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Facebook Scales Up its Data Center Space

Facebook will lease an entire data center building in Santa Clara, California, and is expected to spend $200 million on capital expenditures in 2008.

Facebook will lease an entire data center building in Santa Clara, California, positioning the company for significant additional growth. The lease for 86,000 square feet of brand new raised-floor server space puts some large dollar signs on the importance of social networks as users of data center space.

Facebook is leading the charge, armed with piles of cash from a $240 million investment by Microsoft. Since lining up the Microsoft funding, Facebook has leased data center space in Virginia and now a much larger facility in Santa Clara. The company is set to invest $200 million in capital expenditures this year, and data center providers and server vendors will be prime beneficiaries.

As is often the case with large data center deals, the principals aren't confirming the details of the Santa Clara lease, but there appears to be little doubt that the tenant is Facebook. Digital Realty Trust (DLR) said last month that it had leased the custom-built facility to "a leading Web 2.0 social networking company," but wouldn't identify the tenant. Facebook was also strategically vague. "I can't comment on specific data center locations," said Jonathan Heiliger, VP of technical operations for Facebook. "However, I can tell you we work closely with Digital Realty Trust as one of our infrastructure providers."

Facebook is also working with Terremark Worldwide (TMRK), DuPont Fabros Technology (DFT) and Rackable (RACK) to support its infrastructure growth:

  • Facebook has been hosting servers at Terremark's NAP West data center facility in Santa Clara since 2005, when it signed a multi-year agreement with the Miami-based provider.
  • Last fall Facebook leased an additional 10,000 square feet of space in a new facility built by DuPont Fabros in Ashburn, Va. The lease is for the second phase of the $375 million facility, 300,000 square foot ACC4 data center, a state-of-the-art facility backed by 32 diesel generators.
  • Facebook's appetite for high-density, energy-efficient servers has boosted its business with Rackable, which in October identified Facebook as one of its four largest customers along with Microsoft, Yahoo and Amazon. Sales to Facebook helped Rackable post the fastest one-year sales volume growth in a Gartner survey.

While Facebook won't soon approach the $2.4 billion in data center investment by Google in 2007, CEO Mark Zuckerberg recently told employees (and Kara Swisher of BoomTown) that in 2008 the company expected to have revenues of $300 to $350 million, more than 1,000 employees, and capital expenditures of $200 million.

Data center space isn't cheap. Plug-and-play technical space like that planned for Digital Realty's Santa Clara building leased in a range of $125 to $143 a square foot last year. A similar rate for 86,000 square feet of turn-key space would yield an annual lease cost between $10.75 million and $12.3 million.

That kind of investment reinforces the fact that social networking sites are serious business for data center companies. "If you told me two years ago that social networking sites would be important to our business, I wouldn't have believed it," said Hossein Fateh, the President and CEO of DuPont Fabros. "Today they are a very large part of our business."