Virginia and the Internet

buildings located next to the W&OD Trail in Loudoun County can be recognized as data centers by rooftop cooling systems
Source: ESRI, ArcGIS Online

In 1984, Virginia created the Center for Innovative Technology to stimulate high technology research and business activity in the state. In 1998, Virginia created the first cabinet-level Secretary of Technology position.

The most significant decision to shape the development of Internet-related activities in Virginia was the creation of the distributed internet exchange, Metropolitan Area Exchange, East (MAE-East). The Advanced Research Projects Agency, now Defense Defense Advanced Research Projects Agency (DARPA), created the ARPANET packet-switching network in the 1960's. As it expanded, packets had to be switched between telecommunications networks at "peering" points.

That switch, connecting networks of different telecommunications cmpanies to the Internet backbone, was originally in Arlington. A visitor who managed to get an invitation to view the site wrote:¹

A network nexus is nothing like the bridge of the Starship Enterprise--or even the engineering deck. Maybe it's like the wiring closet of the Enterprise...

...The equipment is mounted in floor-to-ceiling steel racks. The front panels face one way, but no one ever looks at them, as far as I can tell. All the action is on the back side, where the cables plug in. And it is the cables that attract the eye first. There are great multicolored rivers of them--orange and bright yellow fiber optics, creamy thin coaxial cables, gray-jacketed multiconductor bundles of copper--flowing through overhead trays and cascading down the sides of the racks.

...In cyberspatial geography, MAE-East is a giant hub-and-spoke structure, where tentacles from nearly 100 networks all converge on a single point. No trace of this geometry is visible in the actual floorplan. The equipment racks are arranged in soldierly ranks and files, with just enough space to walk between the rows without too much worry over snagging a cable and spilling bits all over the floor.

The concentration of technology companies in Northern Virginia has been stimulated by the location of the MAE-East switch, together with the Pentagon, Central Intelligence Agency, and other Federal agencies that used their funding for the most-advanced technology to build out the infrastructure and attract talent.

The second-most important decision that stimulated Internet-related activity in Northern Virginia was made by two businessmen, not government officials. They started Quantum Computer Services in 1985 in Northern Virginia, then expanded its dial-up service into America Online.

America Online, later known as AOL, built its large headquarters near Dulles International Airport. It attracted a critical mass of talent to the region, and spun off more entrepreneurs that created new economic activity in the commercial sector. The economy of Northern Virginia was heavily reliant upon government contracts, but growth of technology-related businesses transformed the area.

AOL merged with Time-Warner in 2001. That merger failed, and the MCI/WorldCom with its headquarters in Loudoun County went bankrupt, but the transformation of the Northern Virginia economy has still continued.

State and local government have encouraged technology companies to locate in the region. State and local agencies have provided tax breaks and ensured a well-educated workforce. The growth of George Mason University in Northern Virginia was fueled in the 1980's and 1990's by donations from real estate developers, but the university's graduates found jobs in the expanding technology sector rather than in land development.

Local land-use decisions also facilitated construction of an IBM chip-manufacturing plant in Manassas. Toshiba aquired it from IBM, and in 2002 Micron purchased the chip plant and has kept it operating. Though Micron relied upon offshore factories with lower labor costs to produce most of its chips, the Manassas facility was able to be cost-effective by reusing old fabrication equipment and maintaining high efficiency production of chips used in automobiles.

In 2018, Micron announced a $3 billion plant expansion, adding over 1,000 high-tech jobs to Northern Virginia. The expansion was justified by the increasing demand for more chips in autonomous cars, which the company's Chief Executive Officer and President called "data centers on wheels." Micron was Manassas's largest taxpayer, and the state facilitated the plant expanion with a $70 million incentive grant.²

High-tech contractors, including Northrup-Grumman and BAE, have also located in the Manassas area, crafting among other products the specialized computer chips used in satellites and missions to Mars.

Though the companies operating in the facilities have changed, the buildings are still generating substantial commercial taxes for the local jurisdictions. The skilled and experiebced workforce, more than the buildings, keeps attracting business to the region.

As companies and government agencies migrated to "the cloud," data centers were concentrated in Northern Virginia. Telecommunication fibers there allow for quick Internet connections, and the location is convenient for the security reviews required by military and intelligence agencies.

Loudoun County claims that 70% of internet traffic passes through data centers and optic fibers in the county, and has called itself the East Coast equivalent of Silicon Valley. Taxes on equipment in data centers keepsLoudoun County property taxes on homeowners substantially lower, by an estimated $0.12 in property taxes per $100 of property value in 2016. Once data center executive commented:³

Northern Virginia, in particular the area around Sterling, is the largest data center market, recently surpassing the New York/New Jersey market... The driving force for data center growth is the amount of abundant fiber and local initiatives in Northern Virginia, which have made the area one the most highly connected Internet locations in the U.S.

Not all data centers are in Northern Virginia, however. In 2010, Microsoft started what grew into a $2 billion investment in a data center at Boydton, in Mecklenburg County. In 2017, Facebook chose Henrico as the new location for a new $750 million data center.⁴

in 2018, Micron owned the chip manufacturing plant in Manassas built originally by IBM
Source: Historic Prince William, Micron Technology - #338

Governor Gilmore adopted a new nickname for the state: "Digital Dominion," embracing more telecommunications activities than just the Internet. He appointed the first Secretary of Technology (Donald Upson, a Northern Virginian) to serve as the chair of the Advisory Commission on Electronic Commerce, which was created by the Congress to examine Internet taxation issues.⁵

Innovation occurred outside of Northern Virginia, of course. Blacksburg was the first community to commit to creating a digital village. In mid-1990's, it obtained grants connect all buildings (schools, libraries, town government) and individual houses as well.

Virginia Beach has hopes for developing its technolgy sector, based on the fact that three subsea cables come onto the North American continent there. Microsoft, Facebook and Telxius (a Spanish company) built the MAREA cable linking Bilbao, Spain to Virginia Beach. Telxius also built the BRUSA cable linking Virginia Beach to Rio de Janeiro, Brazil. Two other companies are building a cable from Virginia Beach to South Africa.

Data centers and offices for the cable firms have been concentrated at Corporate Landing Business Park. A Virginia Beach official stated:⁶

We would like to be the alternative that subsea cables can look at instead of New York, New Jersey and Florida. If you do business with Europe, South America or South Africa, it's beneficial to be in Virginia Beach to connect with those continents.

...We're extremely well located in the mid-Atlantic. Storm-wise, we're in a very safe area - much safer than where a lot of subsea cables come in such place as Miami and Jacksonville, Fla.

the first two international submarine telecommunications cables at Virginia Beach were MAREA (connecting to Bilbao, Spain) and BRUSA (connecting to Rio de Janeiro, Brazil)
Source: US Army Corps of Engineers, Norfolk Harbor Navigation Improvements - Draft General Reevaluation Report and Environmental Assessment (Figure 2-33)

In 2018, Google announced it would build a private cable from Virginia Beach to France, with completion predicted in 2020. Though the cable will come onshore at Virginia Beach, it is intended to improve internet traffic from Google's data centers in Northern Europe to its data centers in Belgium.

The Dunant cable will be Google's fourth cable, so the name starts with the fourth letter of the alphabet. It honors Henri Dunant, who started the Red Cross and was awarded the first Nobel Peace Prize.⁷

the Dunant cable will connect Google's data centers in Virginia to European data centers
Source: Google, Delivering increased connectivity with our first private trans-Atlantic subsea cable

Virginia Beach was able to attract a Bitcoin mining company and awarded it a $500,000 grant in 2018. The cryptocurrency mining company claimed it would invest $65 million in data centers and hire 100 full-time employees with average wages of $60,000. Being located next to the international cables did not provide the company enough "value added" benefits to stay in business. In 2019, it declared bankruptcy and negotiated paying owed Dominion Energy the $1.7 million owed in past-due electric bills.⁸

With the decline of the tobacco industry and shrinking employment in the coal industry, Virginia officials have invested in providing high-speed internet access to rural communities in Southside and Southwestern Virginia.

As a new shopping channel, online retailing diminished sales at department stores and shopping malls. Circuit City, a Richmond-based retailer, abandoned appliance sales in the summer of 2000. It was the #2 appliance seller with 5-6% of the market (behind the nearly 40% share of Sears), but the appliance sales required a lot of store space for a low-profit item. Circuit City chose to concentrate on selling consumer electronics, clearing the floor space for Christmas sales of computers, radios, TV's, etc.

Wal*Mart then entered the business in the late summer of 2000, with a few stores serving as sales prototypes - and without a commitment of floor space. Instead, sample appliances were placed in the stores together with kiosks for customers to order a delivery. Orders for new appliances were shipped by the manufacturer directly to the customer, minimizing Wal*Mart's investment risk and permitting each store to use its floor space to sell other products.

In 2009, Circuit City went bankrupt and closed its doors.

Some companies, like Charles Schwab, were willing to sacrifice their old mechanisms of selling their goods and services and shifted to selling online.

Car dealerships have been able to block the manufacturers from bypassing the middlemen and selling directly to the public. You can order a Ford online... but you have to buy it through the local dealer. In the meantime, some car dealerships have packaged their real estate and sold their land to Real Estate Investment Trusts.

As a result, the dealers are positioned to abandon the traditional marketing mechanisms, with its high cost on inventory and real property and staff. The manufacturers are stymied at the moment - but concentrations of car dealerships in places such as West Broad Street in Henrico County, North Emmet Street in Albemarle County, or Leesburg Turnpike in Fairfax County may not be stocked with new cars on the lot forever.

The standard retailing model has survived the initial onslaught of online stores, except for bookstores - but there is the potential for car dealerships to keep just a few sample vehicles on the lot for test rides. New cars could be ordered online, manufactured "just in time" after being pre-sold, and shipped to customers.

When Tesla sought to use a showroom for display as a "gallery," but direct customers to order online, it struggled to obtain a dealership license from the Department of Motor Vehicles. The Virginia Automobile Dealers Association opposed Tesla's sales model, where the customers negotiated prices online and the showroom did not even offer test drives of its electric motor vehicles.

State officials rejected the license, citing a prohibition on car manufacturers also operating a car dealership operate a franchise in Virginia. The state finally authorized a dealership at Tysons in 2013 and a second one in Richmond in 2017. The state ultimately determined that Tesla's fixed price for cars, with no discounts or wholesale prices for a dealership, made it impracticable for a standard dealership model to be financially viable. A Tesla dealer might make a profit on repairs and maintenance, but standarized prices for new Teslas eliminated any possible profit from new car sales.⁹

data centers are concentrated in Northern Virginia, such as this one near the Manassas Regional Airport
Source: Historic Prince William, Data center at the SE side of the airport - #1