Facebook has reportedly raised $500 million in new funding, with Goldman Sachs investing $450 million and existing investor Digital Sky Technologies chipping in an additional $50 million. The size of the investment has tech analysts wondering how Facebook will use all that cash. Forbes’ Felix Salmon notes that the latest round is larger than many IPOs, valuing the company at about $50 billion.
Speculation runs the gamut. Is the funding a prelude to an IPO, positioning Goldman as the lead investment bank? Will it bankroll a slew of new hiring? Or perhaps an acquisition or two? Is Facebook building a search engine? Is it buying a former Sun Microsystems campus? Are early investors cashing out?
Infrastructure is Expensive
Here’s my two cents: Infrastructure is expensive. All the new features and initiatives add up to more users, more traffic and more growth. And that means more servers and more data centers. Facebook is currently spending at least $50 million a year for leased data center space. As the company moves into the data center construction business, that spending will jump significantly.
The company is approaching completion on its first company-built data center in Oregon, representing an estimated investment of between $180 million and $215 million in construction costs and IT equipment. Facebook recently committed to spend $450 million over the next five years to build a second data center in North Carolina.
Building your own data centers is a capital-intensive operation. Thus far Facebook’s bi-coastal data center strategy has served it well. But approximately 70 percent of its 500 million users are outside the United States, as seen in this visualization of its social graph. At some point it may also need to add infrastructure in Europe and Asia to support its non-U.S. users.
For more background, check out the Facebook Data Center FAQ.