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Data Center Makeovers

"IDC expects that for the next several years, there will be considerable investment in a data center 'makeover' not just in data center systems and technologies but in the actual facility itself in terms of design, construction, operations, staffing, strategy, and processes...Operational costs routinely exceed 50% of the total IT budget. In addition, organizations' most common business goals fly in the face of conventional data center practices."

"Global expansion, mergers and acquisitions, and new product development are at the core of most businesses' growth strategies today and require the ability of IT organizations to grow, consolidate, and innovate all at the same time. Competitive pressure also dictates the need to address improved quality and higher levels of customer satisfaction."

This is the situation overview of "The Benefits of Data center Transformation with HP," an IDC whitepaper sponsored by HP.

As I've said, I like reading older whitepapers (this one is four years old) to see if the author's predictions have come true. While this paper is obviously supporting specific HP services, the observations about the data center are applicable to the entire industry.

Virtualization, the cloud, data center consolidation and aging enterprise data centers are driving the growth of the third-party data center market, both wholesale and retail. Two reports came out this year that talk about the aging enterprise data centers and how they will continue to fuel growth of the provider market. The Wizard wants to know about the aging third-party data centers. This boom started almost ten years ago and the Wizard might argue that it's not just enterprise data centers getting old.

IDC goes on to say, "The average age of a data center in the United States is 12 years, which means that the typical data center was built to support a substantially smaller number of servers that required far less power and cooling, rack space, and cabling. For this reason, IDC has observed a substantial turnover in older sites in favor of newer data centers. The challenge for today's IT organization is to plan for the future data center, which typically has a life span of 20-25 years. Ultimately, IDC sees a new blueprint for the future data center facility that is scaled by constructing modular building blocks compared with building out for a 25-year capacity..."

So data centers are aging and ten-year-old data centers (enterprise or third-party) are facing facelift challenges. More power, more cooling, more services/systems/ automation is required. Who will foot the bill for these facelifts?

  1. Enterprise data centers. Obviously the enterprise has to pay for this facelift and that's what the data center industry is counting on - the hope that enterprises will be driven to outsource.

  2. The retail or colocation provider. The provider pays for it, of course. And while there's no doubt that some of these costs make their way into the colocation provider's rates, the enterprise has the ability to lock in inclusive pricing over a number of years that will account for the facelift costs. Colocation providers also traditionally make their upgrades along the way to mitigate the capital impact on the provider and the customer, as well as themselves. The net result is that colocation provider rate increases are years apart, and the customer does not feel the big capital hit. Of course as a retail provider, cost increases get spread over dozens, even hundreds of customers in a data center versus one or two guys bearing the brunt of it.

  3. The real estate-centric provider. Now it gets interesting. Rich Miller had a great piece on this subject:, in which he cites Higland Capital Management, "...asserted that investors should short shares of Digital Realty Trust, saying the huge data center developer was understating the future investment in facilities that would be required to support its enterprise customers." Wow! So the Wizard feels like he is in good company. I'm not the only one wondering about the facelift impact. Certainly Digital had great replies that made a lot of sense, but the cat, she is out of the bag. This question seems to support what HP alluded to four years ago.

    To me the most enlightening commentary regarding facelifts comes from the CEO of DuPont Fabros in the same Data Center Knowledge. According to the article, on a recent earnings call the CEO said, "Since we're a ground-up developer, we have not acquired any properties with existing lease.. Every lease that we have signed is with a lease that we have written. All our leases are triple-net. This allows us to recover all our operating expenses. Should these expenses go up, we'll be reimbursed by our tenants." Reimbursed? Cool word. Sounds like rent increase to me.

    Fateh sites an example of how this works, "We replaced the batteries for the building, and we're able to pass this replacement cost through to our tenants over the useful life of the batteries, which is 12 years," said Fateh." But not to worry, he said tenants are willing to pay these maintenance expenses because "'s in their best interest. Our customers do not want us to be financially incentivized to cut corners on maintenance." I actually agree with this, the client certainly wants his data center up to speed to keep his systems running, but it sure seems like the enterprise end is bearing much of the facelift cost.
IDC talks a bit about automation as part of the anticipated increase in data center costs as well, "Customers increasingly address the physical challenges of the data center through virtualization technologies, a more agile and flexible foundation for the future data center is being put into place with the use of mobility and automation tools."

A huge part of data center facelift revolves around automation tools. Tools cost money and will add to the cost of operating a data center. Looking at your data center provider tool set will tell you much about their long-term commitment to maintaining their environments. It also will signal their willingness to be transparent in the systems upkeep and maintenance. Data center providers not making investments in DCIM-like tools, modeling tools, and integrated BMS systems aren't watching their systems close enough. The enterprise is beginning to demand visibility from their provider, and they have every right to. Who will bear the brunt of these costs? Here's a hint, see above.

The punch line is simply this, "It is IDC's opinion that the data center has reached a turning point, and for IT organizations to continue to support the needs of their business, fundamental changes will have to be made to technologies, policies, and people."

Change is a-coming, and the modern enterprise should make sure that the data center provider has the ability, and the business model, to be able adapt to that change.

The Wizard
Twitter - @DataBankWizard


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