In the last week there's been lots of analysis about the future of Yahoo (YHOO) now that the company has spurned Microsoft (MSFT) and begun using ads from Google (GOOG) to monetize some of its inventory. Most of the punditry has focused on the battle between those three companies, handicapping winners and losers. Some of it has been interesting reading.
But here at Data Center Knowledge we are all about the data centers. For us, the bottom line is that the collapse of negotiations between Yahoo and Microsoft will result in a net gain in demand for data centers. Here are the factors supporting our belief:
- No Data Center Consolidation: It's difficult to say whether the inevitable consolidation of Microsoft and Yahoo's data centers would have led to the shuttering of any facilities. But the companies have many of their data centers in the same places, including Silicon Valley, northern Virginia and Quincy, Washington. Then there are the platform issues: Microsoft has standardized on its own operating systems and servers, while Yahoo has optimized its operations on open source software, especially FreeBSD, PHP and Hadoop. Microsoft CEO Steve Ballmer said all the right things about a merged Microhoo "being a PHP shop for the foreseeable future." But it's reasonable to expect that Microsoft's platform would eventually have become the standard.
- Yahoo Keeps Building: If Yahoo is to go it alone, it will need to continue to scale its Internet infrastructure. As Google and Microsoft continue to invest heavily in data centers, Yahoo must remain competitive. That's why Yahoo has been accelerating its data center buildout in recent weeks, leasing space in Santa Clara from Digital Realty Trust (DLR) and speeding deployment of its footprint in Ashburn, Va. with Dupont Fabros (DFT). Is Yahoo done with its data center buildout? We don't think so. Numerous state and local economic development agencies report recent site visits from representatives of "the big three" scouting potential data center locations. It's not just Google and Microsoft that are looking for new sites.
- Microsoft Keeps Building: This was going to happen anyway, but there was always the possibility that Microsoft could have used capacity in Yahoo's data centers to absorb short-term growth requirements, postponing additional expansion. Microsoft's current expansion is focused on next-generation facilities, so they're likely to continue investing in new construction.
- No More Uncertainty for Dupont Fabros: Leases with Microsoft and Yahoo account for nearly 70 percent of the revenue for Dupont Fabros, one of the major data center REITs. We don't think there was ever a great deal of risk to Dupont Fabros or its investors from a Microsoft-Yahoo deal. During the merger talks, Hossein Fateh, President and CEO of DuPont Fabros, told analysts that that "discussions with Microsoft and Yahoo have not yielded any concerns about the current leases or potential expansion." Still, it's better to have your two largest customers in expansion mode than merging with one another.
