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I am trying to create a Geoprocessing Task in my .mxd to in order to extract data to .SHP and .DGN formats which will be utilized in a data extraction tool for a web application.

Right now, there is a version conflict between ArcMap 10 / ArcGIS for Server 9.3 which will be solved next week the server is upgraded to 10.

Is the Data Interoperability (DI) extension required for ArcGIS Desktop to create the GP task? More importantly, is the DI extension/license required for ArcGIS Server 10 for the .DGN extraction tool to work on the application?

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You can use the Feature Class to Feature Class (Conversion), Feature Class to Shapefile (Conversion), or Copy Features (Data Management) tools to convert to shapefile.

You can use the Export to CAD (Conversion) tool to convert to DGN. This does not require the Data Interoperability Extension.

However DGN is not a simple format relative to shapefiles, so if you want to manipulate them in a more flexible way than the tool allows, such as specifying level (layer) names, adding styling, etc., then you could use the Data Interoperability extension to create a Spatial ETL tool to do it.

How this works on Server with GP server tasks I couldn't say as I'm not familiar with that side of geoprocessing myself.

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Thanks for further explanation on the Spatial ETL tool and conversion. I found out that the Extract Data Task in the Server Toolbox uses Export to CAD tool to convert to the .dgn, .dwg. and .dxf CAD formats not requiring the Data Interoperability extension. However, the extension is required for desktop and server if the Spatial ETL tool or other GP models (Quick Import/Export) are implemented in the web application. –  carriewiley Jun 7 '12 at 23:24
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