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What is the Cost of Building vs Colocating in a Data Center

By: Ernest Sampera on February 22, 2019

With so many organizations growing increasingly reliant upon the internet and computing to deliver services and develop products, data centers have become a central component of IT infrastructure. The connectivity and cloud computing resources available in a data center environment allow companies to build network architectures that power innovative solutions for their customers.

But while the benefits of a data center may be easy to see, companies are often uncertain about whether they should invest in their own private facility or place their IT assets with a colocation data center. Before making such a decision, there are a number of factors worth considering, including the cost breakdown of building a data center.

Building a Data Center

While some organizations may want the benefits of having their own data center, the significant cost of building such a facility make doing so impractical for most companies. Any data center cost breakdown begins with the actual physical space. Building out a structure suitable to serve as a data center costs about $200 per square foot according to a report by the research firm Forrester. This doesn’t factor in, of course, the cost of the property where the facility is built or the expenses associated with locating and assessing potential sites. There’s also building permits and taxes to consider, which will need to be tacked onto the construction costs.

But once the building is in place, the process is hardly finished. Fire suppression and cooling systems need to be installed. Depending upon where the facility is located, it may need substantial cooling and environmental control systems in place to keep servers running in optimal conditions. Other infrastructure such as electrical systems and network connectivity must be installed as well. The fiber needed to connect the site to the internet and facilitate network access can cost over $10,000 per mile.

Once the initial capital expenses are out of the way, there are still more factors to consider. Data centers need to be staffed around the clock by technicians who monitor systems and conduct necessary maintenance. Security personnel will be needed as well to reinforce other physical security protocols. In fact, staffing needs are the second largest operational expense of a facility after power demands.

Then there are upkeep costs associated with the physical structure. Repairs and additions will be needed within a few years of construction, although the actual costs of maintenance are somewhat difficult to predict and can vary significantly depending upon where the facility is located.

And this is to say nothing of the cost of the servers and software that the data center is actually built to house. The average refresh cycle on servers is between three to five years, meaning the facility will be continually turning over equipment as it wears out or becomes outdated.

For large companies with significant resources at their disposal and exacting demands in terms of data security, it often makes sense for them to construct a private data center facility. The control and flexibility they gain from controlling every aspect of their infrastructure allows them to leverage their resources and capitalize on market opportunities without having to consider how a data center partner can accommodate their ambitions.

Colocating With a Third Party Data Center

For the vast majority of companies, however, building a data center is simply out of the question. Setting aside the up-front capital expense of building and outfitting the facility, most companies can’t afford the ongoing operational costs associated with a private data center. While large companies usually have the resources to keep their infrastructure up-to-date, smaller companies often make a one-time investment and try to get everything they can out of their investment. More often than not, those investments can turn into a leaden albatross around their neck, preventing them from investing in new infrastructure or technology solutions and potentially missing out on opportunities in the process.

Colocation provides these companies with a much more practical solution, allowing them to get the benefits of an enterprise level data center without the up-front investment. Most of the cost associated with data center colocation is operational, consisting of power and cooling expenses in addition to whatever bundled services are necessary. While there may be some start-up fees related to data center migration, these are significantly lower than the cost of building a facility. Additional capacity can be scaled up or down as needed, allowing companies to take advantage of growth or weather downturns in business with relative ease.

A carrier neutral colocation data center typically provides much better levels of uptime reliability than any on-premises solution that a small or medium-sized company could realistically provide. Colocation allows them to gain additional benefits in the form of the data center’s security processes, compliance certificates/attestations, and 24x7x365 remote hands services.

Whether an organization decides to build its own data center or colocate IT infrastructure with a colocation facility, there is no question that data centers are crucial to success in a variety of industries. While large companies may have the resources necessary to build their own facilities, smaller organizations can actually gain many of the same benefits from a good colocation partner while retaining much of the flexibility that helps them stay competitive with bigger rivals.

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