The Cloud Factories: North Jersey Data Center Industry Blurs Utility-Real Estate Boundaries

Why pay $600 or more a square foot at unglamorous addresses like Weehawken, Secaucus and Mahwah? The answer is still location, location, location — but of a very different sort.

Companies are paying top dollar to lease space there in buildings called data centers, the anonymous warrens where more and more of the world’s commerce is transacted, all of which has added up to a tremendous boon for the business of data centers themselves.

The centers provide huge banks of remote computer storage, and the enormous amounts of electrical power and ultrafast fiber optic links that they demand.

Prices are particularly steep in northern New Jersey because it is also where data centers house the digital guts of the New York Stock Exchange and other markets. Bankers and high-frequency traders are vying to have their computers, or servers, as close as possible to those markets. Shorter distances make for quicker trades, and microseconds can mean millions of dollars made or lost.

When the centers opened in the 1990s as quaintly termed “Internet hotels,” the tenants paid for space to plug in their servers with a proviso that electricity would be available. As computing power has soared, so has the need for power, turning that relationship on its head: electrical capacity is often the central element of lease agreements, and space is secondary.

A result, an examination shows, is that the industry has evolved from a purveyor of space to an energy broker — making tremendous profits by reselling access to electrical power, and in some cases raising questions of whether the industry has become a kind of wildcat power utility.

Even though a single data center can deliver enough electricity to power a medium-size town, regulators have granted the industry some of the financial benefits accorded the real estate business and imposed none of the restrictions placed on the profits of power companies.

Some of the biggest data center companies have won or are seeking Internal Revenue Service approval to organize themselves as real estate investment trusts, allowing them to eliminate most corporate taxes. At the same time, the companies have not drawn the scrutiny of utility regulators, who normally set prices for delivery of the power to residences and businesses.

While companies have widely different lease structures, with prices ranging from under $200 to more than $1,000 a square foot, the industry’s performance on Wall Street has been remarkable. Digital Realty Trust, the first major data center company to organize as a real estate trust, has delivered a return of more than 700 percent since its initial public offering in 2004, according to an analysis by Green Street Advisors.

The stock price of another leading company, Equinix, which owns one of the prime northern New Jersey complexes and is seeking to become a real estate trust, more than doubled last year to over $200.

“Their business has grown incredibly rapidly,” said John Stewart, a senior analyst at Green Street. “They arrived at the scene right as demand for data storage and growth of the Internet were exploding.”

Push for Leasing

While many businesses own their own data centers — from stacks of servers jammed into a back office to major stand-alone facilities — the growing sophistication, cost and power needs of the systems are driving companies into leased spaces at a breakneck pace.

The New York metro market now has the most rentable square footage in the nation, at 3.2 million square feet, according to a recent report by 451 Research, an industry consulting firm. It is followed by the Washington and Northern Virginia area, and then by San Francisco and Silicon Valley.

A major orthopedics practice in Atlanta illustrates how crucial these data centers have become.

With 21 clinics scattered around Atlanta, Resurgens Orthopaedics has some 900 employees, including 170 surgeons, therapists and other caregivers who treat everything from fractured spines to plantar fasciitis. But its technological engine sits in a roughly 250-square-foot cage within a gigantic building that was once a Sears distribution warehouse and is now a data center operated by Quality Technology Services.

The iEconomy: Signs of Changes Taking Hold in Electronics Factories in China

At first, Ms. Pu wondered if someone had made a mistake. But when her bosses walked by, they just nodded curtly. So Ms. Pu gently sat down and leaned back. Her body relaxed.

The rumors were true.

When Ms. Pu was hired at this Foxconn plant a year earlier, she received a short, green plastic stool that left her unsupported back so sore that she could barely sleep at night. Eventually, she was promoted to a wooden chair, but the backrest was much too small to lean against. The managers of this 164,000-employee factory, she surmised, believed that comfort encouraged sloth.

But in March, unbeknown to Ms. Pu, a critical meeting had occurred between Foxconn’s top executives and a high-ranking Apple official. The companies had committed themselves to a series of wide-ranging reforms. Foxconn, China’s largest private employer, pledged to sharply curtail workers’ hours and significantly increase wages — reforms that, if fully carried out next year as planned, could create a ripple effect that benefits tens of millions of workers across the electronics industry, employment experts say.

Other reforms were more personal. Protective foam sprouted on low stairwell ceilings inside factories. Automatic shut-off devices appeared on whirring machines. Ms. Pu got her chair. This autumn, she even heard that some workers had received cushioned seats.

The changes also extend to California, where Apple is based. Apple, the electronics industry’s behemoth, in the last year has tripled its corporate social responsibility staff, has re-evaluated how it works with manufacturers, has asked competitors to help curb excessive overtime in China and has reached out to advocacy groups it once rebuffed.

Executives at companies like Hewlett-Packard and Intel say those shifts have convinced many electronics companies that they must also overhaul how they interact with foreign plants and workers — often at a cost to their bottom lines, though, analysts say, probably not so much as to affect consumer prices. As Apple and Foxconn became fodder for “Saturday Night Live” and questions during presidential debates, device designers and manufacturers concluded the industry’s reputation was at risk.

“The days of easy globalization are done,” said an Apple executive who, like many people interviewed for this article, requested anonymity because of confidentiality agreements. “We know that we have to get into the muck now.”

Even with these reforms, chronic problems remain. Many laborers still work illegal overtime and some employees’ safety remains at risk, according to interviews and reports published by advocacy organizations.

But the shifts under way in China may prove as transformative to global manufacturing as the iPhone was to consumer technology, say officials at over a dozen electronics companies, worker advocates and even longtime factory critics.

“This is on the front burner for everyone now,” said Gary Niekerk, a director of corporate social responsibility at Intel, which manufactures semiconductors in China. No one inside Intel “wants to end up in a factory that treats people badly, that ends up on the front page.”

The durability of many transformations, however, depends on where Apple, Foxconn and overseas workers go from here. Interviews with more than 70 Foxconn employees in multiple cities indicate a shift among the people on iPad and iPhone assembly lines. The once-anonymous millions assembling the world’s devices are drawing lessons from the changes occurring around them.

As summer turned to autumn and then winter, Ms. Pu began to sign up for Foxconn’s newly offered courses in knitting and sketching. At 25 and unmarried, she already felt old. But she decided that she should view her high-backed chair as a sign. China’s migrant workers are, in a sense, the nation’s boldest risk-takers, transforming entire industries by leaving their villages for far-off factories to power a manufacturing engine that spans the globe.

Ms. Pu had always felt brave, and as this year progressed and conditions inside her factory improved, she became convinced that a better life was within reach. Her parents had told her that she was free to choose any husband, as long as he was from Sichuan. Then she found someone who seemed ideal, except that he came from another province.

Reclining in her new seat, she decided to ignore her family’s demands, she said. The couple are seeing each other.

“There was a change this year,” she said. “I’m realizing my value.”

An Inspector’s Push

“This is a disgrace!” shouted Terry Gou, founder and chairman of Foxconn, the world’s largest electronics manufacturer and Apple’s most important industrial partner.

Keith Bradsher reported from Chengdu and Chongqing, and Charles Duhigg from New York. Yadan Ouyang contributed reporting from Chengdu and Chongqing.

Companies See High-Tech Factories as Fonts of Ideas

Sorry, I could not read the content fromt this page.Sorry, I could not read the content fromt this page.

The Cloud Factories: Data Centers Waste Vast Amounts of Energy, Belying Industry Image

The company had been packing a 40-by-60-foot rental space here with racks of computer servers that were needed to store and process information from members’ accounts. The electricity pouring into the computers was overheating Ethernet sockets and other crucial components.

Thinking fast, Mr. Rothschild, the company’s engineering chief, took some employees on an expedition to buy every fan they could find — “We cleaned out all of the Walgreens in the area,” he said — to blast cool air at the equipment and prevent the Web site from going down.

That was in early 2006, when Facebook had a quaint 10 million or so users and the one main server site. Today, the information generated by nearly one billion people requires outsize versions of these facilities, called data centers, with rows and rows of servers spread over hundreds of thousands of square feet, and all with industrial cooling systems.

They are a mere fraction of the tens of thousands of data centers that now exist to support the overall explosion of digital information. Stupendous amounts of data are set in motion each day as, with an innocuous click or tap, people download movies on iTunes, check credit card balances through Visa’s Web site, send Yahoo e-mail with files attached, buy products on Amazon, post on Twitter or read newspapers online.

A yearlong examination by The New York Times has revealed that this foundation of the information industry is sharply at odds with its image of sleek efficiency and environmental friendliness.

Most data centers, by design, consume vast amounts of energy in an incongruously wasteful manner, interviews and documents show. Online companies typically run their facilities at maximum capacity around the clock, whatever the demand. As a result, data centers can waste 90 percent or more of the electricity they pull off the grid, The Times found.

To guard against a power failure, they further rely on banks of generators that emit diesel exhaust. The pollution from data centers has increasingly been cited by the authorities for violating clean air regulations, documents show. In Silicon Valley, many data centers appear on the state government’s Toxic Air Contaminant Inventory, a roster of the area’s top stationary diesel polluters.

Worldwide, the digital warehouses use about 30 billion watts of electricity, roughly equivalent to the output of 30 nuclear power plants, according to estimates industry experts compiled for The Times. Data centers in the United States account for one-quarter to one-third of that load, the estimates show.

“It’s staggering for most people, even people in the industry, to understand the numbers, the sheer size of these systems,” said Peter Gross, who helped design hundreds of data centers. “A single data center can take more power than a medium-size town.”

Energy efficiency varies widely from company to company. But at the request of The Times, the consulting firm McKinsey & Company analyzed energy use by data centers and found that, on average, they were using only 6 percent to 12 percent of the electricity powering their servers to perform computations. The rest was essentially used to keep servers idling and ready in case of a surge in activity that could slow or crash their operations.

A server is a sort of bulked-up desktop computer, minus a screen and keyboard, that contains chips to process data. The study sampled about 20,000 servers in about 70 large data centers spanning the commercial gamut: drug companies, military contractors, banks, media companies and government agencies.

“This is an industry dirty secret, and no one wants to be the first to say mea culpa,” said a senior industry executive who asked not to be identified to protect his company’s reputation. “If we were a manufacturing industry, we’d be out of business straightaway.”

These physical realities of data are far from the mythology of the Internet: where lives are lived in the “virtual” world and all manner of memory is stored in “the cloud.”

The inefficient use of power is largely driven by a symbiotic relationship between users who demand an instantaneous response to the click of a mouse and companies that put their business at risk if they fail to meet that expectation.

Even running electricity at full throttle has not been enough to satisfy the industry. In addition to generators, most large data centers contain banks of huge, spinning flywheels or thousands of lead-acid batteries — many of them similar to automobile batteries — to power the computers in case of a grid failure as brief as a few hundredths of a second, an interruption that could crash the servers.

“It’s a waste,” said Dennis P. Symanski, a senior researcher at the Electric Power Research Institute, a nonprofit industry group. “It’s too many insurance policies.”

The Cloud Factories: Data Centers in Rural Washington State Gobble Power

The technology giant created a stir here in 2006 when it bought about 75 acres of bean fields to build a giant data center, a digital warehouse to support various Internet services. Its voracious appetite for electricity would be fed by hydroelectric generators that work off the flow of the nearby Columbia River, and Microsoft officials pledged to operate their new enterprise with a focus on energy efficiency and environmental sensitivity.

“You’re talking about one of the largest corporations,” said Tim Culbertson, who was the general manager of the local utility at the time. “You’re talking Microsoft and Bill Gates. Wow!”

But for some in Quincy, the gee-whiz factor of such a prominent high-tech neighbor wore off quickly. First, a citizens group initiated a legal challenge over pollution from some of nearly 40 giant diesel generators that Microsoft’s facility — near an elementary school — is allowed to use for backup power.

Then came a showdown late last year between the utility and Microsoft, whose hardball tactics shocked some local officials.

In an attempt to erase a $210,000 penalty the utility said the company owed for overestimating its power use, Microsoft proceeded to simply waste millions of watts of electricity, records show. Then it threatened to continue burning power in what it acknowledged was an “unnecessarily wasteful” way until the fine was substantially cut, according to documents obtained by The New York Times.

“For a company of that size and that nature, and with all the ‘green’ things they advertised to me, that was an insult,” said Randall Allred, a utility commissioner and local farmer.

A Microsoft spokeswoman said the episode was “a one-time event that was quickly resolved.”

Internet-based industries have honed a reputation for sleek, clean convenience based on the magic they deliver to screens everywhere. At the heart of every Internet enterprise are data centers, which have become more sprawling and ubiquitous as the amount of stored information explodes, sprouting in community after community.

But the Microsoft experience in Quincy shows that when these Internet factories come to town, they can feel a bit more like old-time manufacturing than modern magic.

In Santa Clara, Calif., a hub of technology facilities in Silicon Valley, diesel emissions from generators at a Microsoft data center caught the attention of regulators for potentially threatening the health of workers at nearby businesses. Microsoft, which was notified by state regulators last year, says it has reduced its emissions.

Over the last few years, Quincy has become an unlikely technology outpost, with five data centers and a sixth under construction. Far from the software meccas of Northern California or Seattle, Quincy has barely 6,900 residents, two hardware stores, two supermarkets, no movie theater and a main drag, State Route 28, whose largest buildings are mostly food packers and processors. Its tallest building is a grain elevator.

“A farming community in the middle of a desert,” said Warren Morgan, the president of Double Diamond Fruit.

The remarkable scale of the Quincy data centers, and their power demands, have made this town something of a test tube for studying the planet’s exploding need to house and process digital information.

The data centers, which include Yahoo and Dell facilities, wound up in Quincy by way of the Columbia. The river flows 1,200 miles from the mountains of British Columbia to the spectacular gorge between Oregon and Washington, where the water crashes into the Pacific Ocean.

Along the way, about a dozen large hydroelectric dams tame the river, providing irrigation for farms and the cheap, plentiful power that has become a magnet for large agricultural operations and heavy industries like aluminum, steel, paper and chemical plants.

When Microsoft was searching the country for a location for its new installation, the Grant County Public Utility District, which owns two of the dams, says it offered the company rates that would range from 2.5 cents to 3.8 cents per kilowatt-hour in its first five years — far below the national industrial average of 6 cents to 7 cents, according to analysis based on federal figures by the Electric Power Research Institute. The power from dams is also highly reliable, a critical factor for data centers, which can crash with the slightest interruption.

This article has been revised to reflect the following correction:

Correction: September 24, 2012

A previous version of this article misstated why Microsoft wasted millions of watts of electricity, according to records. It was an attempt to erase a $210,000 penalty the utility said the company owed for overestimating its power use, not underestimating its power use.

The Cloud Factories: Data Centers in Rural Washington State Gobble Power

The technology giant created a stir here in 2006 when it bought about 75 acres of bean fields to build a giant data center, a digital warehouse to support various Internet services. Its voracious appetite for electricity would be fed by hydroelectric generators that work off the flow of the nearby Columbia River, and Microsoft officials pledged to operate their new enterprise with a focus on energy efficiency and environmental sensitivity.

“You’re talking about one of the largest corporations,” said Tim Culbertson, who was the general manager of the local utility at the time. “You’re talking Microsoft and Bill Gates. Wow!”

But for some in Quincy, the gee-whiz factor of such a prominent high-tech neighbor wore off quickly. First, a citizens group initiated a legal challenge over pollution from some of nearly 40 giant diesel generators that Microsoft’s facility — near an elementary school — is allowed to use for backup power.

Then came a showdown late last year between the utility and Microsoft, whose hardball tactics shocked some local officials.

In an attempt to erase a $210,000 penalty the utility said the company owed for overestimating its power use, Microsoft proceeded to simply waste millions of watts of electricity, records show. Then it threatened to continue burning power in what it acknowledged was an “unnecessarily wasteful” way until the fine was substantially cut, according to documents obtained by The New York Times.

“For a company of that size and that nature, and with all the ‘green’ things they advertised to me, that was an insult,” said Randall Allred, a utility commissioner and local farmer.

A Microsoft spokeswoman said the episode was “a one-time event that was quickly resolved.”

Internet-based industries have honed a reputation for sleek, clean convenience based on the magic they deliver to screens everywhere. At the heart of every Internet enterprise are data centers, which have become more sprawling and ubiquitous as the amount of stored information explodes, sprouting in community after community.

But the Microsoft experience in Quincy shows that when these Internet factories come to town, they can feel a bit more like old-time manufacturing than modern magic.

In Santa Clara, Calif., a hub of technology facilities in Silicon Valley, diesel emissions from generators at a Microsoft data center caught the attention of regulators for potentially threatening the health of workers at nearby businesses. Microsoft, which was notified by state regulators last year, says it has reduced its emissions.

Over the last few years, Quincy has become an unlikely technology outpost, with five data centers and a sixth under construction. Far from the software meccas of Northern California or Seattle, Quincy has barely 6,900 residents, two hardware stores, two supermarkets, no movie theater and a main drag, State Route 28, whose largest buildings are mostly food packers and processors. Its tallest building is a grain elevator.

“A farming community in the middle of a desert,” said Warren Morgan, the president of Double Diamond Fruit.

The remarkable scale of the Quincy data centers, and their power demands, have made this town something of a test tube for studying the planet’s exploding need to house and process digital information.

The data centers, which include Yahoo and Dell facilities, wound up in Quincy by way of the Columbia. The river flows 1,200 miles from the mountains of British Columbia to the spectacular gorge between Oregon and Washington, where the water crashes into the Pacific Ocean.

Along the way, about a dozen large hydroelectric dams tame the river, providing irrigation for farms and the cheap, plentiful power that has become a magnet for large agricultural operations and heavy industries like aluminum, steel, paper and chemical plants.

When Microsoft was searching the country for a location for its new installation, the Grant County Public Utility District, which owns two of the dams, says it offered the company rates that would range from 2.5 cents to 3.8 cents per kilowatt-hour in its first five years — far below the national industrial average of 6 cents to 7 cents, according to analysis based on federal figures by the Electric Power Research Institute. The power from dams is also highly reliable, a critical factor for data centers, which can crash with the slightest interruption.

This article has been revised to reflect the following correction:

Correction: September 24, 2012

A previous version of this article misstated why Microsoft wasted millions of watts of electricity, according to records. It was an attempt to erase a $210,000 penalty the utility said the company owed for overestimating its power use, not underestimating its power use.

The Cloud Factories: Data Centers Waste Vast Amounts of Energy, Belying Industry Image

The company had been packing a 40-by-60-foot rental space here with racks of computer servers that were needed to store and process information from members’ accounts. The electricity pouring into the computers was overheating Ethernet sockets and other crucial components.

Thinking fast, Mr. Rothschild, the company’s engineering chief, took some employees on an expedition to buy every fan they could find — “We cleaned out all of the Walgreens in the area,” he said — to blast cool air at the equipment and prevent the Web site from going down.

That was in early 2006, when Facebook had a quaint 10 million or so users and the one main server site. Today, the information generated by nearly one billion people requires outsize versions of these facilities, called data centers, with rows and rows of servers spread over hundreds of thousands of square feet, and all with industrial cooling systems.

They are a mere fraction of the tens of thousands of data centers that now exist to support the overall explosion of digital information. Stupendous amounts of data are set in motion each day as, with an innocuous click or tap, people download movies on iTunes, check credit card balances through Visa’s Web site, send Yahoo e-mail with files attached, buy products on Amazon, post on Twitter or read newspapers online.

A yearlong examination by The New York Times has revealed that this foundation of the information industry is sharply at odds with its image of sleek efficiency and environmental friendliness.

Most data centers, by design, consume vast amounts of energy in an incongruously wasteful manner, interviews and documents show. Online companies typically run their facilities at maximum capacity around the clock, whatever the demand. As a result, data centers can waste 90 percent or more of the electricity they pull off the grid, The Times found.

To guard against a power failure, they further rely on banks of generators that emit diesel exhaust. The pollution from data centers has increasingly been cited by the authorities for violating clean air regulations, documents show. In Silicon Valley, many data centers appear on the state government’s Toxic Air Contaminant Inventory, a roster of the area’s top stationary diesel polluters.

Worldwide, the digital warehouses use about 30 billion watts of electricity, roughly equivalent to the output of 30 nuclear power plants, according to estimates industry experts compiled for The Times. Data centers in the United States account for one-quarter to one-third of that load, the estimates show.

“It’s staggering for most people, even people in the industry, to understand the numbers, the sheer size of these systems,” said Peter Gross, who helped design hundreds of data centers. “A single data center can take more power than a medium-size town.”

Energy efficiency varies widely from company to company. But at the request of The Times, the consulting firm McKinsey & Company analyzed energy use by data centers and found that, on average, they were using only 6 percent to 12 percent of the electricity powering their servers to perform computations. The rest was essentially used to keep servers idling and ready in case of a surge in activity that could slow or crash their operations.

A server is a sort of bulked-up desktop computer, minus a screen and keyboard, that contains chips to process data. The study sampled about 20,000 servers in about 70 large data centers spanning the commercial gamut: drug companies, military contractors, banks, media companies and government agencies.

“This is an industry dirty secret, and no one wants to be the first to say mea culpa,” said a senior industry executive who asked not to be identified to protect his company’s reputation. “If we were a manufacturing industry, we’d be out of business straightaway.”

These physical realities of data are far from the mythology of the Internet: where lives are lived in the “virtual” world and all manner of memory is stored in “the cloud.”

The inefficient use of power is largely driven by a symbiotic relationship between users who demand an instantaneous response to the click of a mouse and companies that put their business at risk if they fail to meet that expectation.

Even running electricity at full throttle has not been enough to satisfy the industry. In addition to generators, most large data centers contain banks of huge, spinning flywheels or thousands of lead-acid batteries — many of them similar to automobile batteries — to power the computers in case of a grid failure as brief as a few hundredths of a second, an interruption that could crash the servers.

“It’s a waste,” said Dennis P. Symanski, a senior researcher at the Electric Power Research Institute, a nonprofit industry group. “It’s too many insurance policies.”