Apple Building $1B Server Farm For What?

Apple has finagled a $300 million tax cut from North Carolina lawmakers in exchange for investing $1 billion over nine years for a so-called technology “hub.”

The deal is as shrouded in mystery as an Orson Welles movie, with dark subplots and hidden agendas. The bill has been written with a single company in mind, but doesn’t name it.

No one in state government officially confirmed the name of the company the state is trying to entice. But the fact that it is Apple… is one of the worst-kept secrets at the legislature.

Still, the bill is about to go the governor’s desk and will require the new data center to result in 50 direct hires, plus another 250 jobs for contractors. According to the News & Observer, “Employees would have to earn a certain wage and the company would have to offer health insurance. The facility would have to go to one of the state’s counties with a high unemployment rate and local workers would receive preference in hiring.”

Adding to the feel of mystery about the whole deal, no one seems to know what Apple wants with a server farm to begin with. Google got itself a similar deal in 2007, but its need for server capacity is obvious given its mission to index the World Wide Web and provide Web-based email and applications to millions of consumers and businesses. What Apple, essentially a hardware vendor, would want with a $1 billion data center is less clear. Sure, the iPhone generates 59% of smartphone traffic on the Web, but presumably Apple has that covered already.

The build-out only makes sense if Apple is contemplating a large-scale strategic shift to deliver multiple applications as a service on an enhanced iPod Touch or similar netbook-like device, which is something I’ve argued it will do later this year. Apple, which is inherently more conservative than Web-native companies like Google, but more adventurous than most of its contemporaries (I’m talking about you, Microsoft) has several elements already in place to create a hybrid environment for its users: a stable of developers who have created millions of cloud-based applications, the flawed but redeemable MobileMe application to sync data between the cloud and the device, and, as my colleague Eric Sherman suggested to me this afternoon, Office for Mac for cloud-based word processing (assuming Microsoft follows through on its promise of a hybrid Office offering for Windows). On the other hand, with $29 billion in cash, it could simply go out an buy itself an on-demand productivity applications vendor like Zoho.

GigaOm’s Stacey Higginbotham has a similar idea:

Maybe the $1 billion will buy Apple the infrastructure for an entertainment cloud to deliver everything from music to movies, along with a productivity cloud for applications and stored contacts and files.

The iPhone itself has so much storage that some application vendors are aready using its capacity to store data locally, which means Apple wouldn’t even have to force users to store contacts and files in the cloud.

The North Carolina bill isn’t signed yet and the data center is probably years away from completion, but in the meantime Apple can probably rent storage from Google’s data center, which is just down the road.