The Maze of Data Center Ownership Costs: To build or not to build?

Posted on May 29th, 2012

data center ownershipOne major reason why data center owners might fail is the underestimation and miscalculation of data center ownership costs. Due to the fragmented nature of the industry, even experienced providers face difficulties with pinpointing their exact ownership costs. Running a data center needs to be associated with many different types of cost expenses. Some of these expenses are obvious and predictable while others might be tricky and unforeseeable. This article looks at data center ownership costs and ways to keep it all in check.


Due to the ever evolving nature of technology, it is a big challenge just to list all the costs that data center hosts have to cope with. With recent increasing energy and real estate costs and steadily evolving tech requirements on software and hardware, a component that might not be a financial issue today, might be a significant one tomorrow.


Generally, major expenses of a data center providers include but are not limited to real estate investments and energy costs as two major financial burdens. Furthermore, interior design and basic equipment such as racks, cooling, and surveillance require large upfront investments even before the first server can move in. Moreover, hardware equipment such as fibre optic cables needs to be in place from the start and renewed on a regular basis. Another crucial cost factor concerns skilled human resources that set up and maintain the facility.


Having various cost factors, large corporations often loose track of their overall data center costs because general IT costs of an enterprise often diffuse. It might be the case that CIOs know exactly about their rack space costs but have no idea about the entire costs of their data center. The time-consuming challenge is to collect all relevant data in detail and connect them, even if real estate, hardware and human resource costs of a company are usually dealt with separately.


While uncovering data center ownership costs, companies also need to pay attention to expenses that are subject to change. Energy costs are one important example of expenses that can drastically increase in a short period of time. Generally, power is one cost area in data center ownership that is poorly understood and bears immense hidden or unexpected expenditures


Even if data center costs are transparent and manageable at the beginning, new costs can always emerge, especially when a business grows, and turn previous calculations upside down. In case of a company’s expansion, concerns about capacity and scalability are two additional cost factors that come into play. How much investment does it take to increase bandwidth, network capacity, cooling, and business continuity in the own data center? Especially on a small and mid-sized scale of ownership, there is a point when it gets impossible to pay for data center upgrades to provide enhanced business continuity.


When considering data center expansion, many companies choose outsourcing or leasing part of an external facility – known as colocation – as a cost saving option. Usually, “colocation customers own their servers, routers and other hardware and often tend to this gear with their own employees.”* Nevertheless, even managed colocation might become an option, especially if hardware is supposed to be dispersed on a global scale. The main advantage of using colocation is that it merely requires operational expenditures in order to be efficient. Expanding one’s own facility, however, requires large sums of upfront capital expenditures. In short, renting space in an external facility gives CIOs the advantage to just pay for what they actually use.


According to Jeff Paschke, senior analyst at Tier1 Research, colocation often makes more sense than expanding in-house, when it comes to data ownership costs: “I am a former enterprise data center manager, and from what I know now, more should be using [colo] than they do.”* Nevertheless, the decision also heavily depends on a business’s core competency. For large tech-focused corporations such as Google and Amazon, for example, building multiple data centers is a very successful endeavor.


To summarize this article, data ownership costs might bear multiple traps and should never be underestimated. Cost factors can be subject to external change, which is particularly important in the tech-related industry. One way to comfortably scale data center ownership costs is to relocate parts of the hardware to an external data center facility. To confirm this trend, “a Frost & Sullivan study conducted a year ago showed that total data center space used by enterprises will increase by almost 15% annually through 2013. Yet the percentage of that space that the enterprises own themselves — versus leasing from another provider — will decrease, from 70% to 64%, during that time.”*



* John Edwards. 2011. Grow your data center with colocation. Retrieved on May 14, 2012 from Grow_your_data_center_with_colocation