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June 19, 2006

Rising CAPEX floats a lot of boats

Posted by David Hunter at 9:04 AM ET.

And it’s not just building big buildings in rural areas as Om Malik describes in Silicon Valley’s next payday:

Three years ago, Force 10 networks faced a bleak future. Telecoms, the major customers for its high-speed data switches, were collapsing. Then Google ordered a batch of switches for a major expansion of its data centers – and has been buying ever since. “It put the company on the path to the big time,” says Gary Morgenthaler, general partner at Morgenthaler Ventures, an investor in Force 10. The startup is reported to have hit $60 million in revenue in 2005 and is expected to file for an IPO soon.

Force 10 was at the front edge of a wave of hardware spending that is about to reach tsunami proportions, creating huge opportunities for established and fledgling gearmakers alike. The Big Five Web titans – Amazon.com, eBay, Google, Yahoo, and especially Microsoft – are locked in a frenzied battle to improve their ability to deliver content, whether for Flickr photo albums or eBay’s fast-growing listings. To do it they need tons of nuts-and-bolts hardware – storage, servers, routers, switches, load balancers – which they’re consuming at an incredible speed.

For example, Microsoft plans to switch all 230 million users of its Hotmail service over to Windows Live Mail accounts with 2 gigabytes of free storage each, matching the amount of free storage Google offers its Gmail customers. That adds up to a whopping 460 petabytes that Microsoft will have to provide, not to mention all the routers and switches needed to shunt the data around. Industry sources say Microsoft is also seeking 10,000 servers for its online gaming service, Xbox Live.

Such virtual land grabs mean a major payday for Silicon Valley. Most hardware companies don’t want to talk about it, worried that rivals might undercut their bids. But the beneficiaries of the $1.4 billion that Google is projected to splash out on infrastructure in 2006 include disc drive manufacturers Seagate and Hitachi. Network Appliance and Cisco are among Yahoo’s major suppliers, while Sun Microsystems boasts about being eBay’s server vendor. Juniper has won a Microsoft contract for its routers estimated by some insiders at $120 million.

More details by following the link, but folks with long memories will remember that Sun was riding high powering the dotcom boom in the late 90′s and then suffered mightily during the bust. I suspect the difference here is that these are major companies buying the goods and while things will slow down after the intial buildout, augmenting and replacing will be a tidy business for years to come. And a considerable expense for Microsoft and the other big players.



Filed under Amazon, Coopetition, Financial, General Business, Google, Microsoft, Online Services, Yahoo, eBay

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One Response to “Rising CAPEX floats a lot of boats”

  1. Web 2.0 brings operations back -- Microsoft News Tracker Says:

    [...] Of course, there’s more to it than just bricks, mortar, megawatts, servers, and other gear. The applications have to be deployed and managed over thousands of machines at multiple data centers, and most of all, they have to actually work in such an environment. Dare Obasanjo: I remember talking to a coworker about all the changes we were making so that MSN Spaces could be deployed in multiple data centers and he asked why we didn’t get this for free from “the platform”. I jokingly responded “It isn’t like the .NET Framework has a RouteThisUserToTheRightDataCenterBasedOnTheirGeographicalLocation() API does it?”. The subtext here is that only a few of the big players like Google, Yahoo, and Microsoft are ever going to fully develop these competencies and of the players, only Microsoft completely develops its own platform. Back to O’Reilly who kicks the following argument back and forth: Internet-scale applications are pushing the envelope on operational competence, but enterprise-class applications will follow. And here, Microsoft has a key advantage over open source, because the Windows Live team and the Windows Server and tools team work far more closely together than open source projects work with companies like Yahoo!, Amazon, or Google. Regardless of who has the advantage, it’s clear that there’s a divide building and the question is how much of today’s enterprise and personal computing gets pushed across into the new world of hosted online services. Nicholas Carr refers to it as the Utility Age of IT which would be better if the term “utility” hadn’t been so abused during the dotcom boom, but what else would you call the few big players who own the massive, geographically dispersed datacenters? And as long as you are calling them “utilities,” what do you say when someone gets the idea to regulate them like a conventional utility? That may seem far-fetched, but if the computing assets and resources of a very large number of users no longer exist in their desktops, but in ubiquitous online services hosted in a huge building in Quincy, Washington you can bet that the politicians will want to get in on the action. Filed under Coopetition, Google, Governmental Relations, General Business, Yahoo, Online Services, Amazon, Microsoft, Real Estate   [Permalink] [...]

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