Pushing Microsoft’s cloud business to carbon neutral and beyond

Microsoft is on a fervent path to reduce carbon emissions from its datacenter business. Is it completely altruistic or just good business sense?

While “The Cloud” seems like an ephemeral concept, every time a person sends an email, uploads a funny video or “likes” a picture on Facebook, that information has to physically be stored on some sort of durable media somewhere and a computer somewhere has to be able to process that data. Companies like Microsoft store such information and computing horsepower in “datacenters” which is a fancy word for thousands of hard drives and computers sitting in a building that are connected to the internet.

Hard drives and server racks in a Microsoft datacenter.

As the amount of data generated by and the amount of demand for cloud computing from the collective globe rises, the demand for these datacenters are on the rise too[1]. Microsoft’s cloud offering, “Azure”, has been seeing steady growth in recent years and has been one of the main highlights of the company’s most recent earnings reports with a 116% increase in revenue[2]. This shift to cloud computing has required it to quickly gain expertise in building and maintaining efficient datacenters.

Today, datacenters across the world are responsible for almost 2% of the global greenhouse gas emissions which puts them in the same ballpark as the entire aviation industry[3]. As one of the main players in the cloud computing field, amongst competitors like Google, Facebook and Amazon AWS[4], Microsoft has a huge incentive to portray an image of climate awareness and actively seek solutions to bring down carbon emissions in its datacenter operations. On top of its stellar cloud software solutions, sustainability focused activities can create huge product differentiation opportunities when courting large customers.

Looking from a purely cost / profit perspective, adapting to climate change issues makes sense as well. The majority of datacenter variable costs, after the initial capital investment in infrastructure and PP&E, are generally attributable to two large categories; Utilities and Network costs. From the two categories, utilities end up being nearly 90% of the variable costs which goes towards powering the server racks and the giant cooling systems that keep the datacenter running[5]. When running over 100 datacenters globally[6], any savings in utility costs can be massive. Moreover, any ways to reduce its reliance on volatile oil and gas prices create a huge incentive as well.

Microsoft has fervently pursued carbon neutrality since 2007 and in 2012, it finally achieved its goal of its datacenters being 100% carbon neutral. Externally, datacenters were moved to renewable energy sources and for any cases where renewable sources were not viable, Microsoft bought renewable energy certificates to offset their carbon footprint. Internally, Microsoft tracks its carbon footprint on a per-business-unit basis to help pinpoint specific areas of improvement. Initiatives like these have helped Microsoft “reduce carbon emissions by 9.5 million metric tons, purchase 14 billion kilowatt hours of green energy, and cut energy consumption by 10 percent”[7].

Looking forward, Microsoft is committed to going further than just being carbon neutral. It has programs in place to redesign server rack hardware (the enclosures that hold the PCs and hard drives) specifically with power consumption and sustainability in mind as well as programs exploring alternate fuel sources like in-rack fuel cells that could enable datacenters to function completely off the grid[8].

New server racks designed from the ground up for sustainability and lower power consumption.[8]
So far, it seems like Microsoft has tried its best to reduce energy consumption at the supply side. (i.e. the supply of datacenters) It might be interesting to also start looking at ways to reduce the overall demand for datacenters in the first place. Some ideas that could be viable are researching ways to reduce the amount of data storage necessary by partitioning data in a more efficient way across datacenters. Today, every email, video or piece of data that gets stored in a datacenter needs to be backed up (in case of a catastrophic failure of the datacenter) as well as copied to multiple, geographically distributed, datacenters (so that access times for that data are fast across the globe). If there were a set of truly novel ways to compress, partition or otherwise reduce the necessity for these two behaviors, it could reduce demand enough to cause a sizeable drop in the number and size of datacenters worldwide.

Overall, climate change has fundamentally affected the way Microsoft thinks about one of its most profitable businesses causing it to re-think portions of the business from the ground up. While climate change alone may not be the only driver behind its fever, it seems like Microsoft has been able to align its incentive to make a profit with a global incentive to reduce the speed and effects of climate change.

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[1] http://www.us.jll.com/united-states/en-us/research/data-centers/trends

[2] https://www.microsoft.com/en-us/Investor/earnings/FY-2017-Q1/press-release-webcast

[3] https://www.theguardian.com/environment/2015/sep/25/server-data-centre-emissions-air-travel-web-google-facebook-greenhouse-gas

[4] http://www.businessinsider.com/the-10-most-important-companies-in-cloud-computing-2012-4?op=1

[5] http://research.microsoft.com/en-us/um/people/dmaltz/papers/dc-costs-ccr-editorial.pdf

[6] https://www.youtube.com/watch?v=bqZrejosqWU

[7] http://blogs.microsoft.com/on-the-issues/2016/05/19/greener-datacenters-brighter-future-microsofts-commitment-renewable-energy/#IXpiyZsAJw5C54vp.99

[8] http://download.microsoft.com/download/1/1/9/119CD765-0CEE-4DA6-B396-20603D3F4701/Datacenter_Sustainability_Strategy_Brief.pdf

Featured image: https://mspoweruser.com/wp-content/uploads/sites/4/2015/07/rsz_microsoft-data-center.jpg


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3 thoughts on “Pushing Microsoft’s cloud business to carbon neutral and beyond

  1. I’d be curious to hear your perspective on how much you think carbon neutral data centers matter to cloud customers. Going carbon neutral is obviously a good decision for the environment and to some extent is valuable as a cost savings avenue – but beyond that, will customers actually care about how “clean” their data is? If customers don’t care, is there still incentive for companies to push sustainability beyond the point where cost savings become marginal?

    1. I would assume cloud customers are not generally worried about carbon neutral data, but Microsoft is one of the world biggest companies and that attracts a lot of earned media (good and bad). And because it can be bad, it is critical for them to manage their reputational risk before it backfires. Personally, I was shocked to see that datacenters account for 2% of total greenhouse gas emissions and, whether altruistic or not, is good to see they are on the “apparently” right path.

  2. Hey Varun, thanks for this post. Check out mine if you get a second – Microsoft and Disney are some of the two highest profile companies with a self-imposed carbon tax. It’s really interesting to hear that Microsoft has already achieved its goal of 100% carbon neutral data centers (Disney Parks is on its way to also achieving carbon neutral operations).

    To me, the issue of enhancing data center sustainability would be the perfect opportunity for Microsoft, Google, and other major players in Silicon Valley to pool resources and jointly research & prototype. I could imagine a consortium of employees at each company paid to work on this project, funded jointly by the R&D departments of each company.

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