Luring ‘server farms’: Minnesota targets a burgeoning industry that actually likes the cold

Data centers, like these Facebook servers, generate enormous amounts of heat.
Data centers, like these Facebook servers, generate enormous amounts of heat.

Could the phrase “a cold Omaha” be the linchpin of Minnesota’s next economic-development slogan?
If state officials, technology industry lobbyists and others are correct, the climate and relative geographic isolation that prompted Hubert Humphrey’s famous 1976 stadium-related quip have, at long last, become selling points.

As it turns out, the state’s cold climate, geological stability and distance from other major metropolitan centers are all huge potential selling points to companies looking for homes for new data centers. And a package of tax incentives passed by this year’s Legislature may well have positioned Minnesota to edge out its rivals, including Iowa and — wait for it — Nebraska.

“In this case, being cold is a real advantage,” said former speaker of the state House of Representatives Margaret Anderson Kelliher, now the president and CEO of the Minnesota High Tech Association.

“Data centers do a lot of cooling. Plus, we have reasonable energy costs and we’re world-class safe.”

Some may be near a decision
Officials at the state Department of Employment and Economic Development (DEED) report that more than two dozen companies have expressed serious interest in building the facilities sometimes referred to as “server farms” in Minnesota. They won’t say exactly who, but “two or three” are thought to be on the verge of announcing plans to break ground. 

Margaret Anderson Kelliher
Margaret Anderson Kelliher

In addition, Kelliher added, a number of large companies already based here are considering expanding.

How big a deal is this? Potentially huge. As everything from socializing to inventory control moves online, demand has surged for places to store and process data and to house backup systems.

And it will only grow more as the number of ways in which people can access this information mushrooms; the number of smartphones alone is projected to rise from 500 million in 2011 to 2 billion by 2015.

Worldwide growth
Over the next three years, Yahoo will build $500 million worth of data centers around the world to store everything from e-mail to the corporation’s own records. Facebook is building centers in Oregon and in Sweden, on the edge of the Arctic Circle.

According to the industry publication Datacenter Dynamics, some 100,000 facilities will be in operation worldwide by the end of 2012 — an increase of more than 7 percent, representing about $35 billion.

The United States will not see the fastest growth in data centers, but does stand to experience the largest new investment in the next year at $9.3 billion.

The “cloud” in cloud computing is an actual physical space that needs to be kept cool and secure from natural disasters and terrorist activity, yet connected to the rest of the world by a reliable, affordable energy supply and fiber-optic networks.

In the short term, construction workers will be needed to build these data centers. Over the longer haul, they are expected to create jobs for software engineers and other highly skilled workers who, in Minnesota anyway, may command salaries of $70,000 to $100,000 a year.

‘A triple benefit’ in jobs impact
“There would be triple benefit here in terms of the jobs impact,” said Anderson Kelliher. “There would be jobs in construction, ongoing jobs at the centers and, third, jobs that supply the centers’ needs.”

By their very nature, data centers don’t advertise themselves. Nor does the industry make a lot of noise about its needs. All of which helps to explain how Minnesota very nearly missed the boat.

About a year and a half ago, state economic development officials learned that Minnesota had been under consideration as the location for one of Yahoo’s new data centers. Code-named Project Cowbell, the corporate site-selection effort was over before anyone at DEED or any of the state’s business-promotion entities realized it was under way. (If this sounds incredible, know that over the course of two recent, consecutive work days the main switchboard at DEED, which does not have an easily locatable online directory, went unanswered. Callers were instructed to try back another time.)

In short order, officials found out that Google, Microsoft and Verizon, among others, had also bypassed Minnesota. Tax credits supplied the edge that made the difference to corporations that eventually chose Iowa, North Carolina and Nebraska.

Sales-tax exemptions
The new Minnesota law is aimed at attracting larger data centers. To qualify, a facility must consist of at least 30,000 square feet and require an initial investment of at least $50 million in a two-year period. Qualifying centers are entitled to a sales-tax exemption for technology equipment, software and electricity.

A number of companies that were already looking at Minnesota when the bill was passed have become more serious, according to Mark Loftus, director of business & community development at DEED.

The trade-off for uncollected tax receipts is worthwhile, he added.

“When you build a new facility worth $100 million, that’s good for the tax base,” said Loftus. “Not a lot of government services are needed to support these facilities.”

The cluster effect
And if the state were successful in seeding a hub, Minnesota would still be attractive to smaller facilities that would find the infrastructure desirable even if they do not qualify for the tax credits.

The Iowa colocation firm Involta last month broke ground in Duluth on a 24,000-square-foot, $10.5 million data center that will lease space to a number of corporate clients.

Indeed, Minnesota’s stiffest competition may come from technology, which is making it cheaper and easier to cool data centers, reducing the edge provided by the cold climate.

You can also learn about all our free newsletter options.

Comments (4)

  1. Submitted by John Reinan on 11/03/2011 - 11:13 am.

    Great story, Beth. Rarely do I read a news item that tells me something completely unexpected, interesting and pertinent to both my life and my community. This one hits on all those.

  2. Submitted by James Hamilton on 11/03/2011 - 02:02 pm.

    Only $500 million for Yahoo’s worldwide data centers? Perhaps we could trade in our semi-pro football team for some of those centers.

  3. Submitted by Connie Sullivan on 11/03/2011 - 05:51 pm.

    Good article! I hope that DEED gets a bit more attuned to businesses that are not already based in Minnesota, so they don’t miss the opportunities that this piece shows they’ve missed.

    Are they underfunded? Have they had to cut staff? I find it hard to believe that DEED has been so asleep at the economic development wheel.That’s the part of the article that most grabs me, and disturbs me.

  4. Submitted by Adam Minter on 11/03/2011 - 06:45 pm.

    Terrific article that other Minnesota news organizations will be jumping on shortly. Reminds me why I donate to you folks.

    As for DEED – shame on them. If a state agency charted with economic development isn’t aware of opportunities like this one, I really don’t understand the point of funding it. What are they doing over there? Other than not answering the phones.

Leave a Reply