The Future of Dedicated Servers?

Did you know that Google is among AMD's top 5 customers? That it's the world's 4th largest maker of computer servers (after Dell, HP and IBM)?

I used to think that while shared hosting companies face stiff competition from Google Pages and Windows Live, dedicated server providers are safe. Google and Microsoft are sooo not in the business of rebooting servers and replacing hardware. But after reading a few recent Fortune and New York Times articles, I'm not so sure any more.

Some key points:

1. Google has more than 450,000 servers spread over at least 25 locations around the world. Microsoft has 200,000, but expects this figure to reach 800,000 by 2011 (source).

2. Google bought 34 acres of land near The Dalles Dam, a major power source, in Oregon last fall. Microsoft recently snapped up 75 acres near Grand Coulee, the third largest hydroelectric dam in the world. Both are planning to spend billions on their infrastructure over the coming year (source).

3.  Google has produced innovations such as MapReduce for parallel computations, Google File System for failover and Google Work Queue for pooling resources from large numbers of servers for deployment where needed. And in addition to building its own servers, the company might even be designing its own microchips. Microsoft is staying out of the hardware business, but it's developing a thing called Dryad, which Bill Gates says is better than MapReduce. (source)

4. Google and Microsoft both make APIs for their web applications available to third party developers. As Microsoft puts it:

our goal is to open Windows Live services to create shared opportunity for developers and businesses. As such, we endeavor to lower the barrier of entry to allow the greatest number of developers to participate

As Google and Microsoft continue to invest in their Internet infrastructure, might they ever reach an economy of scale where it'd make sense to "lower the barrier of entry" by giving away not just APIs, but hosting resources on which third party developers could build and run complex, high traffic mashups? Such resources wouldn't take the form of individual servers, of course. I'm envisioning something more similar to Concentric's clustered hosting, or Rackspace's new Mosso Hosting System, whereby each user gets a slice of a multi-server cluster.

Would a significant proportion of today's dedicated server customers switch to Google/Microsoft-powered hosting? I don't think so. But might Google/Microsoft render the dedicated servers market as we know it obsolete by popularizing on-demand hosting? As my friend Mario likes to say, we'll have to wait and see what happens.

PS - Just came across yet another article on Google building its own servers:

Hardware makers invest heavily in researching and developing reliable products, a feature that most businesses value. But Google doesn't actually need very reliable servers because it has written its software to compensate for hardware outages, said Urs Holzle [Google's Senior VP of Operations], speaking on Thursday at Google's European headquarters in Dublin. Instead of buying commercial servers, at a price that increases with reliability, Google builds less reliable servers at a cheaper cost knowing that its software will work around any outages.

Interesting point - especially for anyone who's ever gone through a hard drive failure.