Microsoft Corp. will build two data centres in Canada as it expands its cloud computing services to government departments with "data sovereignty" requirements, the company announced Tuesday.

According to Janet Kennedy, president of Microsoft Canada Corp., the Redmond, Wash.-based software giant has been in negotiations for more than seven years with the federal government about the location of the server farms that could host sensitive government data, including records about citizens or government programs.

"There's no technical reason to do it, this is for the government," Ms. Kennedy said.

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For example, right now if the Canada Revenue Agency wanted to save Canadian tax returns in a Microsoft cloud storage service, that data could be transferred across a number of international borders. In an era of heightened fears about Internet security, some government agencies need to ensure that sensitive information never transits over networks outside Canada.

One of the data centres will be in Toronto, the other in Quebec city.

Ms. Kennedy did say that even though Microsoft has 80,000 cloud clients in Canada, some private sector businesses are also heartened by servers that will reside in Canada. "It actually surprised me ... some of them that had already done some cloud-based services with us were like 'Oh, now that you're in Canada, I can add this other group that we were holding back.'"

Kevin Turner, Microsoft's worldwide chief operating officer, pitched the company's Azure fee-for-service cloud infrastructure in terms of businesses being able to skip the IT procurement phase (building their own server network) and get right to software development: "In an hour, you can be up and develop [a website or app] at a rapid rate."

The company didn't announce the number of jobs created or the dollars invested, but globally Microsoft is spending about $1-billion (U.S.) annually as part of a $15-billion cloud infrastructure spending plan.

In April, Microsoft announced revenue for its cloud services reached $6.3-billion a year, and CEO Satya Nadella told analysts, "Right now more than five million organizations are using Azure."

It faces competition from a number of cloud offerings, including Amazon's AWS and on Monday SAP declared its own cloud data centre in Markham, Ont., was open for business.

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Ms. Kennedy estimates Microsoft has about 11,000 enterprise customers in Canada – which represents about 400,000 workers. "More than half our enterprise customers have gone with at least one cloud service," she said.

However, only about 20 per cent of small and medium sized businesses have signed up for cloud, an area Ms. Kennedy calls a huge opportunity.

"Oh my gosh, we are paying too much for infrastructure in this country," she said. "Cloud-based computing is going to lower the cost, and I think there's a tremendous back-load of demand for interesting mobile solutions."

The announcement came Tuesday morning at the Delta Toronto Hotel in the city's core, with Mayor John Tory and Ontario's Deputy Premier Deb Matthews on hand. Both spoke of the need for jobs and access to innovative technologies, though Microsoft is not announcing how many jobs these centres will create. The global software giant has 2,000 employees in the country, including the workers at its nine retail stores.

Mr. Tory praised the company's investment in the city and joked that only recently he switched the Mayor's office from an 18-year-old e-mail system to Microsoft's Outlook.

With a big investment in local cloud capacity, which will start to become available in the latter half of the year, Microsoft says it hopes more businesses will invest in their ideas, not in their hardware.