Why Google And Microsoft Are Building Data Centers In Iowa

In deciding to locate new data centers in Iowa, Google and Microsoft are benefiting from incentives offered for years to manufacturing companies like John Deere, which has 10 manufacturing plants in the state. It turns out that, in addition to plentiful land and affordable electricity, the Hawkeye state gives hefty tax breaks.Under Iowa's tax structure, large manufacturing companies pay no sales tax on the equipment used to build and operate their facilities or on the electricity that powers them. Originally designed to bring blue collar jobs to the state, Iowa's tax rules were amended for Google a year ago, and more recently for Microsoft. Not all state residents are thrilled with the idea of giving tax breaks to multibillion dollar companies, but the strategy is obviously working. "We're just trying to equate the new economy with the old economy," explains Mike Tramontina, director of Iowa's Department of Economic Development.

As a result, Iowa is emerging as a center of cloud computing. Indeed, with cloud service providers investing heavily in IT infrastructure, data centers popping up in all kinds of out-of-the-way places. Google has data centers under construction or recently opened in Iowa, North Carolina, South Carolina, and Oregon, and Microsoft has them in Illinois, Texas, Washington, and Ireland - -and Iowa's next. (See "As Data Center Needs Grow, Microsoft Plows Into Iowa.") IBM last week said it will spend $360 million to convert a facility in North Carolina into a state-of-the-art cloud computing data center. Oracle is building a data center in Utah.

Tramontina points to a handful of factors that make Iowa an attractive place for data centers: it's "safe and quiet," centrally located, and has an educated workforce, he says. There's also "relatively inexpensive" electricity, a surprisingly high percentage of which (8%) is wind generated.

Iowa ranked favorably in a 2008 survey by consulting company Boyd that compared the cost of operating data centers in 45 different U.S. cities. Of the 10 least expensive cities to operate, three of them -- Council Bluffs, Ames, and Des Moines -- are in Iowa. The survey puts the annual operating costs of a newly constructed 125,000-square-foot data center with 125 employees at about $12 million in Iowa compared with $23 million in San Francisco and, at the top of the list, $28 million in New York.

Google's data center in Council Bluffs is scheduled to go into operation next year. We ran a photo gallery showing the construction of the facility a few months ago. Here's the link to those pictures: "Google's Iowa Data Center Emerges."

It's worth noting that Google's Iowa data center is located on a 55-acre site near Lake Manawa. In addition, Google has purchased 130 acres nearby and another 1,000 acres south of Council Bluffs. Google hasn't said how it plans to use those 1,000 acres. My guess is that it will build a wind farm there. Either that or plant corn, perhaps? What's your guess?