The Dakotas are generally not the first area that comes to mind when considering where to develop a new data center. Technology hubs like Silicon Valley and Houston or metropolises like New York or Chicago are easier to understand as primary choices for a new data center development. However, shunning the Dakotas because they are not high-paced, high-pressure, high-cost metropolitan centers is a mistake that shows up in the bottom line.

The Dakotas offer locations where operational costs can be contained. They offer benefits of low cost power and an environment that allows for nearly free cooling for most of the year. Low operational costs are especially important to the cloud computing market, which is becoming very competitive. The business model for cloud providers has evolved to a turnkey model very similar to utility, but on a national level. Low cost providers are able to grab market share since services are selected on the basis of their cost. Data centers providing cloud services maintain their competitive advantage by building in locations that enable the providers to operate their businesses with the lowest possible total cost of operations.

Like most states, there are economic and tax incentives for moving operations into the state. Fargo, ND, and Sioux Falls, SD, are particularly aggressive in offering incentives to locate business in their areas. The region offers access to a highly skilled workforce. There is also low risk of natural disasters in the region.

One of the most compelling reasons to start a business in the region is the growing economy. A growing economy offers a multiplier effect that attracts more businesses and therefore more customers. The Dakotas have a stable but growing economy. There has been tremendous growth because of the oil boom that started back in 2008, running contrary to the global financial crisis. This is particularly true for Fargo and Sioux Falls and true for North Dakota in general. The net effect is a commensurate demand for data center services for  industries that move into the Dakotas. The growth is expected to continue for the next two decades, leading to a ripe market for additional data center services.


Investors interested in finding a site for a data center development will find a lot of attractive choices in North Dakota. CNN ranked North Dakota fourth overall in its “America’s Top States to do Business” report in 2012. The state ranks 30th with a moderate cost of living at 99.7% of the national average according to a report by the Missouri Department of Economic Development.

Low operating cost. Power and cooling are key cost drivers for a data center. The state has low cost for power at 6.2 cents per kilowatt hour (kWh) according to the North Dakota Department of Commerce. Most power is coal-based, but 14.7% (1,445 megawatts [MW]) of power is from wind according to the American Wind Energy Association. That is third highest wind power generation in the country. South Dakota comes in second place by generating 23.9% of their power with wind, which almost ties with Iowa at 24.5%. Another 6% of North Dakota’s electrical power is from hydroelectric sources.

The climate in North Dakota is cool. The coldest periods in January range from 0°F to 21°. The warmest is in July which ranges from 56° to 85°. The maximum average temperature in the seven months from October to April is only 58°. The ability to use cool temperatures to cool data centers for almost free provides an advantage that is unmatched in all but a few northern states.

High-speed networks. North Dakota has three 800 gigabit fiber networks that have been built in the Fargo market since 2012. The high speed networks, along with over 18 carriers, allows North Dakota to offer everything needed to support data centers, cloud computing providers, and data storage companies.

Midcontinent Communications is spending $3 million on a project called the Bakken Extension to extend a fiber network to the northwestern part of the state. The new network will “enhance the region’s communication services” and “support the development of new opportunities for residents and businesses,” according to Gov. Jack Dalrymple. Once complete, the multi-state fiber backbone will extend the Northern Plains Network from Minot to Williston. Midcontinent’s network connects directly to major network hubs in Minneapolis, Fargo, and Sioux Falls. The 100 gigabits per second (Gbps) extension from Minot to Williston will be expandable to 4 terabits per second (Tbps). “Every community and business within a serviceable distance of our route from Minot to Williston gains from this project” said Pat McAdaragh, Midcontinent president and CEO.

Economy. North Dakota has the lowest unemployment rate in the country at just 3.1%. The North Dakota economy grew by 13.4% in 2012, making it the fastest growing state in the country. It grew twice as fast as Texas, which is in an honorable position in second place. North Dakota grew five times faster than the rest of the country that averaged a growth rate of 2.5%. The forecast for growth in the foreseeable future was strong even before the oil boom.

Economy and effects of the oil boom. The center of North Dakota’s oil boom is Williston, which is located about 70 miles south of the Canadian border. According to Williston Economic Development, the city is the fastest growing micropolitan area in the nation.

There is no doubt that the epic oil boom in North Dakota is driving growth. However, the majority of the growth in the state is from solid organic growth in technology based companies. Microsoft has experienced significant growth in the Fargo market through their acquisition of financial software company Great Plains Software. Microsoft has almost 2,000 employees in the Fargo market and intends to double that number. Phoenix Technology is experiencing tremendous growth in the Fargo market. is building a major ordering facility in Grand Forks.

Skilled labor. Fargo hosts five major universities that churn out over 28,000 students per year, many with computer science and engineering backgrounds. The pipeline of new graduates provides a constant supply of reasonably priced labor.

Why North Dakota? John Unger, president of Vaultas, developed a Tier III data center campus on the North Dakota State University campus in Fargo. He evaluated criteria for many data center sites throughout the country. He chose to build in North Dakota because the low risk of natural disaster, access to skilled staff, and low cost for power and cooling.

“North Dakota is likely one of the best places to host a data center due to very low risk of natural disasters combined with some of lowest operating costs anywhere in the U.S. We have no earthquakes, no hurricanes, very low risk of serious tornadoes combined with some of the lowest electrical rates and cooler upper Midwest temperatures driving a very low total cost of operating for any enterprise or cloud computing organization,” said Unger.


South Dakota has a different spin on a similar story. The state shares a border with North Dakota, but they don’t share in all the same economic benefits. The oil boom had less of an effect on South Dakota than it did on North Dakota. South Dakota laid an egg in 2012 coming in 46th place in economic growth according to the Bureau of Economic Analysis. Much of the economic slide is attributable to a drought that drove up costs for ranchers and lead to a drop of 2% off the state GDP.

This aggregate number includes a drop in the agricultural sector that masks gains in other sectors. The cost of operations is still reasonable in South Dakota. The state was ranked third best in cost of doing business in CNBC’s “Special Report of America’s Top States for Business.” It was also ranked first for small business survival and second for tax environment for mature firms and business tax climate in the “Enterprising States” report that the Praxis Strategy Group created for the U.S. Chamber of Congress.

The Boyd Company calculated the annual operating costs for running a hypothetical 125,000-sq-ft data center with 75 employees in 45 cities. Sioux Falls was ranked the least expensive place in the nation to open a data center when considering factors such as the mild climate and competitive costs to do business. Sioux Falls has the ninth strongest local economy in the U.S. according to POLICOM Corp’s report on economic strength ratings.

Overall, South Dakota still has the second lowest unemployment in the country at 3.9%. The state ranks 26th for cost of living, putting it almost 2% lower than North Dakota.

High-speed network. The South Dakota Network (SDN) is in the middle of a $20.5 million project building 140 miles of fiber optic backbone which will supply 10 Mbps service to more than 220 existing anchor institutions with plans to add 300 more.

Climate. South and North Dakota share very similar climates. South Dakota is approximately 3° warmer than North Dakota. January temperatures in Sioux Falls average 3° to 25° in January. In July, temperatures range from a 60° to 86°. In both cases, costs can be minimized taking advantage of the free cooling opportunity.

Recent development. SDN Communications developed a data center in Sioux Falls, SD. They picked a 65-acre site near Interstates I-29 and I-90. The data center is 10,000 sq ft in Phase 1 in a building which is 25,000 sq ft. Future plans will quadruple the size of the data center. The final size will be large enough to contain two full-sized football fields.

SDN’s data center / carrier hotel / colocation facility has a power density of > 200W per square foot which is fed by 2 MW of power utility feeds. The data center will employ standard resources like VESDA and clean agent fire suppression.


The total cost of operations is really what matters the most. The cost of hosting systems in data centers in different regions will vary with proximity to major cities. However, the greater commoditization of data center services and the deployment of high speed network backbones make the proximity of a data center increasingly less important than the cost of hosting in the data center.

Cloud services and colocation services are being increasingly commoditized which benefits the Dakotas since data centers in this region have low costs of operations. Both North and South Dakota are fine locations for developing new data centers because of their high speed networks, stable economies, and low costs of operation. They offer low risk from natural disasters and a supply of educated computer scientists and engineers. South Dakota’s economy only seems dim when compared to the shining star of North Dakota. The economic juggernaut of North Dakota is expected to keep charging for the foreseeable future. However, the success of a growing market in North Dakota is driving up the cost of land and the cost of living which threatens to tip the scale in South Dakota’s favor.