Ground has been broken on a project that will see three giant data centres built in Auckland and north of Auckland, Microsoft New Zealand managing director Vanessa Sorenson says.

The build is expected to run to hundreds of millions of dollars (Infratil-owned CDC has said its plan to build two “hyperscale” data centres in the city will cost more than $300m; startup Datagrid has plans for a $700m server farm in Southland).

BNZ has also been named as the second anchor customer, after Fonterra, for the trio of new server farms, which will be known as an Azure data centre region in Microsoft’s lingo.

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Microsoft is the first of the three big multinational cloud players (the others are Google and Amazon) to build a data centre locally.

BNZ technology and operations GM Russell Jones told the Herald a local data centre had two major points of appeal: faster performance and regulatory compliance benefits.

Some of the bank’s apps – such as one checking credit card transactions against multiple databases for unusual spending patterns – processed hundreds of transactions a second.

Others involved “data residency” requirements to keep files within NZ borders (at least geographically; Microsoft NZ – ultimately owned by its US parent – is a wholly-owned subsidiary of a Microsoft subsidiary registered in Bermuda. Microsoft registered a second NZ subsidiary last year for its data centre build; the new subsidiary is 100 per cent owned by Microsoft Ireland).

The local build would allow BNZ to migrate some 1000 apps from inhouse servers to Microsoft’s new server farms without having to worry about the potential performance or compliance hit of sending data offshore.

Jones said it would be the largest technology migration in BNZ’s history. The bank’s aim is to shift an app a day to Microsoft’s local data centres, meaning the project will take the best part of three years.

Although BNZ’s 1000-app migration to Microsoft is substantial, its parent company NAB has said it will spread its bets among multiple cloud providers for maximum redundancy, but the centre of gravity is shifting. NAB formerly had nearly all of its cloud business with Amazon Web Services. But a five-year deal struck in July last year saw NAB name Microsoft as its “primary” cloud provider in its bid to shift 80 per cent of its apps to the cloud by 2023.

In Australia in December 2019, Microsoft named Canberra Data Centres (48 per cent owned by NZ’s Infratil) as its local “underlying data centre provider for hyper-scale deployment.”

CDC recently broke ground on a $300m-plus build that will see two hyperscale data centres constructed in Auckland: One near the master-planned community of Hobsonville Point, the other north of the city in Silverdale (as with Microsoft, the exact locations are secret, for security reasons).

Microsoft, for its part, recently received Overseas Investment Office approval to use NZ land for its Auckland/North Auckland data centre build, which is budgeted somewhere over $100m (the minimum threshold for OIO approval).

Given the two companies’ cohosting in Australia, it seems likely the two builds will be intertwined to some degree in NZ as well, but Sorensen would not be drawn on that point (neither would Infratil or CDC comment).

In any case, both the Microsoft and CDC builds are due to be online in 2022.

There should be plenty of appetite for the new server farms. Beyond corporate cloud clients like BNZ and Fonterra, Sorenson says demand for her company’s Microsoft 365 cloud product (which includes Office apps and cloud storage) is booming, as has Teams (the video chat and collaboration product’s number of daily active users spiked from around 15m to 115m worldwide during the first six months of the pandemic).

The financials bear her out. All of the major cloud players have had boom years with the pandemic-inspired shift to remote working, which has dramatically accelerated the process of moving everything online. Microsoft NZ recently reported a 35 per cent rise in revenue to $626m for its 2020 financial year. Microsoft Corp’s market cap has more than doubled to US$1.8 trillion over the past year.

Carbon negative

Sorenson said her company sets new environmental benchmarks with each new build. In part, the trio of data centres would get a leap on offshore rivals by dint of NZ’s predominance of hydropower, but there would also be other, as-yet-unspecified measures.

The Microsoft MD reiterated that Microsoft plans to be carbon negative by 2030 and to have “make up for the sins of the past” by 2050 (that is, the company will remove from the environment all the carbon the company has emitted either directly or by electrical consumption since it was founded in 1975).

Meanwhile, local startup Datagrid, backed by rich-lister Malcolm Dick, says it is still on track with its plan for a $700m data centre in Southland, despite Rio Tinto’s last-gasp renewed deal with Meridian.

The Government has offered broad support for Datagrid, but it’s still an open question if the majority Crown-owned Meridian will come through on Dick’s request for cheap power.

All told, the various confirmed and planned server farm builds represent NZ’s biggest tech infrastructure spend-up since the Ultrafast Broadband (UFB) rollout.

Earlier, Prime Minister Jacinda Ardern said Microsoft’s Auckland data centre build was a sign of confidence in NZ’s economy.

“It signals to the world that NZ is open for business and quality investment.”

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