm sure they've run the numbers. They're likely betting that the proximity to the universities and tax incentives will outweigh the potential cost of the risk. You can compute the ALE of a flood and compare it to the "ALE" (it would be a gain - so a negative ALE) benefit that you achieve in tax credits and see if it's a good idea.
Also, a large company like Microsoft has many data centers located around the world. They're set up in a fashion that an outage at one doesn't (or shouldn't!) affect the overall operations of the company. That said, a communications problem at an FAA data center shut down flights across the country a few weeks ago.
I agree with the both of you. I'm sure Microsoft has a good plan behind all this. And I'm sure the Insurance policy is worth a nice penny as well. My question is if your Microsoft what are some of the things you have to make sure is down on your insurance policy if you choose to take a risk like this and move you data center to a very high risk area.
ReplyDeleteThe next question I have is Since Mike has stated they must have ran the numbers and they already have other data centers around the world how much information do you put in a new data center if you betting on some type of risk affecting the building.