I don’t get it, why is everyone so obsessed with starting data centers in Iceland. It just makes NO investment or economic sense, over a long period of time maybe this makes sense but does not fit our investment horizon. Watch this video by Cisco Systems on How Cisco chooses Data Center Locations, the first item on their list is Natural Disasters, even if there is a remote possibility of a disaster they just skip the location. The third item on their list is proximity to airport, Data centers SHOULD NOT be next to an airport. Watch the rest of the video, the top 5 reasons basically rules out places like Iceland. If this is not enough I just don’t understand the economics.

  1. It is going to be highly capital intensive to build one to ensure Security, Reliability, Redundancy and other 99.999 requirements of the clients of the data center
  2. Iceland has to build more cables to ensure that there is uninterrupted connection, only now there is a plan to build a third line and God knows when it will be done
  3. The return on invested capital is going to be sub-par because of the build up cost and the gestation period before the facility starts making money
  4. Did I mention that the return on invested capital is going to be BAD? and the capital pay back is going to be in decades instead of years or months?
  5. Earthquakes can really disrupt the setup of the data center therefore one needs to build buffer to encapsulate that shocks and that once again costs money which drives down the ROIC. I would like to see the investment business case for a data center in Iceland, if they are not factoring all these things then the business has a lot of  “surprises”.
  6. Data centers are getting extremely efficient, given the long gestation time the savings one gets with Electricity in Iceland may not be big enough to offset the capital cost, as efficiency follows the Moores Law as well.
Given all of this why would any investor want to put money on this idea? How does one attract capital? In addition to that technology landscape is changing right in front of our eyes. The software and hardware architecture is changing. I see more and more companies moving over to Amazon, Google and Rackspace Cloud implementations so a smaller cloud operators are not going to be cost effective compared to these big boys. How does one compete? Data centers are going to be really dumb implementation (read does not require really smart people to run it). All the hardware is virtualized through software systems so you can manage the data center from anywhere in world so it is not going to create the kind of jobs that Iceland wants to create. Check out the video where Google shows some of the security implementations in the data center, how will this differ in Iceland? What are the new things that someone running a data center needs to factor before building one in Iceland? Maybe I am just too dumb to understand the logic behind this investment.
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