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Facebook's Scrooge Tactics Are Working

Mark Zuckerberg, chief executive officer of Facebook, speaks at the company's headquarters in Menlo Park, Calif., on June 20

Photograph by David Paul Morris/Bloomberg

Mark Zuckerberg, chief executive officer of Facebook, speaks at the company's headquarters in Menlo Park, Calif., on June 20

Most of the headlines surrounding Facebook’s (FB) second-quarter results centered on two things: the company’s very strong mobile revenue, and the 20 percent stock jump that news triggered. The bottom line has always put a damper on Facebook’s party of user growth, shared photos, and likes, so investors were pleased to see the company actually selling ads in the fast-growing mobile market—and, you know, making real money.

A less obvious figure from the company’s financial statements should also hearten investors. Through the first half of 2013, Facebook laid out $606 million in capital expenditures like property and equipment, compared with $956 million in the same period a year earlier. In Facebook’s case, most of that money goes into the data centers it crams with servers, storage systems, and networking boxes. The company has constructed its own massive computing warehouses in Oregon, North Carolina, and Sweden, and has one on the way in Iowa; such facilities typically run about 300,000 square feet and cost something like $1 billion.

It’s likely that no company has ever had to expand its computing infrastructure as fast as Facebook has, given the growth of its network and the large photo and video files that come with each new user. While it was rare a few years ago for a company to store a petabyte of information, Facebook must add several petabytes of storage per day to keep up with its users.

Still, the company has been pragmatic about adding to its infrastructure. Its facility in Sweden, less than half full, can be ready at a moment’s notice to install more computing gear that a partner company delivers pre-assembled. How many Swedes does it take to open one of the refrigerator-size packages? Three. In about five minutes. No joke. And they’re up and running inside the computing center a few minutes later. This means Facebook can dial up its capacity in short order.

Consumer Web peers such as Google (GOOG), Microsoft (MSFT), and (AMZN) also give these kinds of logistics plenty of thought, but Facebook has demonstrated an aggressive, efficient approach to engineering its data centers. The company has built custom server, storage, and networking equipment designs that do away with superfluous components found on more general-purpose systems, and it orders them from Asian suppliers rather than traditional, more expensive powerhouses like Hewlett-Packard (HPQ), Dell (DELL), and IBM (IBM). Facebook has also engineered its buildings to keep them modular, so that it can fill the giant data centers sector by sector as needed.

The data center stuff might not sound like the sexiest engineering work, but it goes right to the bottom line. The vast majority of Facebook’s users never click on an ad, which means they use the social network for free. So it behooves the company to keep its capital costs in check.

Vance is a technology writer for Bloomberg Businessweek in Palo Alto, Calif. He is the author of Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future (HarperCollins, May 2015). Follow him on Twitter @valleyhack.

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