Microsoft’s new backyard

QUINCY, Wash. – Microsoft Corp. is betting more than a billion dollars that it can change the way people use its software products. A large portion of that wager has landed on 74 dusty acres at the edge of Quincy, in central Washington.

Since announcing plans last winter to build a large data-center complex here, Microsoft learned that its competitor, Yahoo Inc., has followed suit. Yahoo just bought 50 acres on a different site on the edge of Quincy to build its own data center.

For a town with only 5,300 residents, the double announcements have galvanized community pride and expectations. They’ve helped Grant County residents realize that being small isn’t always a disadvantage in an era of global commerce.

“This is easily the biggest thing to come to Quincy since they brought water from Grand Coulee Dam for irrigation,” said Lisa Karstetter, executive director of the Quincy Valley Chamber of Commerce.

Residents here typically talk about the future prices of wheat, corn and soybeans, said Karstetter. Now they’re talking about a rush in land sales and a rash of media attention.

“Some of the reporters who call ask me if it’s a joke,” said Karstetter. “I know how they feel. When someone told me Microsoft was coming here, I didn’t believe it either.”

At a recent groundbreaking ceremony in Quincy, Debra Chrapaty, Microsoft vice president of Windows Live operations, explained the data-center complex will be the largest Microsoft facility of its kind anywhere in the world.

“It’s going to be our premiere data center when it’s finished,” she said. The first part of the center, scheduled to open in February 2007, will have 20,000 computers managing data in climate-controlled rooms and backed up by diesel generators capable of running the site for three days if power is disrupted.

The Microsoft center will start with about 50 workers. Yahoo officials have told local groups the company expects to hire 30 to 40 people when its center opens in mid-2007.

After shoveling dirt last week behind the controls of a massive excavator, Chrapaty said Microsoft’s plans call for three buildings to be constructed in Quincy. Each would have about 450,000 square feet of space, enough to house two self-enclosed data centers.

She added that the pace of Microsoft’s growth in Quincy depends on how fast customers line up for a new product the company has announced as its key online strategy, called Microsoft Live.

“This complex will be enormous, and it is also the first data center Microsoft has decided to build and own outright” Chrapaty said.

Microsoft now relies on dozens of data centers around the globe, but they’re outsourced to other companies that run the buildings. The data centers closest to Redmond are in Tukwila, south of Seattle, and in northern California.

The Quincy operation will give Microsoft more control and complete access to the racks of machines inside, Chrapaty said.

“We searched across the entire globe,” added Chrapaty, “and we measured more than a dozen factors when considering all our choices (for a site). It turned out that Quincy, in our backyard, you might say, was the right choice and the most cost-effective.”

Large high-tech companies such as Yahoo and Microsoft tend to locate key operations in big metropolitan areas, said Mike Manos, who works for Chrapaty and heads the data-center management team.

But data center locations follow a different logic. They are typically located in smaller towns with reliable and inexpensive power, cheap land, stable weather and a location free from earthquakes, floods or hurricanes.

Even among the sites that fit those criteria, Quincy was “by far the smallest city” that Microsoft considered, Manos said.

The cost of power in Grant County played a major role in the selection, said Chrapaty. Because of abundant power from the Priest Rapids and Wanapum dams, both on the Columbia River, industrial power rates there are about half of what Microsoft would pay in Spokane County.

Manos also cited the attractive option of using Grant County’s fiber-optic communications network, which will allow the company to move huge amounts of data. The Grant County Public Utility District began developing that network in 2001.

Kiersten Hollars, a spokeswoman for Sunnyvale, Calif.-based Yahoo, said the company hasn’t announced the details of the size and scope of its Quincy data center.

Yahoo paid $500,000 for the 50 acres it’s developing on the northeast edge of Quincy, about four miles from Microsoft’s data centers.

Microsoft paid $1.08 million for its land, but Chrapaty would not say how much the company will spend on land improvements, construction and capital costs to install the data centers.

“It’s a lot. I’d say it will come to 10 to 15 percent of our total new investment in new online services,” Chrapaty said. Company CEO Steve Ballmer recently told investors Microsoft plans to spend $1.1 billion on new online products, including the flagship service, called Microsoft Live.

Both Chrapaty and Arne Josefsberg, Microsoft’s general manager for infrastructure services, look at Quincy as the key to the company succeeding with its Live venture.

Josefsberg said Microsoft realizes the old model of selling shrink-wrapped boxes of software is changing; like competitors such as Google and Yahoo, Microsoft now is pushing software as a service. Its online customers will have access to photos, personal data, Internet material, videos and a host of other yet-undeveloped products, all through a Web interface.

“People will still use our products like Office or Windows, but with Live, you will get a better, richer experience and with more functionality,” said Josefsberg.

“And it will be right there,” he said, nodding toward the vast open field of the Quincy site, “that we’ll be serving that information to hundreds of millions of our customers.”

Microsoft currently is offering a no-cost version of Live to customers. Over time, it will begin charging a nominal monthly fee, said Josefsberg.

Both Karstetter, at Quincy’s chamber of commerce, and Terry Brewer, head of Grant County’s Economic Development Council, understand that the two tech giants won’t transform a rural and agricultural community.

But they open the door to changes, said Brewer.

In previous years he and his colleagues tried to recruit high-tech companies to Grant County, without success.

“To be quite honest, those companies are not interested in small rural areas,” said Brewer.

Now, with the publicity generated by Microsoft and Yahoo, he’s getting some calls – but not from tech companies looking to move engineering teams or business operations. Those calls are coming from companies with big data-management needs that are considering Grant County for possible data centers, said Brewer.

“Over time, what happens here from Microsoft and Yahoo will be a great thing. The longer they’re here, the more other businesses will come in and spin off new jobs,” he said.

Added Karstetter, who grew up on a potato farm in Othello, at the south end of Grant County: “For Microsoft, coming into a town and adding 50 jobs is probably small potatoes. But for us, it’s really big. Microsoft has no idea how big this is for us.”