Iceland Woos Microsoft for Part of $41 Billion Data Market: Tech
Tapping into a ready supply of geothermal energy and cool temperatures, Bjorgolfur Thor Bjorgolfsson, Iceland’s first billionaire and the former owner of one of its largest failed banks, is turning to the elements to attract customers to store data on the island and capture a slice of a $41 billion market.
The Atlantic island has sought to reinvent itself as a safe and secure data haven halfway between Europe and North America as it recovers from the economic meltdown after the failure of the country’s top lenders in 2008. Its chance of success is set to improve with a link to the Emerald subsea cable between London and New York that takes in Iceland for the first time.
“Iceland happens to be a rare spot on the earth where there is a convergence of attributes that tick all the boxes,” said Jeff Monroe, chief executive officer of Verne Global, the $700 million data center Bjorgolfsson opened for business last month in Keflavik. “You have 100 percent renewable energy. We can do 100 percent free cooling.”
Bjorgolfsson bought a plot within the 44-acre (178,000 square meters) decommissioned military base in 2007, sited on solid bedrock away from the seismically active part of the island, and began converting it into a data center. At full capacity, the campus can accommodate the equivalent amount of computer power generated in a small town.
So far, Verne’s customers include Datapipe Inc., a Jersey City, New Jersey-based provider of disaster-recovery services, and CCP Games, the Icelandic maker of the Eve online multiplayer game with almost half a million subscribers.
While some large technology companies, including Microsoft Corp. (MSFT), have shown interest in Iceland, the island has still to sign up major clients, according to the Icelandic investment agency. That, says Monroe, will change. “Iceland is going to be the place where I believe you will see some of those marquee brand names,” he said.
Still, Google Inc. (GOOG) and Facebook Inc. (FB) have already pursued locations elsewhere across the Atlantic. In southern Finland, near Helsinki, Google has converted a mill formerly owned by Stora Enso Oyj (STEAV), Europe’s biggest paper maker, into a data center. Facebook’s new site, its first outside the U.S., will be built close to the Arctic Circle in northern Sweden.
Christian Belady, a Seattle-based general manager for Microsoft’s data centers, said the company continues to “explore new regions where infrastructure may be needed,” declining to discuss specific locations.
Iceland’s nascent high-tech industry is pinning its hopes on the $300 million Emerald cable system, planned for spring 2013, to boost the country’s connectivity. The island, located more than 600 miles (965 kilometers) from the coast of Scotland, has previously struggled with indirect cable links to North America through Greenland and to Europe through the Faroe Islands.
Iceland’s data centers are also betting on a change in a tax law that cuts the levy on importing equipment as the government seeks to re-balance the economy away from financial services. The island’s largest banks were taken over by the government in 2008 after defaulting on about $85 billion in debt. The collapse plunged the island’s economy into a crisis that sent unemployment surging nine-fold and triggered a recession that lasted through half of 2010.
Located next to the Keflavik International Airport, Verne uses two large buildings formerly used by NATO army command for its offices and storage that now sit in a residential area mostly occupied by students.
The total investment will reach $700 million when the data center is running at full capacity, according to Helgi Helgason, senior facility manager at Verne Global.
Bjorgolfsson was formerly one of the largest shareholders in Landsbanki Islands Hf (LAIS), the third-largest of the failed lenders, and the chairman of Straumur Burdaras Investment Bank hf, the fourth-major bank to be taken over by the government. His private investment firm, Novator, was involved with the Verne project from its inception.
“It seemed a great match and opportunity,” said Birgir Ragnarsson, a board member at Verne and a partner of Novator. “It’s rewarding to participate in the financial rebuild of Iceland and the creation of new opportunities.”
Iceland, which completed a 33-month budget program from the International Monetary Fund in August that demanded capital controls on the krona and interest rate cuts, has since outperformed a number of euro nations in recovering from the crisis. The $12 billion economy will grow 2.5 percent this year, the fund said in September. The euro area, by comparison, will grow 1.6 percent in 2012, the IMF estimates.
Data hosts are rushing to cut power consumption of their sites. In Finland, Google is drawing seawater into its former paper mill to cool the site. Investment in greener data centers will climb to $41 billion by 2015, according to consultancy Pike Research. In the U.S. at least one-quarter of operating costs are spent on cooling the sites.
Iceland provides free cooling to data centers by using so- called “heat wheels,” which funnel hot air out and cool air in. The volcanic island’s power is provided by renewable energy from hydroelectric and geothermal power plants, with contracts locked in for as long as 20 years, according to Einar Hansen Tomasson, project manager with Invest in Iceland Agency, which is promoting the island, alongside other opportunities such as mink farming.
The Wellcome Trust, a 14 billion-pound ($22 billion) U.K. investment foundation, is betting big on Iceland. The organization is the largest investor in Verne, as well as a shareholder of the Emerald cable. “Data centers are interesting because they require a huge capital investment,” said Peter Pereira Gray, the managing director at the Wellcome Trust. “We have that capital.”
Iceland may still be too remote to become a true data hub, according to Copenhagen-based Web-hosting company One.com. The location would be useful for back-up data rather than live traffic as needed on a trading floor, Chief Operating Officer Thomas Darré Medard Frederiksen said.
That won’t prevent Iceland from capitalizing on its location as the midpoint of the Atlantic, Monroe said.
“You’ve got a tremendous opportunity for centralizing data that would need to be replicated in Europe and North America,” he said. “Iceland starts to become the center point along that route.”