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(Colocation Pricing 2020 Guide) Understanding Data Center Costs

By: Ernest Sampera on January 9, 2020

Making the decision to colocate servers with a third-party data center is only the first step in a longer process of finding the right partner. When a company starts to evaluate colocation facilities, price is often a key consideration. But colocation pricing can be rather complicated. Standard features in one facility might be considered “add-on” services at another, creating the illusion that one provider is much more expensive than the other. When making colocation pricing comparisons, it’s important to understand what goes into the quoted costs.

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The market for colocation data centers has seen tremendous growth in recent years and shows no signs of slowing. According to Gartner, colocation spending is expected to increase from $53.9 billion in 2016 to $74.5 billion in 2020. While most companies make the move to third-party data centers for operations-related reasons (redundancy, increased network capacity, launching new applications), cost remains a critical factor for key decision-makers. Although having your own on-premises facility sounds appealing, most companies suffer sticker shock after asking “How much does it cost to build a data center?” and look for an alternative solution. Colocation offers immense savings compared to building a private data center, but there are a number of factors to take into consideration when calculating prospective colocation costs.

How to Understand Your Colocation Pricing

1. Power and Cooling Requirements

The power demands of colocation equipment make up a substantial portion of any colocation costs. Different colo providers offer a variety of ways to purchase power (by the circuit, by the kilowatt, or as metered power), and the price of these plans is generally influenced by the facility’s power usage effectiveness (PUE). More energy-efficient data centers can pass their efficiencies on to customers, providing better pricing on electricity and cooling. These costs are typically spread across all colocation customers, but cabinet deployment and server performance could have an impact on pricing. State of the art facilities often incorporate the latest cooling technologies (such as raised floors or liquid cooling) into their infrastructure to help drive colocation prices down.

Customers should keep in mind that local building and electrical codes may restrict power usage, so a provider’s advertised upfront costs might not reflect the actual amount of usable power. When looking at colocation data center pricing, it’s important for customers to keep in mind that their power requirements may increase in the future, so they should make sure a facility meets their potential growth needs.

2. Rack Space

All the talk about power and connectivity needs often overlooks the very physical nature of colocated servers. Every server has to be slotted into rack space somewhere in a facility, and while modern servers take up comparatively little space, there is only so much room available in the data floor’s cabinets. Server colocation pricing is typically based on either the total number of racks used or the amount of square footage colocated assets take up. But colocation cost per rack may not be the only option available. In many instances, full rack colocation pricing provides better value. Some providers allow customers to rent or purchase entire cabinets or cages. Colocation cage pricing, of course, varies according to the cabinet’s specifications.

Not all rack space is created equal, of course. Using narrower blade-style servers can help companies cut down on their colocation costs because each unit will take up less rack space. However, they should always keep in mind that these high-density servers may have different power requirements and additional power distribution options, which could affect cabinet deployment.

3. Connectivity Options

Once rack space and power requirements are resolved, the next major colocation cost factor is connectivity options. Some facilities may factor a basic high-speed internet connection into their pricing, but additional, more specialized connections are often available for customers who need them. Cross connections allow colocation customers to connect their servers directly to cloud provider servers to improve network performance and security. In many cases, external direct connections (such as Azure ExpressRoute) can be provisioned for even greater speed and versatility. A carrier-neutral data center also offers a rich array of ISP connections, allowing companies to select the provider that best suits their needs while building redundancy into their networks. With DDoS mitigation services (such as vX\defend), they can also use this connectivity to better protect their networks from unexpected downtime. Building a customized hybrid or multi-cloud architecture could further increase colocation costs.

Cloud deployments are on the rise. As noted by MSPmentor, 93 percent of companies now use at least one cloud application, while 82 percent are leveraging the hybrid cloud. Increasing cloud focus has led to a shift in IT investments—cost-driven deployments are quickly being replaced by revenue-driven, line-of-business (LOB) solutions that form an integral part of the to-market chain rather than mere support structure. This trend is now being carried forward into other areas of IT such as data center management.

Depending upon your organization’s networking needs, selecting connectivity options within a carrier-neutral data center will have an impact on colocation hosting price. In many cases, the best option is to choose a facility with access to a software-defined network service like Megaport, which offers quick connectivity to a variety of public cloud providers through a single, subscription-based portal. This approach is both easy to scale and provision, making it an excellent alternative for companies looking to maintain flexibility in their network services. 

4. Location

Much like real estate values and the cost of living, colocation pricing can vary greatly by region. Major tier 1 markets in the Northeast and on the West Coast are generally more expensive than smaller markets located in the South or the Midwest. Depending on a company’s colocation needs, they may be able to take advantage of reduced costs by choosing a facility located in a growing market.

Selecting the right location isn’t just a matter of cost, however. Colocating servers and setting up network services in close proximity to end-users can significantly reduce latency and improve performance. Latency, which is a delay caused by the amount of time it takes a data packet to travel from one point to another, can have a tremendous impact on customer experience and place certain businesses (such as financial institutions or streaming providers) at a severe disadvantage.

Any organization colocating assets should consider its application and service needs before selecting a data center location. If a facility is being used for data storage or backup, then placing servers in a less urbanized (and less expensive) area might be ideal, but the same solution might not be optimal in industries where even a millisecond of lag could mean losing out on a business opportunity. That’s why many companies are still willing to pay a premium to colocate servers in high-population areas despite the higher costs.

5. Bandwidth Needs

Measured in megabits-per-second (Mbps), bandwidth is another important variable in colocation pricing. Selecting the right bandwidth amount can be challenging for an organization, especially if it’s expecting to experience growth in the near future (which is often what brings them to colocation hosting in the first place). Bandwidth is a measure of how much data can be transmitted from one point to another over a certain amount of time. A 100 Mbps connection, for example, is capable of delivering 100 megabits of data to or from colocated servers every second. Higher bandwidth naturally translates to faster network speed because data isn’t bottlenecking when it travels to the servers. Fortunately, most data centers can adjust bandwidth requirements quickly and incorporate the changes into the billing cycle, or even offer a burstable bandwidth plan. Colocation bandwidth pricing should be monitored regularly to ensure that you’re not paying for bandwidth your network doesn’t need.

6. On-Site Support

Colocation data center providers are far more than a warehouse service. They offer a wide range of support options, from deployment assistance and routine maintenance to specialized solution building and troubleshooting services. At a minimum, technicians will be on hand during business hours to monitor the facility and ensure that systems are working properly. On the other end of the spectrum are comprehensive remote hands services, which provide 24x7x365 support that functions as an extension of a customer’s IT team. While some customers may consider cutting their colocation costs in this area, they should keep in mind that remote hands services are able to respond to problems quickly and efficiently, which is especially important when a server crashes in the middle of the night.

Another factor to consider when selecting a data center is its quality of service. First, it’s important to see how the colocation provider maintains their facility. Find out if they are doing important maintenance tasks like testing power failures by completely shutting down external sources to see if the facility still runs. These types of tasks are critical when a disaster occurs.

Second, when the power goes out in the middle of the night, you don’t want to find out you’re on your own. You will want to know that Remote Hands services are available to take care of your needs. If your hardware is having a problem, having an on-site technician can make the difference between having to be down while you drive to the data center in the middle of the night versus simply making a call and having a certified technician resolve the issue for you. When you think about how much every minute of downtime costs your company, you’ll quickly realize the value of having a certified technician a phone call away.

7. Redundancy and Disaster Recovery Options

Colocation data centers are frequently used as backup solutions for mission-critical operations and data. Given the high demand for this service, most facilities provide backups for their own systems, building multiple layers of redundancy into their operations. Fully redundant, fault-tolerant backup power and cooling solutions can increase colocation costs, but they provide peace of mind and reassurance that even in the event of a natural disaster or power failure, critical systems will remain online.

Colocation costs can also be impacted by disaster recovery needs. In fact, disaster mitigation is often the primary reason why many companies decide to colocate in the first place. Hot site disaster recovery services can provide full backup capabilities that mirror primary network systems. This solution requires a great deal of management and oversight on the part of the provider, which brings higher costs along with it. 

Cold site recovery solutions are more common and cost-effective. In these cases, data center customers provide the necessary equipment and networking to manage their own redundancies. While cold site deployments don’t offer the same level of high availability as hot sites, many data centers couple them with innovative disaster recovery solutions like work area recovery spaces, allowing customers to temporarily relocate operations to their backup data center until they can get their primary systems up and running again. 

8. Business Intelligence Software

Visibility is everything when it comes to maintaining network infrastructure. Monitoring key metrics can help companies identify trends that can improve network performance and adjust their strategies to better accommodate user demands. Colocation data center providers deploy sophisticated business intelligence platforms to evaluate their infrastructure. Increasingly, they’re making these tools available to customers through software portals that provide access to critical metrics and offer tremendous visibility into their colocated assets. Programs like vXchnge’s award-winning in\site platform may be seen as a luxury by some, but their ability to drive down costs associated with inefficient deployments, wasted power, and unused bandwidth makes them well worth the expense. Whether a facility offers these software tools as part of their base colocation pricing or as an added feature, customers can greatly benefit from the control they provide over their colocation assets and network environments. Without them, they might as well be locking their servers in an empty closet.

Colocation pricing incorporates a number of different costs, but the core elements are often the same across most organizations. By determining their exact needs, companies can get the best pricing options from colocation hosting. They should remember that colocation is a classic case of “getting what you pay for.” When it comes to colocation data center pricing and network infrastructure, it's often worth paying whatever it takes to get the highest levels of control, visibility, and support from a provider.

Evaluating Your Colocation Costs

So how do companies make sure they're getting the right mix of cost and quality? First is knowledge of the basic rule, which applies to colo centers just like any other purchase: If you buy cheap, you get cheap. Reliable, high-performance technology infrastructure comes with a minimum cost; if a provider offers to beat this cost you need to know why. In some cases, it's a long-game scenario or a way to get businesses in the door—but in almost all cases, cheap equals poor quality.

It's also important to understand exactly what you’re buying. Not all colocation centers play by the same rules. Some entice companies with low colocation prices but don't deliver the kind of service necessary to handle enterprise workloads. Others offer a host of managed and self-service options but at the upper end of cost, making this a hard sell for IT professionals trying to gain executive support.

If the primary purpose of your investment is to move server stack off company property to free up more space or reduce energy costs, then you're buying colocation and may not need anything else. If you're looking for enhanced physical security, multiple carrier connectivity, and the ability to increase density on demand, then you're buying colocation plus services and need a provider ready to meet this challenge.

Critical Questions for Your Colocation Provider

First, find out if colocation is the provider's area of expertise or if they're simply running the service as a sidelight to other IT projects. In addition, always ask about the facility's lifecycle management and maintenance plans along with the maximum usage capacity of both mechanical and electrical systems. Using this information coupled with data about the cost of colocation space it's possible to determine the real price of getting your services back up and running in the event of a data center disaster—essential knowledge if you're considering a move.

As colocation evolves, there are many factors to consider other than price. With high density, next-generation colocation facilities are able to bring more value to their industry. These facilities are prepared for high-density with the required power and cooling requirements. They will also allow modular deployments and carrier-neutral connectivity.

Density at scale, the ability to ramp up the total number of client spaces available in a single site while still keeping power costs manageable and excess heat under control, is driving real growth in the colo market. For companies to tap the ROI advantage of data centers, it's important to balance business-side needs for low cost against IT demands for superior quality. Selecting the right data center requires meeting both your current and future needs. Taking the time to determine these needs will help ensure your data center colocation selection is a success.

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