Web giants splash out on servers again
Only Google’s parent bucks trend of capex-growth rebound, writes
THE web’s biggest spenders have mostly started splurging again. I wrote six months ago that Google, Microsoft and Amazon — among the world’s biggest operators of internet technologies and cloud-computing services — had slowed or reversed their perky growth in spending on huge server farms and other capital projects. I did not expect the breather to last — and for the most part, it has not.
Collectively, capital spending by those three giants and Facebook has risen 23% this year after a collective decline of 0.9% last year. Only Google’s parent company Alphabet has bucked the capex-growth rebound.
Buying and maintaining their gigantic computing networks represent a big chunk of the tech superpowers’ overall bill. It costs a tonne to run seven web services with at least a billion monthly users, as Google does, or to power other companies’ computer networks, as Amazon Web Services does.
Alphabet, Microsoft, Amazon and Facebook spent a combined $23bn on capital projects last year. During an investment flurry from 2011 to last year, the companies’ combined capex nearly tripled.
Capital spending has become essential fuel in the internet superpowers’ war for consumers and for companies that rent computing horsepower. A fraction of a second delay in pushing out an ad on cellphones, or in running a holiday retail sales forecast, is potentially lost business for the web giants. That makes investments in computing networks an important area to watch in the jockeying for tech superiority.
Amazon’s financial disclo- sures reveal much of the company’s increased capital spending — up 35% in the first quarter from a year earlier — is for Amazon Web Services, the fastest growing and most profitable part of the firm.
Microsoft plans to spend more on capital projects, particularly for its expanding cloud-computing businesses including one that competes with Amazon.
Last month, Microsoft’s chief financial officer told analysts the company’s 66% capex increase in the three months ended-March 31 was due pri- marily to spending on data centres and computer servers. Yet the biggest of the Big Four, Alphabet, has retained its stingier ways from 2015.
Spending on capital expenditures fell 17% in the first three months of this year compared with figures in the period a year earlier, following a 10% decline in 2015.
Alphabet’s capex decline largely reflects the work of chief financial officer Ruth Porat, who promised she would keep a lid on spending growth. Ms Porat said last month, Alphabet considered its computing networks to be key assets, but the tech minions had figured out ways to squeeze more out of existing computing resources to “meet our growing Google requirements cost-effectively”.
Parsimony at Alphabet is all relative. The company’s $9.9bn in capital expenditures for 2015 was nearly more than the combined capex spending of Microsoft and Amazon. And Alphabet will most likely need to pick up spending for a raft of new computing networks the company pledged to open for its growing cloudcomputing operation that also competes with Amazon.
Facebook has made the jump into the capex big leagues. The company said last week it expected this year’s bill for data centre equipment and related costs to come in at the high end of a previous forecast of $4bn$4.5bn. That means the 12year-old company is on track to spend nearly as much on capital expenditures as 22year-old Amazon did in 2015.
Every year, each dollar invested in computing networks goes a little further. But the Big Four all want to get even bigger in cloud computing, mobile advertising or data-hogging web services such as live web video. That makes it inevitable the capital spending bills will stay as outsized as the ambitions of the web superpowers.