An article exploring the positive and negative variables of data center ownership versus data center leasing in today's volatile economic environment.
The typical Information Technology Executive has a lot of unique demands on his or her time, especially in this turbulent economy. By the most basic of definitions, the lead C-Level in each organization oversees some level of capital investment being transferred into IT infrastructure investment. Other duties might be overseeing the integration of various technologies and applications management and optimizing the performance of the networks and systems of the corporation. Additionally, the position will ultimately oversee the personnel needed to accomplish these goals.
In simple terms, it is about managing IT infrastructure. This has never been a particularly simple process. Technology is always progressing, and the need to be educated on these innovations, adapt to them and integrate the technology into the corporate culture is continuous and often very complex.
Why is this so complex? We live in a world of innovation, and the amount of applications to solve our systems seems to grow by the day. As the modern-day company manages core operations, application integration presents more of a challenge due to the complexity of meshing the various architectures.
The modern CTO/CIO/VP of IT also faces increased risk of cyber security compromise. There has never been greater risk, nor attention focused upon, the threat of hackers, viruses, cyber theft and hijacking of corporate servers.
Why would a modern day, C-Level IT Executive willingly take on more responsibility?
I found myself asking this very question recently, when talking with a very large prospective co-location client who considered either outsourcing their data center operations or buying commercial space and managing it themselves.
Let’s look at the present environment and why it may be favorable for a company to acquire and manage its own center, and also discuss the reasons why they might wish to outsource their core data center operations.
Some of the factors favorable to a company buying and running its own data center:
Money talks. When they say “cash is king,” it has never rung truer than in today’s business environment. Companies willing to pay cash are finding that the opportunity to get a better deal than those requiring financing is readily available. The real estate market over the last 18 months can certainly attest to that.
The Real Estate Market……today. The depressed real estate market has trickled down to the commercial space. Companies who built new data centers several years ago have found their profit margins going down and have been forced to unload tangible assets or they might risk going under. Often, the company itself was liquidated, with the data center being just another casualty of that failure. Thus, there is some space on that market today that would have been unthinkable several years ago.
Interest Rates….how low can you go? Even more favorable to a potential data center buyer is that interest rates are at near-record lows. If a company has a nice reserve of cash, they can get tremendously favorable financing that makes the deal seem like a no-brainer. The Federal Reserve Bank’s policy so far, in answer to this economic crisis, has been to repress rates to encourage growth.
Given those factors, it would seem like data center ownership is a foregone conclusion.
Before a company buys that data center, however, it will want to consider some of the factors not often assessed versus the favorable events listed above. There is a big difference between running the IT infrastructure of an organization and being the facility manager. Once a company has decided to build their own center, they are in the data center business. Things can run smooth or they can go horribly wrong.
Some of the factors unfavorable to a company buying and running its own data center:
Utilities management: Understanding the variable costs of power and how it can make or break your model is paramount to success. Power efficiency and utilization is the key component to running a successful data center financially. The elements that affect a company’s decision to go with a certain density in a “client/host” environment may now be drastically altered when weighed against the new building’s infrastructure and cooling systems. Often, the C-Level finds that one of two things need to happen: a complete revamp of the systems architecture or an unplanned necessary upgrade of systems to handle the larger space.
Further complicating things, the variable climates of the location can make a difference in the planned capacity utilization. Planning a data center in Phoenix, AZ is vastly different than planning one in Sheboygan, Wisconsin. Understanding the weather patterns and climate and associated power costs at different times of the day, year and month make all of the difference in running a highly profitable center or bleeding money.
Personnel staffing: Most C-Level IT Executives have hired System Integrators, Network Security Specialists, Data Center Managers, Application Architects, Network Technicians, Desktop Support Personnel, etc…..but they have not hired Cleaning, AC, Electrical, Plumbing and Maintenance personnel.
Understanding the core strengths and competencies of subordinates is often learned from spending years in that area. In this case, the IT Exec is now tasked with hiring for positions that they know very little about.
Managing the facilities staff is a completely different challenge. When a head of an organization does not have the hands-on experience in the areas they oversee, performance and process can suffer greatly. As I was once told in my introduction to sales management many years ago, “You have to inspect what you expect.” The point is, if you don’t know what to expect, how can you inspect it?
Wear and replacement: Knowing the life-cycle of building components (i.e.: roofing, structural elements, generators, HVAC, water pumps, electrical systems, transformers) is not usually the core competency of the typical IT professional. When you factor in the costs of depreciating assets and how they weigh into the budget versus the standard client/host model, it is a far more complex equation than before.
The on-going maintenance costs and the depreciation of the assets are often an overlooked and hidden cost.
Forces of nature: Up until this point, planning for disaster and how to recover was something the IT executive thought about in terms of servers, network and personnel. The facility itself was an afterthought, as they paid somebody else to worry about it. However, being in the data center business, that same IT executive is now fully responsible for the building. At what force wind does the building become compromised in a hurricane or tornado? What are the contingency plans if the main power source is wiped out down the street and only the backup systems can operate? How long can they operate without interruption? What is the contingency plan if the backup systems run out of fuel? What procedures are in place to sustain an entire data center being wiped out?
In other words, there are a whole slew of new responsibilities.
Scalability: One of the more overlooked aspects of data center responsibilities is the deployment cost of systems on a smaller scale that are now in a larger facility and need to be increased. When the company was in a client/host relationship, the infrastructure supported that environment. The new environment often means that additional expenditure is necessary.
Another variable along this line is the cost to upgrade the facility. It is one thing to purchase a data center, but does it have the needed structure, systems, redundancy and security to meet those needs? Often, the answer is no. I recently spoke with a leading commercial realtor who specializes in the data center industry, and they told me of a client who was excited about what they perceived to be a low cost for an available data center. After a team of consultants assessed the building, the client realized that it would cost over four times the purchase price to bring it up to commercial grade.
Given each of these factors, both positive and negative, the modern IT executive needs to determine if the organization can handle the additional duties of running the facility, as well as that proper planning has been done to accommodate all of the factors that could adversely affect the financials. If the answer is yes, then data center ownership may be an option. For those that say no to one or more of the factors listed above, it may be wise to continue a relationship with a commercial data center.
About the Author:
Eric Blaier is the founder of Integrated Business Services, Inc, an Atlanta-based telecommunications consulting firm. He has worked in IT sales and sales management for over 17 years and has worked for companies such as Allnet Communications, Allegiance Telecom and AT&T. His client roster includes numerous Fortune 500 clients in the healthcare, finance, technology, consumer goods, and consumer services sectors.
He can be reached at firstname.lastname@example.org or www.integratedbusinessservices.net