Cloud Computing: Taxes Analogous to Atmospheric Pressure

In a blog posting earlier this week, the Azure team announced that they would be moving all Azure applications out of our “USA – Northwest” datacenter. I was fascinated by this given that the stated reason for this move is a change in local tax law which presumably make it less financially attractive to offer the services from that area. Mike Manos published a great blog post on the topic this morning called “The Cloud Politic – How Regulation, Taxes, and National Borders are shaping the infrastructure of the cloud”. Definitely worth reading and considering the implications.

So where will cloud infrastructure form? Consider the real thing in nature and substitute taxes for atmospheric pressure. Below is a paraphrased description from NOAA:

Wind is simply the air in motion … Pressure gradient is the difference in pressure between high and low pressure areas … What happens to the converging winds near a low? … It has to go somewhere so it is forced to rise. As it rises it cools. When air cools it can hold less water vapor so some of the invisible vapor condenses, forming clouds and precipitation … What about the diverging air near a high? … As air warms it can hold more water vapor, which means that clouds will tend to evaporate.

Bottom line, cloud infrastructure will tend to emerge in low tax, low energy cost, high connectivity areas. This much is obvious and has been a key part of data center site selection methodologies as Manos alluded to. To date these have mostly dealt with “where do we plant these multi-hundred million dollar facilities to exist for at least 10 years”. As the move by the Azure team demonstrates however, what runs in these datacenters can be moved around at will. Is it running internal applications and thus maybe not taxable activity? Or is it running a revenue generating activity that may be taxed? If so, does the datacenter in the next state provide a lower tax environment? If yes, move the workload there, and so on.

With an ever growing percentage of computing likely to migrate toward the large cloud providers, small percent differences in the tax rate, cost of power, etc. can have a large impact on the profitability of providing cloud services. You see this today with certain localities actively shaping public policy around attracting datacenter construction.

Over time I think this will lead to several architectural trends. The first is that an ever increasing number of input parameters (tax rate, power cost, bandwidth, etc) will be utilized by cloud infrastructure software to determine where best to run customer workloads. Where today this occurs mostly during site selection, this will rapidly evolve to the point where it is near real-time and workloads will transparently migrate to follow low cost off-peak power, regions with lower taxes, etc. While workloads are easier to move than entire datacenters, even that is very likely to change given the numbers at stake. Most people have heard of Microsoft’s Chicago datacenter where the first floor is comprised of shipping containers and totals hundreds of thousands of servers. This capacity is obviously mobile but requires supporting facility infrastructure which to date is in fixed locations only. If you look at Microsoft’s Gen4 datacenter vision, you’ll see that eventually even most of the supporting infrastructure will be modular and mobile as well.

These trends will make for some very interesting infrastructure architecture challenges. The clouds will form near low pressure areas…

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