Facebook turns to gearing to buy more gear

The joke among scalability professionals is that Facebook runs on Rails because of its need to keep throwing money at its scalability issues. There are some rumors about Facebook's poorly chosen network based partitioning (sharding) strategy. Facebook has now announced
that it will be borrowing $100 million to buy approximately 50,000 servers. This will significantly raise Facebook's gearing ratio bringing it closer to being a high geared company.

Facebook is not the only one with massive need for servers. Business Week quotes Forrester Research's Frank E. Gillet who estimates that Google is consuming as much as half a million servers each year whereas Microsoft is buying close to 200,000 servers a year.

As several media sites have reported, capital expenditure like this is an ideal reason for not diluting equity. Jim Labe, CEO of Triple Point, a company that specializes in lending venture money to start ups, tells Business Week:

“ The last thing the entrepreneur wants to do is see those precious equity dollars flowing into equipment purchases. It's a very unproductive use of equity to plow it into fixed assets.”
However, many industry pundits ponder whether this indicates Facebook's trouble in raising more venture capital. Some even wonder whether Microsoft over-valued Facebook with its $240 million investment for a 1.6% stake in the company. CNN raises a similar question as to why Microsoft isn't buying Facebook.