Thinking Strategically About Data Center Spend

What are the main things which come to mind when you think about costs with your data center provider?

Base rent? Power consumption?

These are the headline costs associated with using a data center provider. However, there are equally important things to think about when provisioning a data center (and don’t require changes in your hosting strategy). Here are some risks and opportunities which require proper execution:

1. Align Your Contract and Your Usage — If you turn up your environment and usage is 30% lower than expected, all of that negotiating you just did was neutralized by an over provisioned data center. In fact, some consultants have stories of data centers which were over provisioned by 100% or more. Unless you’re replicating an existing deployment, you can’t predict your usage exactly. How will you contract for power in a way which minimizes your over provisioning risk? If you have it contracted correctly, do you know how to implement the correct power delivery?

2. Changes in IT Strategy — Whether you’re an enterprise user or technology provider, chances are your IT strategy isn’t guaranteed over the next 3–5 years. Why not select providers, and contract with them in ways, which enable changes in IT strategy?

Most providers have their own IaaS service and there are various ways to leverage their service to benefit your data center strategy. However, if you don’t prepare for this upfront, even a 10% shift from colocation to IaaS will result in wasted spend.

3. Density — It’s easier for companies to build and manage one 10 MW data center than 10 data centers of one MW each. That’s why the data center industry loves high density users.

Subsequently, it’s also why the lowest cost resource in the data center, space, is the most precious resource. Many users deploy a density below their facility’s average power density. You can do more for your base rent by deploying an above-market density than by working with the most aggressive provider in town.

4. Taxes — While I’m not a tax advisor (please consult one), I’ve seen several ways users can get taxed and can minimize tax. The common denominator in data center is power, so we will boil costs down to $/kW:

Sales tax incentives are a notable opportunity to reduce spend without changing your IT strategy. Let’s say you invest $200,000 in taxable hardware and software over 36 months on a 7 kW rack, that’s $28,000 invested per kW. If your gear sits in the City of Chicago, you might pay upwards of 10% in sales taxes. That’s $2,800 per kW in taxes. Over your 36 month contract, you just spent an additional $79 per kW per month which may have been avoided.

So how do these risks and opportunities compare to the headline costs of base rent and power consumption?

Here’s the math, using rough numbers:

Headline Costs

Base Rate — $175/kW

Power Consumption — $0.07/kWh x 730 hours per month x 1.4 PUE = $72/kW

Total Headline Costs — $247/kW

Risks and Opportunities

Over Provisioning — $175/kW x 30% unused = $53/kW

Changes in IT Strategy — $175/kW x 10% unused = $18/kW

Unfavorable Density — $175/kW x 20% rate premium = $35/kW

Sales Tax Abatement — $79/kW

Total Risks and Opportunities — $185/kW

In total, these variables are more likely to sway the Total Cost of Ownership of a data center deployment more than the rate you negotiate or the cost of power at your site. Taking a holistic approach to your next project will yield dividends which you can use to test the waters on a hybrid cloud approach with your provider.

About the Author: Dan Curry is a Data Center Consultant which helps clients improve their data center strategy, select service providers and adopt IaaS platforms. His core competencies are helping build business cases and educating on the Total Cost of Ownership of various solutions. Dan works with trusted partners which architect IT infrastructure/IaaS, architect and procure networks, assess security, complete migrations and manage construction. Dan has led the Midwest market for a national data center provider and consulted on projects ranging from colocation site selection to underwriting $30M+ data center investments and data center sales.

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