From Dot-Com Boom To Data Center Alley

The financial and legal benefits, challenges, and futures of data center expansion

Many readers of InterGlobix Magazine may already know the story: it started with personal computers in August 1981. Instant messaging, already available since 1973 through early development at the University of Illinois, became available in government, the military, and some academic circles. The arrival of AOL Instant Messenger in 1997 introduced the sound of virtual doors opening and closing while it built its headquarters on Pacific Boulevard in Ashburn, Virginia. Soon “you’ve got mail” (and dancing babies) appeared around the world. Our planet as we knew it had changed, and the race for digital space supremacy was on.

AOL wasn’t the only company to set up shop in the Northern Virginia area—Worldcom and a host of others invested in Loudoun County and built the infrastructure that created what became known as “Data Center Alley,” which fueled the dot-com era of the 1990s. The dot-com boom required fast connectivity and 24-hour operation, and so the enterprise model of a server room (the precursor to the modern data center) appeared.

More opportunity for less strain

As private companies invested in the development of data center infrastructure, local leaders saw the opportunities data centers as an industry could bring to the local economy, including improvements to roads, water, wastewater, and job and business creation. While traditional industries like factories or offices may create more jobs, those job opportunities come at high price to a locality: the need for schools, workforce housing, and other support can create an overwhelming need for services that strain a local economy. By contrast, the data center places a relatively low burden on the locality to deliver services beyond those needed by a smaller business. For a state or locality, the new tax revenue generated can quickly make the data center an economic benefit.

Challenges, incentives, and a new era of data center expansion

Just as not every home had a PC in the 1980s, not every locality was poised for success in attracting and retaining the benefits of the data center. Northern Virginia was, in the early era, singular in its infrastructure, political support, and readied access to the data center market makers. The situation is different in 2022.

Some Northern Virginia localities have become less inclined to approve local land use when previously that permission was all but guaranteed. In late September 2022, Loudoun County approved a plan that will limit the concentration of data centers, impose new requirements for building design, and establish strict environmental rules.

Dale G. Mullen, Michael H. Brady, and Michelle E. Hoffer

Until July 2022, Virginia localities could tax data center fixture items as either real or personal property. The new Virginia law provides that if a locality taxes certain fixtures located in a data center as real property, the fixtures will be valued based on depreciated reproduction or replacement cost. While computer equipment and peripherals wouldn’t be considered fixtures, there are a number of these that would be included in this definition:

  • generators, radiators, exhaust fans, and fuel storage tanks;
  • electrical substations, power distribution equipment, cogeneration equipment, and batteries;
  • chillers, computer room air conditioners, and cool towers;
  • heating, ventilating, and air conditioning systems;
  • water storage tanks, water pumps, and piping;
  • monitoring systems;
  • and transmission and distribution equipment.

State-wide tax breaks for data centers level the playing field for Internet infrastructure in diverse areas. Through DE-CIX (data center and carrier neutral) and the QTS Richmond NAP, businesses have access to 20 different fiber networks and four subsea cables, in addition to more than 2,400 network operators and more than 500 data centers worldwide.

There’s a new kid in town (with shovel-ready construction and connectivity)

When site selection is narrowed, businesses chose first by country, then by state, then by locality. Ease of land use approvals and the ability to get projects operational quickly are key factors. Other factors include robust power and high-speed connection requirements of enterprise, colocation, and hyperscale data centers.

While the specific number is elusive, it is estimated that Data Center Alley and Northern Virginia handles roughly 70 percent of the world’s Internet traffic sometimes, which has earned it the nickname of the “Silicon Valley of The East.” But new contenders are emerging.

Henrico County in the Richmond Metropolitan area now boasts the fastest data speeds on the planet. Google’s Dunant cable offers a record-breaking 250 Tbps capacity—fast enough to transmit the entire digitized Library of Congress three times every second. Through the QTS Richmond NAP in Henrico, businesses can access the MAREA, BRUSA, SAEx1, and Dunant cables, which extend to Spain, Brazil, Puerto Rico, South Africa, and France. The new normal of data center expansion sees the sector as a target for growth, with a focus on tax incentives, redundant fiber cable, power supply, and access to relevant subsea cables. As the playing field begins to level, and localities struggle to achieve and maintain data center supremacy, the race is on—and it will be an interesting race to watch.