AWS looks set for massive cloud datacentre expansion - but where?

Amazon plans to spend almost $1bn on fixed assets, suggesting it's laying the ground for more capacity in its Amazon Web Services cloud. Here's a prediction on where it might build

Amazon Web Services is set to get more datacentres, based on information gleaned from Amazon's latest earnings filing.

For the quarter, the company spent $657m (£418m) on the purchase of fixed assets, up from $386m in the previous quarter, it said in second-quarter results released on Thursday. Much of this spending is likely to come from datacentre build-outs, along with new warehouses for its retail division. 

Amazon's fixed assets category does not break out the split between spending on product warehouses – fulfilment centres - and AWS infrastructure. However, Amazon did invest heavily in distribution centres in 2011 and typically makes those investments in three-year cycles, so it's likely the brunt of this investment will go into datacentres.

"The increase in capital expenditures reflects additional investments in support of continued business growth consisting of investments in technology infrastructure in building Amazon Web Services and additional capacity to support our funding operations," Amazon's chief financial officer, Tom Szkutak, said on an earnings call. 

In the third quarter, the company is set to pour more money into fixed assets than ever before; Szkutak expects capital expenditures in those three months to be between $800m and $900m.

Amazon Web Services datacentres
Amazon's earnings project a record-setting investment in capital assets, such as datacentres (dotted line)(Credit: Jack Clark/Charles McLellan ZDNet)

"These anticipated investments are driven primarily by our expectations of a continued business growth consisting of investments in technology infrastructure, including Amazon Web Services and additional capacity to support our fulfillment operations," he said.

Based on my own investigation into AWS , this type of investment by the company closely tracks its datacentre build-outs (see graph).

Potential datacentre locations

What we can take from this is that Amazon is planning new datacentres. At the moment, it has datacentres in North America, Europe, South America and Asia (Japan and Singapore). It also has edge locations across the world, including in Australia and China (Hong Kong).

If you look around the world, Amazon has a wealth of options, but few genuine choices. China is a huge growth market for internet companies, but Western businesses operating in the region face tough regulation and the chance of government interference.

There's also Germany, which has stringent data protection laws that make an in-country datacentre attractive to potential customers. But is the market large enough?

As for Africa, though connectivity has ramped up in recent years, the region is still relatively immature in terms of cloud adoption.

What about the Middle East? Going by what datacentre professionals tell me, this seems unlikely. The region's combination of high heat, dust storms and unstable geopolitics massively increases the cost of a datacentre build-out and puts the operator at risk of unscheduled downtime.

There's always Australia. The country's economy has been on a roll, it has a fertile technology sector, and mining companies that are selling resources to China are generating vast quantities of geological data that, at some point, will need to be processed. Why not in the cloud?

Amazon needs datacentres to meet the swelling demand for its AWS division, but choosing their location is tricky. When making an investment that runs in the millions of dollars, Amazon has to be sure of business, have confidence in the country's economy, and have a demonstrated business case for taking on the additional infrastructure cost. My bet is Australia or Germany.

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