Facebook Borrows $100 Million to Buy Servers
May 12th, 2008 By: Rich Miller
Facebook has arranged new financing to buy $100 million worth of servers, according to Business Week, which says the social networking site struck a “venture lending” deal with TriplePoint Capital, a Menlo Park (Calif.)-based company that specializes in lending money to startups. The $100 million “will be used entirely for servers,” Facebook Chief Financial Officer Gideon Yu told BW.
It’s been clear that Facebook will be a major customer of server vendors since it leased an entire data center building in Santa Clara, California, positioning the company for significant additional growth. As we reported in February, the lease for 86,000 square feet of brand new raised-floor server space from Digital Realty Trust (DLR) puts some large dollar signs on the importance of social networks as users of data center space.
You can fit a lot of servers into an 86,000 square foot data center. We recently noted that Facebook now has at least 10,000 web servers, and $100 million will buy a boatload more. Who’s the likely beneficiary of that server spending?
The likely suspect is Rackable (RACK), which said recently that Facebook accounted for $11.5 million in first-quarter revenue. The Facebook funding would seem to continue an aligning of the planets for Rackable, which developed its ICE Cube container solution shortly before one of its largest customers, Microsoft, announced it would be filling data centers with server-filled containers.
The problem? The markets for high-density servers and container solutions are getting more competitive, as other server vendors angle for a piece of the action. Microsoft is known to be using containers from Verari Systems, and recent reports indicate Dell is building a container prototype to pitch the Microsoft business. Meanwhile, IBM has jumped into the cloud computing server battle with its iDataPlex series.
Rackable management has said it would seek to avoid deals that squeezed its profit margins. In the company’s recent analyst call, CEO Mark Barrenechea assessed the competitive landscape. “Dell’s behavior is they will continue to bundle, but be the low cost spoiler,” said Barrenechea. “And IBM is very expensive and inflexible. Almost everyone at this point has validated our value proposition and business model, which has very high barriers to entry in build-to-order.”
But with $100 million to buy servers (and perhaps data center space), Facebook will certainly have the attention of the major server vendors. For additional coverage of the Facebook funding, see Mashable, Venture Beat, Silicon Alley Insider and Creative Capital.