Chillers and cooling towers of the Google data center campus in St. Ghislain, Belgium (Photo: Google)

After Break, Internet Giants Resume Data Center Spending: Gadfly

(Bloomberg) — The Web’s biggest spenders have mostly started splurging again. I wrote six months ago that Google, Microsoft and Amazon — among the world’s biggest operators of Internet technologies and cloud-computing services — had slowed or reversed their perky growth in spending on huge server farms and other capital projects. I didn’t expect the breather to last — and for the most part, it hasn’t.

Collectively, capital spending by those three giants and Facebook has risen 23 percent so far this year after a collective decline of 0.9 percent in 2015. Only Google’s parent company Alphabet has bucked the capex-growth rebound.

The tech superpowers don’t disclose exactly where their capital expenditures go, but it is clear that buying and maintaining their gigantic computing networks represent a big chunk of the overall bill. It costs a ton to run seven Web services with at least a billion monthly users, as Google does, or to power other companies’ computer networks, as Amazon Web Services does.

Alphabet, Microsoft, Amazon and Facebook spent a combined $23 billion in 2015 on capital projects. During an investment flurry from 2011 to last year, the companies’ combined capex nearly tripled.

Capital spending has become essential fuel in the Internet superpowers’ war for consumers and for companies that rent computing horsepower. Even a fraction of a second delay in pushing out an ad on mobile phones, or in running a holiday retail sales forecast, is potentially lost business for the Web giants. That makes investments in computing networks an important area to watch in the jockeying for tech superiority.

Combined Increase from 2011 to 2015 in the Big Four’s Capex: 180%

Amazon’s financial disclosures say a big chunk of the company’s increased capital spending — up 35 percent in the first quarter from a year earlier — is for AWS, the fastest growing and most profitable part of the company.

Microsoft has said it plans to spend more on capital projects, particularly for its expanding cloud-computing businesses including one that competes with Amazon. Last month, Microsoft’s chief financial officer told analysts the company’s 66 percent capex increase in the three months ended March 31 was due primarily to spending on data centers and computer servers.

Read more: Microsoft Ramps Up Cloud Data Center Spend

Yet the biggest of the Big Four, Alphabet, has retained its stingier ways from 2015. Spending on capital expenditures fell 17 percent in the first three months of this year compared with figures in the period a year earlier, following a 10 percent decline in 2015.

Alphabet’s capex decline largely reflects the work of Ruth Porat, the CFO imported from Wall Street last year. Porat essentially promised she would keep a lid on spending growth in at least some areas. In a conference call last month, Porat said that Alphabet still considered its sophisticated computing networks to be key assets but that the tech minions had figured out ways to squeeze more out of existing computing resources to “meet our growing Google requirements cost effectively.” That’s all music to investors’ ears.

Read more: Google to Build and Lease Data Centers in Big Cloud Expansion

Parsimony at Alphabet is all relative. The company’s $9.9 billion in capital expenditures for 2015 was nearly more than the combined capex spending of Microsoft and Amazon. And Alphabet will most likely need to pick up spending for a raft of new computing networks the company pledged to open for its growing cloud-computing operation that also competes with Amazon.

I added Facebook into the calculation because the company has made the jump into the capex big leagues. The company said last week that it expected this year’s bill for data center equipment and related costs to come in at the high end of a previous forecast of $4 billion to $4.5 billion. That means the 12-year-old company is on track to spend nearly as much on capital expenditures as 22-year-old Amazon did in 2015.

Every year, each dollar invested in computing networks goes a little further. But the Big Four all want to get even bigger in cloud computing, mobile advertising or data-hogging Web services such as live Web video. And that makes it inevitable that the capital spending bills will stay as outsized as the ambitions of the Web superpowers.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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