Behold the server farm! Glorious temple of the information age!
They're ugly. They require a small city's worth of electricity. And they're where the web happens. Microsoft, Google, Yahoo, and others are spending billions to build them as fast as they can.
By Stephanie N. Mehta, Fortune Magazine

(FORTUNE Magazine) -- Margie Backaus is standing on a 17-acre plot outside Secaucus, N.J., shaking her head in disbelief. Garbage bags and broken glass litter the ground, and weeds have taken over the parts of the land that aren't bald. At least the view is nice, if you like power lines, shipping containers, and the New Jersey Turnpike. Backaus, a chatty, petite blond, doesn't say a word, but you can tell what she's thinking: This looks like a place where Tony Soprano would dump a body.

Only Backaus isn't scouting locations for a TV shoot. She's chief business officer for Equinix (Charts), a company that operates huge data centers for corporations and Internet companies, and she's looking for someplace to build another facility, Equinix's third new center in the past several years.

A colleague tries to explain why the site they're visiting on this hot May afternoon might work: It's big enough to accommodate a 750,000-square-foot complex--equivalent to seven Costco (Charts) stores and three times the size of the megacenter Equinix is building in phases in the Chicago suburbs. And those unsightly wires overhead are actually a plus: The company could tap them to build its own electrical substation to power the facility.

But Backaus just doesn't like it. More troubling to her than the Superfund-site vibe is the amount of time it would take to construct a new building and get it up and running. "I have to wait two years till it's done?" she says, surveying the detritus. "I'm out."

Backaus's impatience is understandable. Equinix, a small but fast-growing publicly traded company whose clients include Google (Charts), Yahoo (Charts), MySpace, and other Internet powers, is bursting at the seams, as are data centers operated by the likes of AT&T (Charts) and IBM (Charts).

Competition for real estate, even ugly scraps of land such as the Secaucus acreage, is so fierce that Equinix's brokers began cold-calling landlords in northern Jersey when it became apparent the company would need to expand in the New York area.

Most people don't think of it this way, but the Information Age is being built on an infrastructure as imposing as the factories and mills of yore. Think of all the things people have been using the Internet for--all the e-mails, blogs, photos, videogames, movies, TV shows.

None of those bits and bytes simply float off into the ether, magically arriving at their assigned destinations. Storing, processing, and moving them all is heavy, heavy lifting. And the work is performed by tens of millions of computers known as servers, all packed into data centers around the world.

The industry term for the vast rooms full of humming, blinking computers inside each of these complexes is "server farms," but "work camps" would be more accurate. Consider that every time you conduct a web search on one of Yahoo's sites, for example, you activate roughly 7,000 or more computers--and that doesn't count at least 15,000 others that support every query by constantly poking around the Net for updates.

"When you go to certain parts of a data center, it looks much more like a factory than something high-tech," says Urs Hölzle, a senior vice president of operations at Google.

The Great Planting of these server farms has only begun, thanks to a revolution currently taking place in the $120 billion software industry. Software is becoming webified: Computer programs that traditionally have been installed on personal computers--from simple word processing and e-mail to heavy-duty applications that help companies manage payroll--are going online. (Bye-bye to CD-ROMs and 300-page installation manuals.)

Google in June released an online spreadsheet and earlier this year acquired the maker of a web-based word-processing program called Writely. The true sign of the times: Microsoft, a company that has become synonymous with desktop software, has pledged to move a big swath of its applications to the online world.

To handle this change, Internet companies are building their own centers, though none of them is all that eager to talk about it. Microsoft has been the most open--it recently broke ground on a 1.4-million-square-foot campus in Quincy, Wash., close to hydroelectric power. Company officials acknowledge that centers in the South and Europe will come afterward.

Yahoo, meanwhile, also has purchased 50 acres in Quincy for a server farm. Google, which enjoys discussing its data centers about as much as the NSA enjoys discussing its code-breaking techniques, hasn't been able to conceal a two-building complex under construction on 30 acres of former farmland in Oregon.

The Google facility will contain some of the estimated half-million to one million (only Google knows for sure) servers that the company operates to handle 2.7 billion online searches a month, its Gmail service, and other applications. Experts figure such a project easily could run north of $150 million; Google, of course, isn't saying. Analysts expect that the three companies combined will devote roughly $4.7 billion to capital expenditures this year, double 2005 levels.

Then there's the enormous cost of operating these things. New and improved microchips that can process more data mean that standard-sized servers can do a lot more than their ancestors did, but the newest gear also throws off more heat. And that means cranking up the air conditioning to make sure the computers don't literally melt themselves into slag.

Vericenter, an operator of data centers, says a rack of "blade" servers can get as hot as a seven-foot tower of toaster ovens. It gets hot enough that for every dollar a company spends to power a typical server, it spends another dollar on a/c to keep it cool. No wonder Yahoo, Google, and Microsoft all are building their server farms in the Pacific Northwest, near hydroelectric power plants selling cheap electricity.

"If I saved just $10 in the operation of each of those servers, that's $10 million per year," says Greg Papadopolous, chief technology officer of Sun Microsystems. "So how much would you be willing to invest in order to save $10 per server? This is exactly the discussion companies had around the time of the Industrial Revolution."

All this talk of plants and equipment must come as a shock to some Internet investors, who surely thought they were buying shares in elegant, money-printing intellectual-property companies, not some dirty, noisy, capital-intensive industry.

When Microsoft in April signaled that it would need to pour at least $2 billion more than analysts expected into cap ex in the coming year, the stock sank 11% in a day. No, Internet companies aren't spewing Ma Bell levels of capital spending (yet): North American phone companies will spend about $60 billion on cap ex this year, ten times what the five largest Internet companies will cough up. But there's no question that we're seeing a change in web economics.

No company feels this more acutely than Microsoft, which is making a shift from a traditional software model, with its low capital costs and robust margins, to the software-as-services model embraced by smaller companies such as Salesforce.com.

The transition is fraught with challenges: Instead of collecting big upfront payments for software, for example, services companies subsist on subscription revenue that trickles in slowly over a longer period of time. But the biggest challenge lies in building and maintaining the kind of physical infrastructure needed to distribute software, games, and other content--plus storage--via the Net.

Despite the financial unknowns, Microsoft is forging ahead. To build and operate its share of the new web, it has turned to Debra Chrapaty, a feisty technologist who, in all earnestness, says things like, "I'm a woman who loves data centers. I love how you walk near a rack of servers and it's really hot, and how it's cool in other spots." (She's actually part of a lively sorority: As I traveled the country checking out data centers, I found a surprising number of women in charge--and they all seem to keep an extra sweater in their office.)

Chrapaty's team handles the infrastructure for anything at Microsoft that a customer might access over the Internet--from Xbox Live multiplayer games to Hotmail--a huge job that is only going to get bigger.

Today the company operates a handful of facilities worldwide that occupy as much space as 12 Madison Square Gardens. Quincy, Wash., which will be home to Microsoft's newest data center, showed up on the company's radar eight or nine months ago partly because of its cheap power, which Microsoft reportedly will be able to purchase for as little as two cents a kilowatt-hour. (In comparison, engineers say utilities in California routinely charge 11 cents a kilowatt-hour.)

"A couple of years ago I would measure a data center in square footage," Chrapaty says. "Now I look at megawatts of power. It is a new way of measuring technology."

So what do these data centers look like? They're a weird mash-up of high tech (state-of-the-art three-quarter-inch blade servers) and heavy industry (row after row of diesel generators) wrapped in the architectural charm of a maximum-security prison.

To enter AT&T's data center in Ashburn, Va., for example, you have to pass through a "mantrap," a revolving-doorlike contraption connected to a special scanner that literally reads your palm before releasing you into the heart of the facility.

Once inside, it's hard to see what all the fuss is about. The main computing area looks a little like a mainframe storage room circa 1960. Everything is painted dull beige, adding to the Cold War-era feel.

I almost expect to look up at the balcony-like observation area AT&T maintains for customers and see Ernst Blofeld or some other Bond villain surveying the blinking lights of those magical machines called computers.

But there's nothing retro (or, as best I can tell, overtly villainous) about the transactions taking place on those computers. The machines humming along in concert are processing your urgent e-mail messages or your company's website or--critically--your kid's online game activity.

And that dull roar in the background isn't the sound of servers serving but of air-conditioning units cranking away to keep the temperature in the computer room wine-cellar cool. (AT&T operates four enormous "chillers" in Ashburn that continuously pump 13.5 million gallons of water a day.)

It may come as a surprise, but municipalities aren't necessarily prostrating themselves to host data centers. It isn't as if these facilities generate tons of jobs--a center such as Google's megaplex in Oregon is expected to add 50 to 100 jobs to the local economy, according to press reports--and most communities simply can't cope with the infrastructure demands of a massive server farm.

"You go to a local utility and tell them that you want 30 megawatts of power, and they're just catatonic," Janice Fetzer, who heads up data-center construction for Equinix, says drily. "They don't have the resources to build a city within their city." (This is part of what is driving Microsoft and others to resource-rich areas like eastern Washington; remote locations aren't an option for Equinix and AT&T, which have multiple customers using their facilities.)

Fetzer is a bit like a general contractor: Part of her job is helping scope out real estate for future data centers, but she also coordinates a small group of mechanical and electrical engineers and architects who design Equinix's huge facilities. And Fetzer and her team are always looking at cheaper ways to keep the server farms cool.

One approach involves special racks that use chilled water at the source of the heat--the computers themselves--to keep the racks from spewing hot air into the room. This is more radical than it sounds. "Computers and water don't really mix," Fetzer remarks. "It's a very emotional subject."

Remember, we're talking serious cooling here. In fact, the underappreciated science of air conditioning has become a hot topic in the technology world, with everyone from server makers to disk-drive designers keenly focused on ways to build cooler computers.

"The duality of heating and cooling is the greatest challenge to electromechanical engineering in the last 30 years," says Kfir Godrich, director of technology development for EYP Mission Critical Facilities, a Manhattan-based engineering firm that helps design fail-safe facilities. Even the companies whose microchips go into servers are thinking cool.

Advanced Micro Devices, for example, is pushing its Opteron chips as an energy-efficient solution for data centers; the company has even launched a major marketing campaign with billboards in Times Square and Silicon Valley trumpeting itself as an environmentally friendly company.

Opteron puts two lower-power processors on a single chip, reducing the electricity needs of servers that use it. Opteron's edge, claims Marty Seyer, an AMD senior vice president, is that it helps data centers expand their computing power without having to add real estate or draw a lot more energy.

For Equinix, though, needing to add real estate is a good problem to have: It means the Internet is growing and demand for its state-of-the-art data centers is robust. In a few weeks the company expects to disclose the location of its newest facility in New Jersey. The details, like so many things in a data center, are top secret, but if you're ever driving around Secaucus and see a bunch of two-megawatt generators and seven-foot-high electrical switches sitting around waiting to be installed, you'll know what they're for.  Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.