Dean Barber

Archive for July, 2015|Monthly archive page

New Data Centers Mesh Natural and Digital Worlds

In Corporate Site Selection and Economic Development on July 26, 2015 at 8:06 am

Wind, sun and rain are all reminders that we live in a natural world.

And if you are like me, you like to get out in that natural world and do a little exploring, learn new things.

I just returned from a vacation in which I did a horseback tour of the Gettysburg battlefield.

Riding atop a horse, something that people have done for eons, is a natural world thing. Whereas me writing this blog on a computer, to be almost instantaneously published over the internet, well, that’s a digital world thing. And we haven’t been doing that too long.

So we have these two worlds colliding or at least co-existing, sometimes for the better in advancing civilization and sometimes in ways that frightens even the so-called futurists among us.

Tesla and Space X CEO Elon Musk, the closest person we have to a real-life Tony Stark, describes artificial intelligence as “summoning the demon”, and the creation of a rival to human intelligence as probably the biggest threat facing the world.

Physicist Stephen Hawkins has said the development of full artificial intelligence could “spell the end of human race.”

 A New Digital Age

What is apparent is that we are entering a new digital age in which we are able to reproduce things at close to zero marginal cost with perfect quality and almost instant delivery.

Now I have spoken on this subject to economic development and business groups around the country. And people by and large recognize the tensions involved with technology advances. This stuff touches lives in sometimes very personal ways.

I cannot tell you with any authority how many people have lost their jobs because of new digitally-based technologies, nor can I tell you how many jobs have been created as a result of those same technologies.

What I can tell you is that throughout history new technology has been met with fear, especially with regard to substituting a person with a machine.

We Don’t Know

But I have to believe that fear of massive job loss reflects a lack of imagination of how technical advances will shape tomorrow’s economy.  We don’t know today what all of those jobs will be. And in a way, that’s a good thing.

What we do know is that digital data, with its bits and bytes, will likely be the lifeblood for the business world for some time to come, and that it is transforming much of the American landscape as a result.

Think about it – each text, email, download and transaction on your smartphone or computer is processed and/or stored on a server somewhere.

That somewhere is in data centers, which are essentially industrial warehouses for servers.

In my role as a consultant, I have seen many “sites” that local economic developers have pushed as being appropriate for data centers. Too often, many of those sites are revealed to be raw land, in which case I have had to gently point out missing pieces to the puzzle, usually regarding utility infrastructure.

New Requirements for Data Centers

Having said that, data centers are now going into some places that we never would have thought of a few years ago.

And to make things a little more interesting, some of the owners and operators of data centers now want utility companies to source their power with renewable energy, which should be a wake-up call.

Two projects announced in the past few weeks highlight both of those points. They also show the interdependence of the digital world upon the natural world.

The first one is being built by Facebook in Forth Worth, Texas, about an hour from where I live. The second one is not far from my former home in Alabama and it will be built by Google.

Like the companies themselves, both projects are very big, and I believe they portend to the next generation of data centers, as well as having huge and lasting effects on their respective communities.

Facebook in Fort Worth

Facebook’s 750,000-square-foot data center in Fort Worth, now under construction, will be one of the biggest, if not the biggest, in Texas, valued at $1 billion. The company’s fifth data center, it will be 100 percent powered by a 200-megawatt wind farm now under construction on 17,000 acres about 90 miles away.

This isn’t Facebook’s first rodeo with wind. The company is powering a data center with wind energy in Iowa.

It just so happens that Texas and Iowa have large and growing wind industries. Of the 131 megawatts of wind power added in the United States in the first quarter of this year, 110 megawatts were installed in Texas and 20 megawatts were installed in Iowa.

Keep in mind that internet companies not only have consumer brands, but they also recruit and retain young employees, probably most of whom are interested in environmental issues. Using (natural) solar or wind energy touches on both camps, especially in places where it can be made to be competitive with fossil fuels.

Google’s Plans in Alabama

Google has spent close to $2 billion in clean power projects over the years, which takes us to our second project in rural Jackson County, Ala.

It is there where Google plans to spend $600 million in converting an old coal-fired power plant into a data center powered by renewable power. It will be the tech giant’s 14th data center.

Apparently the old Widows Creek coal plant, operational since 1952, was soon to be retired for environmental reasons by the Tennessee Valley Authority, which is the dominant electricity provider in North Alabama.

Paramount to the deal with Google was TVA’s pledge that it would supply the future data center with renewable sources of electricity.

Enormous Opportunity

Google saw clear benefits of repurposing the old coal facility by the fact that much of the needed infrastructure was already in place.

“There is an enormous opportunity when you take over the infrastructure that is there – the transmissions lines and the water intakes – and use that to power a data center that is powered by renewable energy,” said Michael Terrell, who leads energy market strategy for Google’s infrastructure team.

Google claims to be the largest non-utility user of renewable energy in the U.S. The company says it uses 1.5 percent of wind power capacity in the U.S., and has plans to bring in more alternatives over the next year.

About 46 percent of Google’s data centers are powered by renewable energy, which is man essentially harnessing nature.

A Gateway for Future Growth

The Google announcement is being touted as a watershed moment in Alabama, not unlike that of Mercedes-Benz of the 1990s.

“We recognize them for what I consider to be a gateway company,” said Alabama secretary of the Department of Commerce Greg Canfield. “When Mercedes made its decision to come to Alabama over its other choices, that decision has ultimately opened Alabama as a significant participant in the automotive sector in the U.S., and indeed the world.”

“Having Google come to Alabama, because of their brand and because of their leading role in the industry sector in which they are in, will open the door as a gateway to see further growth in technology and data center opportunities, we think.”

An Absolute Gold Mine

Most data centers are in the 30,000 to 100,000 square feet range, far smaller than that planned by Google and Facebook. But the key is they are often valued at $1,000 to $2,000 per square foot because of huge capital investment.

Cisco Systems’ data center in Richardson, Texas, netted the city and the county more than $11 million in tax revenue in one year.

“They are an absolute gold mine for cities,” John Jacobs, executive vice president of economic development for the Richardson Chamber of Commerce, told the Dallas Morning News. “I think a lot of cities have caught on to this.”

I would suggest that Mr. Jacobs’s comments are an understatement. Cities in North Texas have been aggressively recruiting data centers for years (Richardson has 18), looking to benefit from the millions in tax revenue each center promises.

Things like wind, sun, and rain are part of a natural world. And then man invented taxes, computers and data centers.

I think I need to get on a horse.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-767-9518. If you liked what you read here, invite him to speak at your next meeting.

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The New Weapon

In Corporate Site Selection and Economic Development on July 5, 2015 at 7:08 am

I generally put little stock in magazine articles that focus on ranking places by their business attractiveness.

I wrote as much three years ago in a blog called ‘You Rank, We Rank, Some Stank.”

There are two exceptions to my general rule, although that is not to say that I necessarily understand or agree with the findings of either.

Still, I give some weight to the Tax Foundation’s State Business Tax Climate annual ranking, and with more trepidation, largely because it is broader in scope, to that of CNBC’s annual America’s Top States for Business.

Now I will admit from the outset that I put more credence on these two reports largely because of my own cynicism and experiences.

A Strict No-No in My Book

For it is my belief  that some trade business publications that actively target economic development organizations for advertising revenue turn out questionable editorial product.

Now I’m a former old-school newspaperman who believes that for a news organization to have any credibility, it cannot allow for advertisers to influence how and what it reported as news. That’s a strict no-no in my book.

So there has to be a wall between news/editorial function and that of advertising, both of which are absolutely necessarily for a commercial publication to be sustainable.

But for some trade publications, and again I stress some, I see little evidence that such a wall is in place. Indeed, what I do see is see is much advertising masquerading as objective journalism.

Again, I am talking about those business trade publications that really focus primarily on economic development organizations for advertising.

What’s Happening in Connecticut?

If you are not an economic developer, you may not know what I am talking about. So to the economic developers, I ask you this question: When was the last time that you read a story in one of these  aforementioned trade publications that was not particularly flattering about the business climate of a certain place?

Every state wins projects, but how often do you read stories  of companies that believe they are paying too much in taxes or that the regulatory climate is over the top?

Recently, as reported in The Wall Street Journal, General Electric CEO Jeffrey Immelt told the company’s Connecticut employees that he had “assembled an exploratory team to look into the company’s options to relocate corporate HQ to another state with a more pro-business environment.”

Mr. Immelt points to the fact that Connecticut had raised taxes on GE five times since 2011. “I believe we should pay our fair share and that all of us should give back to our communities,” he wrote.

He added “we can compare Connecticut with other states where small and large businesses have a better environment to thrive and compete.”

Debt service is on track to grow in excess of 14 percent of the overall state budget. Connecticut’s growing debt obligations paired with mounting collective-bargaining obligations and employee retirement costs have created a financial environment that is not structurally sustainable.

As a result of this mounting fiscal fiasco, taxes in Connecticut will have risen by $8 billion in the past six years.

Florida Comes Calling

Truth be told, from taxes, to energy, to labor, to housing, Connecticut is a high-cost state, and that has some in the business community there wondering if they should not be thinking of greener pastures.

And it is for that very reason that Florida Gov. Rick Scott was there recently, touting Florida’s business climate in comparison. Former Texas Gov. Rick Perry made such trips to high-cost states with some regularity, drawing the ire of the governors of the states being targeted.

(“Poaching” companies from one state to another has been a long tradition in this country. It is somewhat surprising that more fisticuffs don’t break out when economic developers gather at national conferences and trade shows.)

But will you read an exhaustive, critical story of Connecticut’s business climate in a trade publication catering to economic development advertising? Or that of California or Illinois?

I think you know the answer to that.

Far From Gospel

So going back to the subject of rankings, I place more veracity with the Tax Foundation and CNBC, because I see no evidence of advertising tainting their findings.

Clearly, CNBC, a cable network owned by NBC Universal News Group, a division of Comcast, does accept advertising. But that advertising is overwhelmingly of a consumer product/service nature– from Chevrolet to Charles Schwab.

While I have seen some place advertising on CNBC, most notable of late that of New York state, I believe it to be a very small piece of the pie of total advertising revenue that CNBC takes in.

Having said all that, CNBC’s ranking of states for business climate does leave me scratching my head, as the cable network’s methodology and weighting differs considerably than the criteria we would employ for location analysis projects for corporate clients.

So while I pay more attention to Tax Foundation and CNBC business rankings, their findings are far from gospel. Rather, I think of them as notable notes.

Minnesota?

When CNBC most recent rankings for best business states for 2015 came out last week, Minnesota came out as No. 1.

I asked a fellow site selection consultant for his reaction, and he replied that he was “shocked” by the finding. Frankly, I was, too.

Texas coming in as No. 2, well, that didn’t surprise me. Texas is always somewhere near the top, year after year. But Minnesota coming in at No. 1?

Even CNBC had to explain itself a bit: “Never since we began rating the states in 2007 has a high-tax, high-wage, union-friendly state made it to the top of our rankings. But Minnesota does so well in so many other areas—like education and quality of life—that its cost disadvantages fade away.”

In the category of “cost of doing business,” which is paramount in most location analysis projects that I have been involved in, CNBC ranks Minnesota at 35th, which is certainly not great fodder for economic development marketing.

But that didn’t stop the Minnesota Department of Employment and Economic Development from sending me an email one day after the CNBC rankings were published laced with favorable quotes from business leaders in the state. An example:

“This is national recognition of Minnesota’s vibrant and diverse business community. It leverages our talented workforce, an amazing quality of life, and a great higher education system. Minnesota’s dynamic economy benefits our company, our employees, and our communities.” — Andersen Corporation CEO Jay Lund.

The largest window and door manufacturer in the country, Anderson announced in April a $45 million expansion at two facilities in Minnesota that will create 300 jobs.

Evidently, Anderson is putting their money where their mouth is, which is always a good testament about any place.

Where All the Women are Strong

When I think of Minnesota, I cannot help but think of Garrison Keillor’s tongue-in-cheek remarks about the fictional town of Lake Wobegon, where “all the women are strong, all the men are good looking, and all the children are above average.”

And more and more, it is that human element, the talent dimension in seeking a workforce best equipped to do the job, that companies are increasingly looking for.

Said CNBC in its ranking report: “Rather than just seeking the lowest taxes or the highest incentives, companies are increasingly chasing the largest supply of skilled, qualified workers. So states are touting their workforces like never before, giving the Workforce category — where Minnesota finishes a respectable 13th — greater weight in our study.”

Cost Matters But …

From my standpoint, operating costs will almost always matter big time for most location analysis projects. It is for that very reason that companies like GE are making noise in Connecticut.

But relying simply on cost to the detriment of investing in human resources, that of education and workforce training, is increasingly a losing proposition. And business leaders, educators and economic developers in Minnesota get that to their credit,

Now I may not fully get or agree with CNBC’s rankings, but their emphasis on talent and workforce readiness as the single most important criteria for business climate is probably a right way to look at things.

Cost matters, no doubt about it, but workers are the new weapon in the battle for business.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Plano, Texas. He can be reached at dbarber@barberadvisors.com or at 972-767-9518. If you liked what you read here, invite Dean to speak at your next meeting.