Google to Build and Lease Data Centers in Big Cloud Expansion

Keeping up with competition means letting go of some control

Yevgeniy Sverdlik

April 22, 2016

4 Min Read
Urs Hölzle, Senior Vice President for Technical Infrastructure at Google, speaks during the Google I/O 2014 conference in San Francisco
Urs Hölzle, Senior Vice President for Technical Infrastructure at Google, speaks during the Google I/O 2014 conference in San FranciscoStephen Lam/Getty Images

The big expansion of its cloud footprint Google announced in March, saying it would add 10 new data center locations to support cloud services around the world, will consist of a mix of Google-built and leased facilities, a top company executive said.

Google has been behind its biggest competitors in the cloud services market in terms of the number of available locations where customers can host their virtual infrastructure. Recently, however, it has increased focus on this business and ramped up investment in infrastructure to support it.

One of the biggest signals it was placing more emphasis on cloud services was hiring VMware founder Diane Greene to lead the business last year. Another was revealed yesterday on the company’s first-quarter 2016 earnings call: an enormous increase in infrastructure spend year over year.

The expenditure reporting bucket Google calls “other cost of revenue,” which consists primarily of data center, consumer hardware, and content acquisition costs, shot up 27 percent in the first quarter, compared to the same period one year ago.

Read more: The Billions in Data Center Spending Behind Cloud Growth

First Quarter Data Center Spend Close to $2B

The company reported spending $3.9 billion in this category in the quarter, and its CFO Ruth Porat said the increase in spending was “primarily driven by Google-related expenses, most notably due to costs associated with operating our data centers, including depreciation, content acquisition costs, primarily for YouTube, and hardware costs related to sales of new Nexus, Chromecast, and Pixel devices launched in the fall.”

It’s difficult to deduce exactly how much of that spend went to data centers, but Google’s reported capital expenditures for the quarter were $2 billion, which reflected “investments in production equipment, facilities, and data center construction,” Porat said. This number is likely to be close to the amount the company spent on data centers.

“Compared to last year, we had some outsized machine spend that filled some recently constructed data centers,” she said.

Mixed Cloud Data Center Strategy

Porat also provided some details on Google’s strategy for the current wave of expansion of its physical cloud footprint, and, like its biggest rivals Microsoft and Amazon, the strategy includes both data centers Google designs and builds on its own and leased facilities.

“We're going to be using multiple execution paths for those data center requirements,” she said. “In other words, every cloud region isn't necessarily going to be housed in a Google data center, so we don't need to build data centers in all of these places.”

Read more: Report Confirms Large Cloud Providers Drive Q1 Leasing

While Google famously likes to keep as much of its data center design and operations in-house as possible, it would be difficult to scale globally at a pace that’s quick enough to keep up with competition. Microsoft, which currently has the lead in the number of available cloud regions around the world, didn’t get there by building its own facilities.

Recently, Microsoft even changed its approach to data center design, moving away from custom data center containers called ITPACs it used to favor to a more standardized design it can use in both its own facilities and colocation data centers. The changes enable the company to expand footprint faster, Kushagra Vaid, general manager for hardware infrastructure at Microsoft’s cloud and enterprise division, told us in an interview.

Read more: Build or Lease? Creating the Best Data Center Strategy

Why Now?

There are three reasons Google is ramping up its investment in cloud services now, the company’s CEO Sundar Pichai said on the call.

The first reason is the way the company thinks about data center investment and scale has matured to “where we can thoughtfully serve external customers,” he said.

The second is that machine learning and Artificial Intelligence technologies are at a point of take-off, Pichai said. The company has been investing in these technologies for years and today, “we are at an exceptionally interesting tipping point” for them.

Google execs believe the company has significant advantages in machine learning and AI, which are a big part of the new cloud services strategy they unveiled last month in San Francisco.

The third reason is having Greene on board. “I wanted to scale our efforts here thoughtfully, when [the company] is set up with a great leader who understands this space deeply,” Pichai said.

Read more: Diane Greene: Google is "Dead Serious" about Enterprise Cloud

Corrected: Google announced plans to add 10 new data center locations, not 12, as this article stated previously.

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