Build vs. Buy. A ColoHouse Data Center Whitepaper

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1 Build vs. Buy A ColoHouse Data Center Whitepaper The need for data center space is growing while demand continues to outpace supply. In this examination, we weigh the options of building and maintaining a data center (build), or leasing colocation services from a data center provider (buy).

2 Build vs. Buy A comparison from a per cabinet point of view The need for data center space is growing while demand continues to outpace supply. The amount of data being generated that must be processed, stored and manipulated is multiplying at a profound rate. Business organizations; whether they are SMB s or Enterprise sized firms, varying in industry, must consider how to efficiently and effectively manage their critical IT equipment. The age-old question nearly every business owner eventually faces remains; build or buy? In this examination, we weigh the options of building and maintaining a data center (build), or leasing colocation services from a data center provider (buy). Background Building a data center (build) is a model in which a company elects to build and maintain their own single-tenant data center. Leasing colocation space (buy) from a multi-tenant data center provider is a model in which the client rents or owns all IT hardware and leases data center space. The space is inclusive of power, cooling, fire suppression, physical security and, in some instances, cabling and connectivity. Evaluating the decision of build vs. buy is influenced by the appraisal of real dollars associated with commissioning and construction as well as the on-going expenses related to managing and maintaining data center infrastructure and personnel. The following are key considerations that are vital in determining whether to build or lease a data center. Key Considerations Ability to Scale Data center needs are a moving target and require evaluation in short cycles. Building a traditional data center typically requires an expected lifecycle of years involving as many as five IT refresh cycles. This may lead to overbuilds, which in turn create a waste of capital, costly infrastructure and energy; as the data center may lay empty for the first few years. In contrast, colocation leases are typically short-term (1-2 years) and more readily allow clients to increase or decrease their data center footprint. More often than not, capacity may be added or reduced quickly and cost-effectively, on an as-needed basis. Build Time A typical data center build requires months from planning to completion. For clients requiring data center space in a shorter timeframe, collocating with a data center provider may be the most viable option. Economies of Scale Colocation providers build and maintain their data centers for multiple tenants. This enables their clients to share in the fixed costs of management, security and premium facility infrastructure. Additionally, this method assists clients in obtaining better pricing on utility, connectivity, and maintenance costs. The Network Third-party data center providers typically create multi-homed networks, offering access to multiple redundant carriers. This approach builds redundancy into network architecture without the capital expense required in

3 transporting fiber directly to the client s location. Additionally, this provides an opportunity for clients to gain access to competitive pricing through the virtue of choice. Industry Experts Data center design and operations necessitate specialized knowledge of power, cooling, fire suppression, security and network systems. Data center providers are the industry experts for infrastructure design, build, and maintenance of all critical always-on systems that support today s complex IT environment. These experts have the aptitude to allocate resources effectively, optimizing colocation as a viable solution; while enabling clients to reap the value-added benefits of their knowledge. The Money The initial expenditures of data center construction, in addition to the network and utility installation expenses, have the propensity to accumulate to thousands of dollars per square foot. Often these charges are financed, adding to the total cost of operation. Frequently operational and maintenance overhead is variable, these elements substantiate the difficulty for clients when attempting to accurately forecast and budget. In contrast, fixed monthly costs related to leasing data center space are consistent, predictable and based on actual needs and usage. Additionally, it is important to note that data center construction is CAPEX intensive due to the associated upfront building costs. Therefore, many companies realize the benefits of collocating (buy), which would require ongoing OPEX expenditures. Financing and cash flow concerns become irrelevant in this case. Location, Location, Location Traditionally, location has been one of the primary driving factors for those who utilize data center services. Selecting a location for building or leasing data center space is often driven by business initiatives and strategy. Significant location considerations include telecommunications infrastructure, exposure to natural disasters, easy access for IT operation teams, convenient ingress and egress points as well as ease of access to local amenities. Additionally, a shift in the industry towards leasing colocation space is increasingly prevalent due to the availability of quality data center providers as well as the associated ongoing complexities and costs of building a data center. Quality third-party data center providers are found in many geographic markets. Selecting a local colocation company can be a sensible option when convenient location is a primary decision factor. Moreover, recent trends indicate that when companies elect to collocate, they do so within thirty miles from the office where their primary technology team is located. Alternatively, some clients require a remote location some distance from their office for purposes of business continuity or disaster recovery. Selecting a multi-site provider with a local presence is a value-added option for these businesses. Many times, these sites are networked together and can be an essential asset in disaster recovery and business continuity planning. Providers with a geo-redundant footprint allow for true business continuity and near-zero downtime. Controlling the Environment Control is one of the single-most important reasons that businesses elect to build a data center as opposed to leasing colocation space. Organizations that face regulatory compliance require operational controls and the ability to audit those controls. A quality data center provider will be able to facilitate regulatory data compliance by maintaining industry best practices such as SSAE 16 certifications, lease terms and providing flexibility in design. In fact, by virtue of the type of services they deliver most data center providers are uniquely situated and more than adequately prepared to assist their clients in establishing compliance with security and privacy regulations and requirements. A quality multi-tenant data center provider understands that they become an extension of the tenant s infrastructure, and therefore must meet ever-changing compliance and regulatory requirements.

4 The Numbers Costs Understanding the costs associated with each option; build vs. buy, provides the opportunity to determine which option is most financially feasible or best suited for a particular organization. Presented below is a hypothetical scenario in which a company requires 50 cabinets. A requirement of 2,500 square feet of space is estimated with 3.5 kw per cabinet as the power density. Assumptions This model is based on the cost model i developed in 2008 by the Uptime Institute, a leading data center research firm Due to the individual nature of each project, there is an assumed margin of error Construction and other costs have been adjusted from the original published model of 2007 costs to 2012 costs based on the Engineering News Record indexes 2,500 square foot data center accommodating 50 cabinets 3.5 kw per cabinet power density with the use of air-cooled HVAC units No allowance for Network Operation Center (NOC) or offices Data Center Construction Cost Model The cost model for the data center construction consists of 2 parts, the computer room component and the kw component. The computer room component includes the raw space independent of the Tier level and includes flooring, building shell, common spaces, lighting, building HVAC, fire detection and sprinklers, and other space items not related to kw. o $343 per square foot The kw component cost is determined by the desired Tier Level as defined by the Uptime Institute and includes the redundant power and cooling infrastructure for IT. o Tier I: $11,500 o Tier II: $12,500 o Tier III: $23,000 o Tier IV: $25,000 Additional construction costs include the following: 6% of project cost for Architectural and Engineering fees 10% of the project cost for Project Management fees 10% of the project for contingency costs Tiers: Defined ii Tier I: Basic Site Infrastructure The fundamental requirement: A Tier I basic data center has non-redundant capacity components and a single, non-redundant distribution path serving the computer equipment. Twelve hours of on-site fuel storage for engine generator(s). The performance confirmation tests: There is sufficient capacity to meet the needs of the site. Planned work will require most or all of the site infrastructure systems to be shut down affecting computer equipment, systems, and end users. The operational impacts: The site is susceptible to disruption from both planned and unplanned activities. Operation (Human) errors of site infrastructure components will cause a data center disruption.

5 An unplanned outage or failure of any capacity system, capacity component, or distribution element will impact the computer equipment. The site infrastructure must be completely shut down on an annual basis to safely perform necessary preventive maintenance and repair work. Urgent situations may require more frequent shutdowns. Failure to regularly perform maintenance significantly increases the risk of unplanned disruption as well as the severity of the consequential failure. Tier II: Redundant Site Infrastructure Capacity Components The fundamental requirement: A Tier II data center has redundant capacity components and a single, non-redundant distribution path serving the computer equipment. Twelve hours of on-site fuel storage for N capacity. The performance confirmation tests: Redundant capacity components can be removed from service on a planned basis without causing any of the computer equipment to be shut down. Removing distribution paths from service for maintenance or other activity requires shutdown of computer equipment. There is sufficient permanently installed capacity to meet the needs of the site when redundant components are removed from service for any reason. The operational impacts: The site is susceptible to disruption from both planned activities and unplanned events. Operation (Human) errors of site infrastructure components may cause a data center disruption. An unplanned capacity component failure may impact the computer equipment. An unplanned outage or failure of any capacity system or distribution element will impact the computer equipment. The site infrastructure must be completely shut down on an annual basis to safely perform preventive maintenance and repair work. Urgent situations may require more frequent shutdowns. Failure to regularly perform maintenance significantly increases the risk of unplanned disruption as well as the severity of the consequential failure. Tier III: Concurrently Maintainable Site Infrastructure The fundamental requirements: A Concurrently Maintainable data center has redundant capacity components and multiple independent distribution paths serving the computer equipment. Only one distribution path is required to serve the computer equipment at any time. All IT equipment is dual powered as defined by the Institute s Fault Tolerant Power Compliance Specification, Version 2.0 and installed properly to be compatible with the topology of the site s architecture. Transfer devices, such as point-of-use switches, must be incorporated for computer equipment that does not meet this specification. Twelve hours of on-site fuel storage for N capacity. The performance confirmation tests: Each and every capacity component and element in the distribution paths can be removed from service on a planned basis without impacting any of the computer equipment. There is sufficient permanently installed capacity to meet the needs of the site when redundant components are removed from service for any reason. The operational impacts: The site is susceptible to disruption from unplanned activities. Operation errors of site infrastructure components may cause a computer disruption. An unplanned outage or failure of any capacity system will impact the computer equipment. An unplanned outage or failure of a capacity component or distribution element may impact the computer equipment. Planned site infrastructure maintenance can be performed by using the redundant capacity components and distribution paths to safely work on the remaining equipment.

6 During maintenance activities, the risk of disruption may be elevated. (This maintenance condition does not defeat the Tier rating achieved in normal operations.) Tier IV: Fault Tolerant Site Infrastructure The fundamental requirements: A Fault Tolerant data center has multiple, independent, physically isolated systems that provide redundant capacity components and multiple, independent, diverse, active distribution paths simultaneously serving the computer equipment. The redundant capacity components and diverse distribution paths shall be configured such that "N" capacity is providing power and cooling to the computer equipment after any infrastructure failure. All IT equipment is dual powered as defined by the Institute s Fault Tolerant Power Compliance Specification, Version 2.0 and installed properly to be compatible with the topology of the site s architecture. Transfer devices, such as point-of-use switches, must be incorporated for computer equipment that does not meet this specification. Complementary systems and distribution paths must be physically isolated from one another (compartmentalized) to prevent any single event from simultaneously impacting both systems or distribution paths. Continuous Cooling is required. For more information see the Institute publication Continuous Cooling Is Required for Continuous Availability. Twelve hours of on-site fuel storage for N capacity. The performance confirmation tests: A single failure of any capacity system, capacity component, or distribution element will not impact the computer equipment. The system itself automatically responds ( self-heals ) to a failure to prevent further impact to the site. Each and every capacity component and element in the distribution paths can be removed from service on a planned basis without impacting any of the computer equipment. There is sufficient capacity to meet the needs of the site when redundant components or distribution paths are removed from service for any reason. The operational impacts: The site is not susceptible to disruption from a single unplanned event. The site is not susceptible to disruption from any planned work activities. The site infrastructure maintenance can be performed by using the redundant capacity components and distribution paths to safely work on the remaining equipment. During maintenance activity where redundant capacity components or a distribution path shut down, the computer equipment is exposed to an increased risk of disruption in the event a failure occurs on the remaining path. This maintenance configuration does not defeat the Tier rating achieved in normal operations. Operation of the fire alarm, fire suppression, or the emergency power off (EPO) feature may cause a data center disruption. Leased Colocation Costs (buy) On average, Tier I colocation space is priced from $700 to $1,000 per cabinet per month, Tier II colocation space is priced from $1,000 to $1,500 per cabinet per month, Tier III colocation space is priced from $1,500 to $2,000 per cabinet per month and Tier IV colocation space is priced from $2,000 to $2,500 per cabinet per month. Initial setup fees are generally paid on delivery and approximately equal to one month's recurring cost. This model assumes a single full cabinet with redundant 20 amp 208 volt power circuits.

7 Benchmarking Costs: Build vs. Buy Comparison For this study we will use Tier II colocation as a numerical benchmark for a build vs. buy cost comparison, as many data centers are built or leased with this configuration. Please continue to read on below for a numerical breakdown of the additional Tier standards (Tiers I, III and IV). Tier II Data Center Example: Initial CAPEX (Startup Costs) Build vs. Buy Comparison Description Build Buy Notes Computer room component $857,500 Included 2,500 ft 2 x $343/ft kw component $2,187,500 Included (3.5 kw x 50 cabinet) x $12, Cabinets with 208V 20A circuit $35,000 $60,000 For Lease: $1,200 per cabinet For Build: $700 per cabinet Start-up Subtotal $3,080,000 $60,000 Architect & Engineering $184,800 N/A Estimated at 6% Project Manager Fee $308,000 N/A Estimated at 10% Contingency $308,000 N/A Estimated at 10% Start-up Cost Total $3,880,800 $60,000

8 Tier II Data Center Example: OPEX (Annual Recurring Costs) Build Vs. Buy Comparison Description Build Buy Notes 50 Cabinets with 208V 20A circuit + Cooling $261,929 $720,000 For Build: 208V * 20A = 4,160W *.80 = 3,328W * 50 = 166,400W HVAC: 1W of HVAC per W of IT = 166,400 Grand total = 332,800W Total * 24h/day * 30.5 day/mon *332,800W = 243,609,600 total Wh 243,609,600 Wh / 1000 Wh = 243,609.6 kwh Average kwh costs $ ,609.6 kwh * $0.0896/kWh = $21, / month For Lease: $1,200 per cabinet* 12 months Other Operating Expenses $616,000 N/A Estimated to be 20% of Start-up cost subtotal. Includes maintenance, labor, monitoring, insurance, cost of money, taxes, etc Annual Cost Total $877,929 $720,000

9 Additional Tier Figures The following Data Center costs, specified by Tier, are based on figures defined by the Uptime Institute. As previously stated, we will draw comparisons based on our example, Tier II colocation. Additional Tier Figures: CAPEX and OPEX Build Vs. Buy Comparison Build Buy Tier I CAPEX Startup Cost $3,660,300 $40,000 CAPEX Percentage vs. Tier II -6% -33% Annual OPEX $842,929 $480,000 Annual OPEX Percentage vs. Tier II -4% -33% Build Buy Tier III CAPEX Startup Cost $6,196,050 $85,000 CAPEX Percentage vs. Tier II 60% 42% Annual OPEX $1,245,429 $1,020,000 Annual OPEX Percentage vs. Tier II 42% 42% Build Buy Tier IV CAPEX Startup Cost $6,637,050 $110,000 CAPEX Percentage vs. Tier II 71% 83% Annual OPEX $1,245,429 $1,020,000 Annual OPEX Percentage vs. Tier II 50% 83% A Note On Data Center Infrastructure Refresh Earlier in this comparison we stated that traditionally data centers are built with a 10 to 15 year lifespan. The current IT climate and consumerization of IT, coupled with big data and a mass migration to the cloud, is pushing the limits of traditional infrastructure capabilities while shrinking the life span of data centers. The cost comparison charts presented in the section above are designed for above average server power consumption, and not for true high density computing; such as blade servers and storage area network (SAN) infrastructure that support heavy virtualization and distributed computing. We anticipate a cost to upgrade power and cooling infrastructure at the minimum of 5 and 10 year marks in the models presented within this paper. Advantages Advantages of Building a Single-Tenant Data Center (build) Complete control over the operating environment Ability to leverage existing space Real estate asset Ability to re-task facility for multiple functions (Disaster Recovery, Office Space)

10 Advantages of Leasing Colocation Space (buy) Significantly reduced initial capital outlay Enhanced security Reliable power and cooling Faster time to market No need to focus on technology changes and upgrades to infrastructure Flexibility to grow or shrink data center footprint as needed No need to staff, monitor, and maintain the facility Access to a variety of network service providers Results While some businesses may have requirements that dictate they build and maintain their own data center, for most organizations, it makes financial sense to consider colocation at a third party data center. The comparison displays that for companies with similar IT requirements, or smaller, the start-up and recurring costs of leasing (buy) colocation services can be much more cost-effective than building and supporting a single tenant enterprise data center (build).

11 Forrester, an information technology market research firm, offers the following insight to the build vs. buy debate iii Recommendations BEYOND DOLLARS AND CENTS, CONSIDER CORE COMPETENCIES, RISK AND FORECAST The nonfinancial benefits of building or leasing a data center are critical decision points. However, IT I&O professionals must think beyond just dollars and cents. Beyond calculating the total economic impact of a leased versus owned data center, Forrester recommends that I&O leaders ask themselves the following questions: Is owning and operating a data center a strategic differentiator? An important consideration in the lease versus build decision is core competency. An important question to ask yourself is whether you want to be in the business of running a data center. Can you operate a data center facility as well as, or better than, a third-party provider? For most companies, the answer is no, and they would be better off directing resources toward other more differentiated or strategic areas. But in some cases, the answer is yes, if your organization is a producer or operator of technology or a large operator of industrial space, for example. In these less common cases, when it is a strategic differentiator to run a data center, whether or not it makes economic sense for the company, building is the more advantageous option. How effective is my organization s capacity planning capability? An important early step in planning for a new data center, you will need to forecast out the capacity for up to 15 years in advance, a difficult task for many companies. If leasing, the forecast only needs to extend to the life of the lease, generally less than five years. What is my organization s risk tolerance and culture? Building a data center facility is accompanied by the risks associated with making a massive capital investment. However, leasing a data center facility has associated risks involving the loss of control of every aspect of a facility. Which of these risks is more tolerable to your specific organization? Additionally, leasing a data center often means moving infrastructure away from the headquarters or the company. Some company cultures will not be accepting of the idea of moving the physical infrastructure to a different building (or city) than the IT staff and monitoring and managing the data center remotely. About ColoHouse ColoHouse is the premier Miami data center and hosting facility, as well as a leading provider of carrier-neutral data center services in North America, with 24,000 square feet of carrier-grade space available at our SSAE 16 certified, Category 5 hurricane protected facility in Miami. ColoHouse provides clients with the competitive advantages of industry-leading security, environmental, and connectivity technologies at best-in-class value. For details, visit i ii iii Of%20Data%20Center%20Facilities.pdf