Data Center Colocation Build vs. Buy

Comparing the total cost of ownership of building your own data center vs. buying third-party colocation services

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Executive Summary

As businesses grow, the need for reliable and scalable data center space to colocate IT infrastructure also increases. Any data center or power downtime can have crippling effects on a business in the form of decreased productivity, customer churn and lost revenues. Successful businesses often outgrow their own in-house computer and telecom room quickly. They also require suitable environments to support software development, testing, QA and production applications. Furthermore, as businesses target enterprise customers, the need for industry compliance and security increases.

It is important to perform a comprehensive analysis of the costs, risks, and opportunities of building an in-house data center versus buying colocation services before expanding your data center.

Build vs. Buy Colocation

Uptime Institute’s 2015 Data Center Survey showed that colocation service providers are expanding more rapidly than enterprise data centers. The reason behind this is that many enterprise data center workloads are migrating out of private, single-tenant data centers. More and more enterprise IT leaders are finding it easier to outsource their workloads to colocation and cloud providers.

DATA CENTER SPENDING INCREASES (2014—2015)

Colocation Providers

The survey further pointed out that the colocation providers showed continued rapid growth—as shown in the percentage of new data center builds by colocation providers versus enterprises.

NEW DATA CENTER CONSTRUCTION

Have you built a dacenter in the last 12 months?

Colocation Providers 45%25

Will your organization build a new data center in the next 12 months?

Colocation Providers 59%25

Building an in-house data center is expensive. In addition to tenant improvements to raw space, a company must consider the cost of bringing in more utility power and new carriers into their own data center. Also, installing new uninterruptible power systems (UPS), DC battery plants, diesel generators and HVAC systems to cool the servers, storage and networking equipment can be prohibitively expensive. These capital expense (CapEx) costs can add up quickly. Finally, hiring experienced data center personnel adds to the expense and takes resources away from a company’s core business.

In today’s highly competitive and technology-driven environment, businesses are increasingly looking to either build or outsource their physical data center environments.

Renting space from a colocation provider may offer significant savings versus building a data center in-house, because a colocation provider has the economies of scale of serving multiple customers. Using a colocation provider can also be more cost-effective when a business needs to scale over time.

Uptime Institute Tier Classifications

When considering building a data center, organizations typically build them to “tier classification” standards implemented by the Uptime Institute. The Uptime Institute is a leading 3rd party data center research, education, and consulting organization focused on data center performance and efficiency. The Uptime institute has been synonymous with certification and standards classifications within the data center industry.cloud

Based on its research, the Uptime Institute has provided guidelines for Tier classifications and estimated the costs for building data centers. According to their research, the primary drivers of data center construction cost are the costs of power and cooling capacity to a data center.

The four Tier Classifications provide a simple means for identifying the most common designs for building data centers. The Institute’s tiered classification system addresses the needs of common benchmarking when discussing the abilities of data centers. The four tiers as classified by the Uptime Institute include the following:

  • Tier 1: Composed of a single path for power and cooling distribution, without redundant components, providing 99.671% availability.
  • Tier II: Composed of a single path for power and cooling distribution, with redundant components, providing 99.741% availability.
  • Tier III: Composed of multiple active power and cooling distribution paths, but only one path active, has redundant components, and is concurrently maintainable, providing 99.982% availability.
  • Tier IV: Composed of multiple active power and cooling distribution paths, has redundant components, and is fault tolerant, providing 99.995% availability.

The Uptime Institute’s research has also provided an estimation of the median costs of building facilities according to their tier structure. What transforms a raw space into a data center is the installation of utility power, redundant power systems and cooling. Data centers are often sized by the amount of protected electrical capacity of the facility measured in kilowatts (kW). The space required for power and mechanical needs grows incrementally based on the Tier level you decide upon. For example, Tier I and Tier II data centers can require a ratio of 1 to 1 support space, reducing actual allowed space for IT footprint. A Tier IV data center can require up to 3 to 1 of the space required to facilitate the IT footprint. Below are the Uptime Institute’s cost estimates for building a data center broken down by three components:

The “kW” Cost Component by desired level of functionality

  • Tier I: $11,500/kW of redundant UPS capacity for IT
  • Tier II: $12,500/kW of redundant UPS capacity for IT
  • Tier III: $23,000/kW of redundant UPS capacity for IT
  • Tier IV: $25,000/kW of redundant UPS capacity for IT

The “Computer Room” Component in all cases is $300/sq. ft. of computer floor and this cost must be added to the “kW cost” shown above.

The “Empty Space” Component is added to the “kW cost” above at $190/sq. ft.

Cost Examples of Building a Data Center In-house

Based on the Uptime Institute benchmark costs, building data centers can be expensive. For example:

Mid-sized Enterprise Data Center (5,000 square feet)

  • Tier II level facility with 160 racks at 5.0 kW/rack (800 kW of UPS-protected power) @ 5.0kW/rack. (5,000 sq. ft. X $300/sq. ft.) + (800 kW x $12,500/kW) = $11.5 million
  • Tier III level facility, with 160 racks at 10.0 kW/rack (1,600 kW of UPS-protected power) @ 10.0kW/rack. (5,000 sq. ft. X $300/sq. ft.) + (1,600 kW x $23,000/kW) = $38.3 million

Small Data Center (1,000 square feet)

  • Tier II level facility with 32 racks at 5.0 kW/rack (160 kW of UPS-protected power) @ 5.0kW/rack. (1,000 sq. ft. X $300/sq. ft.) + (160 kW x $12,500/kW) = $2.3 million
  • Tier III level facility, with 32 racks at 10.0 kW/rack (320 kW of UPS-protected power) @ 10.0kW/rack. (1,000 sq. ft. X $300/sq. ft.) + (320 kW x $23,000/kW) = $7.7 million

Large “Telco Room” (500 square feet)

  • Tier II level facility with 16 racks at 5.0 kW/rack (80 kW of UPS-protected power) @ 5.0kW/rack. (500 sq. ft. X $300/sq. ft.) + (80 kW x $12,500/kW) = $1.2 million
  • Tier III level facility, with 16 racks at 10.0 kW/rack (160 kW of UPS-protected power) @ 10.0kW/rack. (500 sq. ft. X $300/sq. ft.) + (160 kW x $23,000/kW) = $3.8 million

Build vs. Buy Colocation Comparisons

rowBelow we will compare the costs of 1) building a single tenant data center and 2) renting space from a retail colocation provider. The cost assumptions are based on matching the material, operations, and maintenance programs of a TIER II colocation provider. We also include the ongoing operational costs over a 5-year period. These comparisons assume a build option with the load at 40% of capacity with room for growth, utility costs of $.08 per kWh and a 2.0 Power Usage Effectiveness (PUE), and an average 5 mile local loop/fiber cost of $150 per mile per strand vs. cross connects. Note that while many colocation operators with deep expertise in power efficiency and management can maintain a PUE of 1.3 to 1.5, building a single-tenant facility that is relatively small will result in a higher PUE. We have chosen to be extremely conservative in using a PUE assumption of 2.0.

Example A: 3 Cabinets @ 3kW per cab = 9 kW Load @30 kW Total Power Capacity

Costs to Build Data Center In-House

Architectural, Engineering, and Permitting

Description Material Labor Total
Engineering $ $ 14,625.00 $ 14,625.00
Permits, Prep, and Demo $ $5,435.50 $5,435.50

Power Construction

Description Material Labor Total
Utility Improvements $5,427.50 $2,355.39 $7,782.89
Electrical Panels Switch Gear $29,250.00 $13,325.00 $42,575.00
Transfer Switches $21,125.00 $1,811.84 $22,936.84
N+1 UPS Systems $58,500.00 $13,000.00 $71,500.00
TVSS System $362.37 $362.37 $724.73
Generator & Enclosures $46,800.00 $9,421.55 56,221.55
Generator Conduit and Cabling $1,449.47 $1,449.47 $2,898.94
Data Center Lighting $1,521.94 $1,304.52 $2,826.47
Lighting Protection $543.55 $181.18 $724.73
Room PDUs $16,250.00 $13,000.00 $29,250.00

Environmental Controls

Description Material Labor Total
Facility Management System $2,174.20 $362.37 $2,536.57
CCTV $1,087.10 $181.18 $1,268.29
Building Access System $1,072.50 $181.18 $1,253.68
Total Build Estimate     $314,319.86

Total Colocation Cost of Ownership Build vs. Buy Comparison over 5 years

  Build In-house Buy Colocation Services
Constructions Costs $314,320.00 $0.00
Floor Space 500 sq. ft. @ $12 sq. ft. Annually $30,000.00 $0.00
Utility Electricity Cost @ 2.0 $63,072.00 $0.00
Electrical Maintenance Costs $23,855.00 $0.00
HVAC Maintenance Costs $26,786.00 $0.00
All Other System Maintenance $26,786.00 $0.00
Internet, Fiber, and Local Loop Charges $180,000.00 $30,000.00
Colocation Svcs. 9kW@$350/kW/mo + $10k NRC $0.00 $199,000.00
Total $640,354.00 $229,000.00

64% Cost Savings of Buying Colocation vs. Building In-House

Example B: 8 Cabinets @ 3kW per cab = 24 kW Load @70 kW Total Power Capacity

Costs to Build Data Center In-House

Architectural, Engineering, and Permitting

Description Material Labor Total
Engineering $ $20,250.00 $20,250.00
Permits, Prep, and Demo $ $7,526.10 $5,435.50

Power Construction

Description Material Labor Total
Utility Improvements $7,515.00 $3,261.31 $18,000.00
Electrical Panels Switch Gear $40,500.00 $18,450.00 $58,950.00
Transfer Switches $29,250.00 $2,508.70 $31,758.70
N+1 UPS Systems $81,000.00 $18,000.00 $99,000.00
TVSS System $ 501.74 $501.74 $1,003.48
Generator & Enclosures $64,800.00 $13,045.22 $77,845.22
Generator Conduit and Cabling $2,006.96 $2,006.96 $4,013.91
Data Center Lighting $2,107.31 $1,806.26 $3,913.57
Lighting Protection $752.61 $250.87 $1,003.48
Room PDUs $22,500.00 $18,000.00 $40,500.00

Environmental Controls

Description Material Labor Total
HVAC Assets $63,550.00 $45,714.03 $109,264.03
Raised Plenum Floor $8,914.24 $13,714.21 $22,628.45
Condensate Drains $914.28 $914.28 $1,828.56
Leak Detection $2,742.84 $548.57 $3,291.41
Fire Suppression $19,372.50 $6,857.10 $26,229.60

Environmental Controls

Description Material Labor Total
Facility Management System $6,857.10 $1,142.85 $7,999.96
CCTV $3,428.55 $571.43 $3,999.98
Building Access System $3,382.50 $571.43 $3,953.93
Total Build Estimate     $991,316.53

Total Colocation Cost of Ownership Build vs. Buy Comparison over 5 years

  Build In-house Buy Colocation Services
Constructions Costs $314,320.00 $0.00
Floor Space 500 sq. ft. @ $12 sq. ft. Annually $30,000.00 $0.00
Utility Electricity Cost @ 2.0 $63,072.00 $0.00
Electrical Maintenance Costs $23,855.00 $0.00
HVAC Maintenance Costs $26,786.00 $0.00
All Other System Maintenance $26,786.00 $0.00
Internet, Fiber, and Local Loop Charges $180,000.00 $30,000.00
Colocation Svcs. 9kW@$350/kW/mo + $10k NRC $0.00 $199,000.00
Total $640,354.00 $229,000.00

64% Cost Savings of Buying Colocation vs. Building In-House

Example B: 8 Cabinets @ 3kW per cab = 24 kW Load @70 kW Total Power Capacity

Costs to Build Data Center In-House

Architectural, Engineering, and Permitting

Description Material Labor Total
Engineering $ $46,125.00 $46,125.00
Permits, Prep, and Demo $ $17,142.76 $17,142.76

Power Construction

Description Material Labor Total
Utility Improvements $17,142.76 $7,428.53 $24,546.03
Electrical Panels Switch Gear $92,250.00 $42,025.00 $134,275.00
Transfer Switches $66,625.00 $42,025.00 $72,339.25
N+1 UPS Systems $184,500.00 $41,000.00 $225,500.00
TVSS System $1,142.85 $1,142.85 $2,285.70
Generator & Enclosures $147,600.00 $29,714.12 $177,314.12
Generator Conduit and Cabling $4,571.40 $4,571.40 $9,142.81
Data Center Lighting $4,799.97 $4,114.26 $8,914.24
Lighting Protection $1,714.28 $571.43 $2,285.70
Room PDUs $51,250.00 $41,000.00 $92,250.00

Environmental Controls

Description Material Labor Total
HVAC Assets $63,550.00 $45,714.03 $109,264.03
Raised Plenum Floor $8,914.24 $13,714.21 $22,628.45
Condensate Drains $914.28 $914.28 $1,828.56
Leak Detection $2,742.84 $548.57 $3,291.41
Fire Suppression $19,372.50 $6,857.10 $26,229.60

Environmental Controls

Description Material Labor Total
Facility Management System $6,857.10 $1,142.85 $7,999.96
CCTV $3,428.55 $571.43 $3,999.98
Building Access System $3,382.50 $571.43 $3,953.93
Total Build Estimate     $991,316.53

Total Cost of Ownership over 5 years

  DIY TIER II Colocation
Constructions Costs $991,317.00 $0.00
Floor Space 500 sq. ft. @ $12 sq. ft. Annually $150,000.00 $0.00
Utility Electricity Cost @ 2.0 $420,480.00 $0.00
Electrical Maintenance Costs $54,337.00 $0.00
HVAC Maintenance Costs $44,643.00 $0.00
All Other System Maintenance $5,287.00 $0.00
Internet, Fiber, and Local Loop Charges $180,000.00 $30,000.00
Colocation Svcs. 9kW@$350/kW/mo + $10k NRC $0.00 $1,460,000.00
Total $1,846,064.00 $1,490,000.00

19% Cost Savings of Buying Colocation vs. Building In-House

Costs to Build In-House Data Center

Building your own in-house data center is not a walk in the park. You need to make an informed decision about the feasibility of building one versus colocating your workloads to a colocation provider. An in-depth analysis of the costs, risks, and opportunities corresponding to each option helps uncover hidden costs:

ConstructionConstruction

Through the phases of planning, engineering, building, and completion, a typical data center for single tenant use could take 12-24 months to be move in ready. Existing colocation providers can have spaces move in ready within weeks, a much shorter time frame to manage.

Core Business and StaffingCore Business and Staffing

Building a data center means a company will need to shift time, knowledge, expertise, and additional personnel resources away from their core business to understand the specialized needs in a data center such as power, cooling, fire suppression, security, maintenance and local/environmental codes.

Ongoing SupportOngoing Support

Businesses must also consider not only the initial startup costs involved with construction and acquisition of real estate, but also the ongoing costs of power, heating and air conditioning, along with the security and maintenance of these physical assets.

Scalability

A life cycle of 10 or more years is expected when building a single tenant data center. This may lead to initial overbuilds that adds to the bill: additional capital, infrastructure, and energy consumption costs. If the data center is too big, the cost of each rack will be higher. If the data center is too small, the business will run out of space too soon and lose the cost-saving benefits through economies of scale. Colocation leases can be made for much shorter time frames, and allow a business to grow or reduce their footprint as needed. Colocation options typically allow capacity to be added or removed quickly and cost effectively.

Shared Cost Structure

In a single tenant data center, all of the costs of the space, power, and environmental infrastructure are absorbed by the user. A colocation service provider allows its clients to share in the lower fixed costs of facility management, maintenance, security and costs of infrastructure.

ConnectivityConnectivity

Building a single tenant data center can add additional costs of connectivity from carriers and ISPs by adding fiber and local loop charges. This can also extend the timeline for the facility to become fully operational. Colocation providers typically have carrier pops located within their premises that provide redundancy and access to their networks without additional local loop fees. Colocation providers may need to share the cost of building fiber entrance facilities or create an incentive to make it worthwhile for the carrier to extend their fiber network into the data center.

CertificationsCertifications

Another cost that needs to be accounted for is the cost of certifications as well as the requirements and processes that need to be in place for certifications such as SSAE16 and HIPAA.

Colocate with 365 Data Centers

365 Data Centers provides the flexibility to scale quickly and cost-effectively, allowing customers to start small and grow rapidly. With a variety of colocation options, short installation intervals, and temporary colocation alternatives, we provide colocation services across 10 U.S. facilities located in tier 1 and 2 cities. Our services are highly secure and reliable. All of our facilities meet the compliance standards of HIPAA, PCI, SSAE 16 and ISAE 3402. With more than ten years of 100% uptime track record, 365 Data Centers has proven to be an industry leader in managed colocation services.

Conclusion

Building an in-house data center is an expensive undertaking especially when you consider the total cost of ownership over the next five years. Buying colocation services from a third-party service provider is more cost-effective than building your own. Based on estimates by the Uptime Institute, colocating can be 19%—64% more cost-effective than building an in-house Tier 2 data center.

References

Uptime Institute Website: http://uptimeinstitute.com/about-us

Uptime Institute White Paper: Dollars per kW plus Dollars per Square Foot of Computer Floor: http://www.level8group.com/uploads/CostModelDollarsperk-WPlusDollars.pdf

Uptime Institute White Paper: Data Center Site Infrastructure Tier Standard: Topology: http://www.gpxglobal.net/wp-content/uploads/2012/10/TIERSTAN-DARD_Topology_120801.pdf

Uptime Institute Data Center Industry 2015: https://uptimeinstitute.com/ui-2015-survey

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About 365 Data Centers

365 Data Centers is the leading data center solutions provider for cloud, content, carriers, and enterprises in tier 2 markets. We operate 10 U.S. data centers and help hundreds of businesses to improve user experience, reduce cost, and speed innovation by leveraging our secure, carrierneutral, and reliable edge colocation services. With 100% uptime and industry compliance, 365 Data Centers ensures that mission-critical application infrastructure is highly available and conveniently accessible.

For more information, visit 365datacenters.com

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