Updated: Feb 23
Clients are often challenged when buying managed services such as private cloud offerings and outsourcing the use of data centers. They want the flexibility and scalability of these services but have trouble understanding and comparing the pricing. We emphasize creating leverage and demanding transparency in all deal-making, and offer the following pointers to these buyers, specifically.
Here are the five options when thinking about data centers:
Traditional on-premise data center - where you host everything on your infrastructure. This old-school model is giving way to new, cheaper, and faster alternatives offered by an array of vendors.
Co-location data center – where the vendor provides the data center facility, but the infrastructure is managed and run by you.
Data center outsourcing – where you rent space, services, infrastructure from a vendor, but share many of the responsibilities. Asian-Pacific countries are starting to become a hub for IT outsourcing. China is the leading example as its being forced to scale quickly to meet market demand.
Private cloud – where the vendor bundles space, hosting services, infrastructure and a software element into the solution.
Public cloud – where all data center elements are managed by a vendor but you’re sharing servers with other clients. This market is exploding, and Microsoft and AWS dominate the segment, with Google and IBM coming on strong.
Data center services are managed services, customized to your environment. As you move down this chain from an on-premise data center to the public cloud, you gain scalability but give up a lot of control. But what’s tricky about these engagements is trying to do an “apples-to-apples” comparison on costs.
Co-location is the least bundled data center service, so these are easiest to benchmark. Co-location is fairly straightforward: you’re charged by the size of the space and your hourly power consumption, e.g., $1 per KW hour. Depending on where the location is, these costs can vary (metro vs non-metro areas, different cities, different countries); we advise clients to review suppliers in similar areas when doing a cost comparison.
Data center outsourcing and private cloud offerings are similar in the way they are structured. The private cloud offering spun out of the data center outsourcing model – the vendors moved clients to the private cloud because its more profitable. The private cloud offering has a software component, which allows the supplier to charge based on a more granular metric, i.e., per gigabyte or per server image. This increases cost based on actual use, even if the number of your devices in your data center remains flat. Therefore, there is more financial risk here – the comparison is hard to make against other client deals, since no two deals are alike in terms of what is included.
The only way to accurately benchmark these complex deals is through transparency. Vendors purposely bundle these components together because it obscures pricing and gives them opportunity to manipulate the bottom line. To mitigate this practice, you must insist that they break out the costs of all the different components (software, infrastructure and services). You can then assign a competitive cost value to each for your comparison.
How do you achieve transparency? It depends on the leverage you have with the vendor. Without significant leverage you won’t get this level of detail, and leave your organization open to risk in the contract.
As always, leverage comes from starting the deal early, so you can control the terms and the timeline. You must work closely with the IT team to establish your needs and agree on the story behind the spend. Decide what information can be shared and what must be guarded. Then, you must create a detailed RFP with the right questions in place to achieve the solution you need. And finally, you must have viable alternatives in place to keep your vendors uncertain about your plans.
Francis Gagliano and Dan Beyh are Senior Analysts at ClearEdge Partners.
This blog post was inspired by the webinar Executive Briefing: Data Center & Private Cloud. You can access the full recording to this webinar below. For a deeper dive, we urge you to sign up for our online certification program.