Microsoft has gained Overseas Investment Office approval to build a giant cloud computing data centre in Auckland.

The applicant was Microsoft NZ - 100 per cent owned by a Bermuda entity but ultimately controlled by Microsoft Corporation in the US.

"The investment involves the acquisition of interests in land for the operation of data centres, the value of which is not yet confirmed but will exceed $100 million," the OIO decision says.

Inside a Microsoft data centre in the UK. Photo / Microsoft
Inside a Microsoft data centre in the UK. Photo / Microsoft

It adds, "The Minister of Finance has determined that the Investment is not contrary to New Zealand's national interest."

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Microsoft proposes to improve its '"hyperscale cloud services" available to organisations in New Zealand by creating an on-shore data "region" [aka a building full of servers], the decision says, "which will allow organisations and agencies to keep at rest in New Zealand data (including sensitive data about New Zealanders), to help organisations and agencies comply with regulatory requirements."

OIO approval was never really in doubt.

The proposed data centre was announced by Prime Minister Jacinda Ardern on May 6, who described the data centre as a "significant investment" that "serves as a signal to the world New Zealand is open for business and quality investment".

Microsoft has yet to put a timeline on the project, but it did recently name Fonterra and Spark as anchor customers for the new facility.

The local data centre should also help Microsoft win more business with certain government agencies, financial institutions and others where data sovereignty - keeping data within NZ's borders - can be an issue.

The build will make Microsoft the first of the Big Three cloud computing providers to break dirt in NZ.

But Canberra Data Centres - strong regional contender, and sometimes Microsoft partner, recently said it planned to open two "hyperscale" data centres in Auckland by the end of 2022. CDC (48 per cent owned by Infratil) and Microsoft partner on data centres in Australia. Neither has commented on whether they will be co-operating on this side of the Tasman.

Microsoft has around 100 data centres worldwide.

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The investment involved can easily run to hundreds of millions. Google for example, recently unveiled a US$1.2 billion (NZ$1.98b) plan to build two new server farms in the US.

Globally, Microsoft's "Azure" holds around 27 per cent cloud computing platform market share, according to a recent Gartner survey, putting it between market leader Amazon with its Amazon Web Services (50 per cent) Google with its Google Cloud Platform (9 per cent).

Cloud technology accounted for 15 per cent of the US$1.56 trillion spent on IT worldwide last year — up from 7 per cent in 2015, according to analysts at Morgan Stanley.

They predict that increased reliance on the cloud with pandemic remote-working will only cause this shift in IT spending to accelerate.

Postscript: Why not Southland

Data centres can use a lot of power, and it was mooted that Microsoft NZ server farm should be located in Southland - the better to take up the slack from Manapōuri Power Station following Rio Tinto's exit.

Microsoft hasn't offered any detail on its decision to stick with Auckland, but tech pundits note that Auckland is where international submarine fibre optic cables land, and home of NZ's largest peering exchange (which servers on the internet use to talk to each other). Proximity helps performance so in broadband, as in so many things, geography is destiny.

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