Enterprise IT Guy "Horrified" By Cost of Outsourcing Data Center Requirements to Colo Provider

• By Isabel Wang on January 18, 2007

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I've been having a lot of conversations - with the 3tera folks, the Tier 1 Research guys and several hosting providers - about how interested enterprise IT managers are in outsourcing their data center requirements.

3tera CEO Vlad Miloushev thinks as many as 90% of all servers are hosted in-house, and research from AFCOM and Gartner both show that a significant proportion of corporate data centers will become obsolete in the very near future. In which case, an attractive market should be opening up for external hosting providers, right? Because surely outsourcing fees will be easier on enterprise CFOs' eyes than construction costs for new data centers?

But blade consultant Martin MacLeod offers some interesting perspective on why enterprises may find outsourcing less affordable than we think. (A server manager he recently spoke with was "horrified" by quotes from colo vendors.)

1. Commercial hosting facilities have higher security standards than internal data centers - not to mention more reliable connectivity, newer power and cooling equipment, etc. What business value does an enterprise IT manager receive from such amenities? That might not be something he can instantly quantify.

2. In fact, speaking of quantifying value, Martin says the "hosting/support fee" within enterprises is absorbed into generic IT expenses. So companies might not have neatly broken down cost per server/cabinet/square foot stats for use in making apples-to-apples comparison with outsourced alternatives.

3. In a November 2006 survey of 500 Silicon.com readers, 33% had IT equipment between 5-10 years old, and 32% had "fully functioning" hardware that's more than 10 years old. According to Sun, servers are improving at a rate of 40% per year in terms of power efficiency, so the difference between power bills for colo-ing pre-historic versus state-of-the-art machines will widen dramatically with time. This represents a dilemma for enterprise IT managers: should they ditch still-functional gear and migrate to brand new equipment? That sounds like an expensive proposition...

Still, Martin agrees that enterprises shouldn't be in the data center building/running business. He says they should outsourced hardware in addition to facilities requirements - and run their virtualized infrastructure on an on-demand service. According to the folks at Dr Dobbs, this is where Amazon EC2 comes in.

If you don't like their conclusion, you should look into offering virtualized utility computing. A few days ago Rich Lee from Hosted Solutions commented on another post that the compute side of on-demand infrastructure is "clearly the most complex piece to integrate, provision and bill properly for", but Hosted is working on addressing this challenge. I hope that Rich and others proceed with urgency, because the window of enterprise outsourcing opportunity won't last forever.

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