Google: The New Port Authority

A juggernaut gets ready to inject a big glob of silicon into New York City

Google not only gains a giant space for a new server farm that will most likely house thousands of Google machines, but also gets direct access to the building's network-neutral meet-me room—literally, an area where telecommunications companies can physically hook up and exchange data cheaply and efficiently. Google would be able to expand its offerings of new Internet products and services such as Internet telephone service, video, and Web-based enterprise software—competing for business against the likes of Microsoft, Skype, and YouTube—much more efficiently and competitively.

Last week, Google announced that it would offer a suite of Web-based software services aimed at business customers. It is worth noting that Citigroup, the world's largest bank, has a network presence inside 111 Eighth Avenue. In theory, Google will be able to provide Web services to Citigroup directly through the meet-me room, bypassing not only the "Tier 2" service providers who buy and sell Internet access, but the top-level Tier 1 providers, such as AT&T, Verizon, and Qwest.

For the time being, by installing itself above Chelsea's broadband "fiber highway" at 111 Eighth Avenue, St. Arnaud explained, Google can bypass many of the major telecommunications firms and interface directly with Tier 2 service providers such as Level 3 Communications or XO Communications, which also are located in the building. This will significantly cut down the costs associated with reaching business customers on Wall Street and in the media and fashion worlds, and generally throughout the Northeast power corridor from D.C. to Boston. The arrangement also suits the Tier 2 providers, which are "thrilled because they can get content directly from Google and bypass" the major telecom and cable Tier 1 providers, St. Arnaud says.

Search for tomorrow: Google's future hub in Chelsea
photo: Ofer Wolberger
Search for tomorrow: Google's future hub in Chelsea

But the advantages of Google's new space at 111 Eighth Avenue are not merely technological. Google's office will be highly efficient, because the lease covers nearly 300,000 square feet on just two floors, rather than the 10 or more floors that much space would take up in a traditional New York City office building, like, say, the Empire State Building, which was completed one year before 111 Eighth Avenue, in 1931. That means fewer bathrooms, fewer elevators, more efficient wiring, and less energy consumption, not to mention those large communal meeting spaces that Googlers love so much. In a way, the vast horizontal spaces afforded by 111 Eighth Avenue echo the sprawling, horizontal nature of Silicon Valley itself, perhaps best exemplified by Google's vast campus in California.

Depending on how the company allocates its employees and hardware, the new office will represent a significant infusion of Google jobs into New York city—over time as many as 500 to 1,000 new hires, by one estimate. UBS Internet analyst Ben Schachter says that the company's expansion into 111 Eighth Avenue makes sense because the company is hiring at such a torrid rate to keep up with its rapid growth.

"Clearly, Google is rapidly expanding its head count around the globe," says Schachter, who published a report in May noting that Google had over 1,800 publicly posted job openings worldwide, including over 100 in New York City. "We think this is a company that is building a strong base of talent for the long term." It remains to be seen just what impact the influx of Google employees into Chelsea will have—after all, there are already plenty of technology workers in the building. Still, it will be interesting to see how Google's quirky, geeky-yet-laid-back culture will mesh with the trendy restaurants and exclusive clubs of Chelsea and the meatpacking district.

And if anyone can afford New York real estate, it's Google.

Based on conservative real estate industry estimates of the building's asking price—about $33 per square foot—Google will likely pay at least $10 million per year in rent, not to mention the additional capital and labor investment in the economy of downtown New York City. That's just a drop in the bucket for the Internet search leader. Over the last year, the company earned $3.6 billion profit on $8.5 billion in revenue, driven by the meteoric rise of its ubiquitous search engine. What's more, Google just raised over $4 billion cash in a secondary stock sale, bringing its total free-cash hoard to $10 billion.

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