I came across Uptime Institute founder Ken Brill's CIO Magazine article via 3tera VP Marketing Bert Armijo's blog.

Ken says while hardware prices are falling, total cost of data center ownership is headed through the roof. 5 years from now, the purchase price for a rack of servers will drop 27.5% from $138K today to just $103K. But while it only takes 15 kilowatts to power that rack right now, the energy requirement will rise to 22 - 170 kilowatts by 2012. It could cost as much as $2.3 million to power/cool $103K worth of gear throughout its 3-year lifespan.

(I'm not sure if this figure includes switches and routers and such. A recent Cisco/APC/Emerson study shows that servers/storage/cooling consume 76% of data center power, with 11% going to networking equipment, 3% lighting, and 10% power conversion losses. If Uptime's calculations didn't take the other 24% into account, Ken's $2.3M becomes over $3M!)

I've been thinking about Ken's stats and trying to understand what they mean. As a point of reference, I was looking at Dell's website, which advertises the 4U PowerEdge 6950 dual core, dual processor Opteron server for about $9K. Is Ken saying that:

(a) This particular machine will cost 27.5% less 5 years from now?

(b) 2012's late model machines will sell for 27.5% less than what's on the market today?

(c) The amount of server hardware that fills up 4U of space will be available for $6500 in 2012?

If we assume he means (c), and we accept Sun's claim that "server performance, power and space efficiencies are improving at up to 40% annually on average, and could double every 2 years", then 4U of space may be able to accommodate not one but 4 servers that each feature 4x more processing power and 4x greater energy efficiency.

In other words, $6,500 could buy you 16x more computing resources than that dual Opteron! If that's the case, you might even be able to afford $1M per rack per year in electricity. But only if you virtualize like crazy. No more leasing data center space per square foot or per rack. No more dedicated servers, either. The average customer won't need 4x more processing power in 5 years, which means you won't be able to justify turning on a whole entire server just for them.

You'd also have to replace hardware early and often. Sun recently announced a refresh service for swapping out your servers at least 3 times over 42 months. At first I thought that sounded wasteful, but if server power efficiency is improving at 40% per year, holding on to old gear might end up costing you more. Again, virtualization would be a must. You wouldn't want customer apps to become attached to machines that will be phased out before long.

Bert from 3tera says changes in data center economics will make it increasingly difficult for enterprise CIOs to justify operating their own facilities. But they won't outsource to traditional colo or dedicated server providers. Instead, he agrees with Cassatt CEO Bill Coleman that in the near-ish future, you'll be "paying for data center horsepower the same way you pay for electricity or gas". I think so too. How about you?

PS - On a somewhat related note, eWeek says Intel will release its "Clovertown" chips today. The quad core processors have a 50 watt thermal envelope, versus 80-120 watts on earlier models. That's a 38-60% drop.

PPS - Also, speaking of the Uptime Institute, check out this SearchDataCenter.com interview on how they've helped The Planet save $10K/month on electricity. The Planet, the article says, is looking to expand beyond Texas into the Midwest.

In early 2001, just a few months before Exodus filed for bankruptcy, Robert Marsh launched Rackshack. Unlike his struggling competitors, who typically built servers to spec, Robert sold $99 Cobalt RaQs. Only one configuration was available, and orders were provisioned instantly and automatically. And instead of demanding multi-year commitments, Rackshack offered month to month service. By the time I joined the company in early 2003, Rackshack (which later changed its name to EV1Servers) had become the world's largest dedicated server provider.

A year or so later, Robert unveiled EV1's private racks program during a customer gathering; two attendees signed up on the spot. Soon other orders starting pouring in, along with complicated network diagrams and super detailed server specs from customers who wanted their systems built just so. We did our best to accommodate any and all requests, which were a huge challenge to keep track of. Only much later did I learn about ITIL from Rich Bader over at EasyStreet. By that time, Amazon had already launched S3 and would soon introduce EC2.

Unlike EV1's Custom Order team, who gladly built whatever customers asked, EC2 sells only $0.10 virtual server instances. There's just one configuration available, and orders are provisioned instantly and automatically. Instead of demanding month-long commitments, Amazon offers pay-as-you-go service in 1 hour units.

According to Vinne Marchanadi from Deal Architect, pay-as-you-go is what large customers nowadays are looking for. (A former Gartner analyst, Vinnie now advises enterprise IT buyers on vendor selection.) He offers the analogy of plugging into an efficient power source versus buying fancy generators. On behalf of his clients, he says:

"Message to vendors - so long as you meet our security, privacy and compliance standards, we want as vanilla, standardized a service as possible. Sell us capacity by unit of consumption. We want to leverage all your economies - in financing, procurement, operations, everything. In return, we want to fit as much as possible in to your standards."

Another couple of years from now, will standardization again give way to customization? I think the answer is yes. And no. Amazon recently started offering Machine Image sharing. And VMWare's virtual appliance marketplace features about 400 listings. And SalesForce.com offers over 500 partner apps on AppExchange. And earlier this month Netvibes unveiled its universal widget API... It seems service delivery platforms will become more - not less - standardized, while each user will have increasing freedom to mix and match a wide range of interoperable applications into highly customized solutions. Doesn't that sound like the best of both worlds?

When Gary Chaffin launched Stargate 12 years ago, his core business was domain registration. The company got into shared hosting in the late 1990s and dedicated servers in 2001. As Stargate's customer base grew, so did its data center infrastructure. Gary built out his Naperville, IL facility with APC InfraStruXure power, cooling and rack components.

APC's chilled water cooling distribution units are designed for raised floor environments, which Gary wanted to avoid. As APC CTO Neil Rasmussen puts it in this SearchDataCenter article:

"I can make an air conditioner any size I want, but the problem is getting the air through the tiles. If I try to moving 25kW of air through tile, it's going to be 120 mph coming through floor tile. It's also very inefficient to push all that air over a distance. It takes a tremendous amount of horsepower to move it around. It's not uncommon to find just the fan taking more power than the servers in data centers."

Rasmussen's energy-saving strategy is cabinet level cooling, but Gary (who'd spent many years in the medical diagnostics industry, where he had extensive experience with MRI heat dissipation) came up with a different solution. With APC's assistance, he redesigned its hot aisle containment system to eliminate the raised floor requirement.

APC described Stargate's custom install to other customers; based on their overwhelming interest, Gary decided to build a second data center. The facility (which is schedule for August, 2007 completion) will offer 10- to 35-rack "vaults" with no mix of head loads; customers will have access to precise data on UPS run time, power utilization, etc. for their isolated environments. Since January, over 20 large enterprises, including several financial institutions, have stopped by for tours.

Stargate picked a great time to get into the data center business; there's a tremendous market demand for space. But support-wise, how will the company handle its increasingly diverse customer base, ranging from individual domain owners to large banks? With different staff, said Gary - seeming surprised that such a minor detail could be considered an obstacle.

BTW, Stargate will be sharing its progress through its new blog. I wonder what's next for Gary, now that he's exhausted the entire range of hosting possibilities. We did talk briefly about Sun's data center in a box and APC's mobile data center. You never know; Stargate might find itself in the "container colo" (or data center truck stop) business one of these days.

Having bought from, sold to, published a magazine about and work within the web hosting industry, I used to think I understood what this market is all about. But over the past year, I've become increasingly aware that there's more to the big picture than what I'd seen.

It all started when I came across a Marketwatch article about Facebook's $550 million valuation; GoDaddy was worth only half as much. The comparison made me question the relevance of the age-old "bandwidth + disk space = monthly fee" equation. I wondered if launching a social network might enhance GoDaddy's IPO appeal. Shortly thereafter, I learned about 3tera and Amazon's S3/EC2. Dedicated servers began to seem obsolete.

More recently, thanks mostly to Martin MacLeod's BladeWatch, I've been wondering about the amount of Internet infrastructure expertise that resides beyond versus within the web hosting industry. Martin covers a lot of familiar-ish ground - yet he's writing about large enterprises in which the IT department acts as an internal hosting provider. Their responsibilities, I've noticed, aren't very different from ours.

Anyway, there IS a point to all this rambling. I get to be on a virtualization panel with Martin at Data Centres Europe (March 21-23 in London)! I'm very excited about that. The following week, as Liam heads over to Cologne for Intergenia's second annual Web Hosting Day, I'll be on my way to Vegas for AFCOM's Data Center World. I remember telling The Planet's Jeff Lowenberg last year that enterprise-oriented data center events could be a great place for web hosting providers to win outsourcing business. Now that seems terribly presumptuous. In fact, Jeff told me later on that he found Data Center World to be an excellent learning experience.

After Data Center Month, I'll be back in regular web hosting territory. I'm looking forward to SWSoft's Partner Summit (May 7-9 in Reston, VA), ISPCON (May 23-25 in Orlando) and HostingCon (July 23-25 in Chicago). And later in the year, I'm counting on Ismael to organize a second Office 2.0 Conference. If you scroll through last year's list of participants, you'll see a mix of enterprisey and Web 2.0-ish folks. And you'll notice that Joyent - a web hosting company! - was among the event's award winners. Which goes to show that the web hosting industry exists not in isolation, but belongs in a much broader web services ecosystem.

So, which of these events will you be going to?

That's what Business Week says. And Garett Rogers points out on his ZDNet blog that a Google Apps for Enterprises page is already online. Pixar is reportedly dying to ditch its homegrown messaging system for Google-powered seamlessness.

Google is expected to charge "a few dollars" per person per month. (Ars Technica says most likely less than $3, to stay competitive with Zoho.) Considering large scale deployments such as Arizona State University's 65,000 users, Google's 300-person enterprise group might soon be generating significant revenue.

In fact, Nick Carr thinks that Google has far greater ambitions than Google Apps as we know it. He's betting on additional SaaS acquisition following last year's JotSpot deal.

Everyone's asking how Microsoft's Office Live (now at 250,000 users) will hold up against Google's assault. Another good question is how the continued evolution of Google Apps will affect low-cost hosting providers? (GoDaddy and eNom are Google's domain registration providers at least. eNom also has Office Live's domain registration business.) And no, 24/7 support won't be enough for maintaining a competitive advantage; Google's planning to offer that as well.

PS - Just came across Phil Wainewright's very interesting list of mega traps for Google Apps. He wonders how committed Google is to generating subscription versus advertising revenue, and he worries that Google will ditch the paid apps business after setting loss-leading pricing expectations that no other vendor will be able to match.

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.

1.Robin Miller was telling me about his new video production service. It started as an experiment; now it's taken off as a business. The challenge is, which should he put the videos he's produced? Free hosting services don't offer high-enough-quality encoding, shared hosting isn't reliable enough, and he certainly doesn't need a whole dedicated server. The solution that came to mind was Amazon's S3. Since most of his mini-commercials are unlikely to be viewed by very large audiences, pay per use makes sense - even if Amazon's $0.20 per GB data transfer is about 100x more expensive than some shared hosting plans.

2. The folks at Dr. Dobb's wrote a long article about using Amazon EC2 in conjunction with Oracle SOA Suite 10g. (It's a set of standards-based components for developing reusable, interconnecting enterprise software modules.) They found EC2 to be "an ideal hosting environment for commodity SOA components". It ushers in "a new era in which reliable, resilient, scalable and high performance SOA deployments can live outside corporate boundaries."

3. Stephen O'Grady from Red Monk, an analyst firm, says Amazon is his pick for 2006's top technical innovator. Amazon "addresses a sizable and growing market" - and what it's doing is "a big deal". It levels the playing field for web app start-ups:

"Many of them are very, very good... but networking, hardware, etc require capital investments that can be onerous, and it's a simple fact that they don't benefit from Google's or Yahoo's economy of scale. They buy hardware piecemeal, and get run of the mill bandwidth deals, all of which adds up to high entry costs."

But Amazon, Stephen says, changes the game completely. And we've only seen the very tip of its iceberg - the more you use it, the more you'll figure out new ways to use it. Maybe tomorrow's departmental servers will be Amazon powered!

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I know - it just doesn't seem fair. After all, S3 was down last week, while your service probably wasn't. Nonetheless, Amazon has firmly positioned itself as *THE* on-demand hosting solution in the minds of these and other thought leaders - by offering many, many, many use cases. With ongoing updates. In fact, let's set expert opinions aside. Even my friends who know next to nothing about hosting have heard that Smugmug saved $500,000 with S3 and thinks Amazon is the Holy Grail.

In contrast, after talking to Robin, I spent some time trying to think of specific scenarios for which I would without a doubt recommend one particular hosting provider over any other competitor.

Rackspace was on my list, of course. That's where you go when you have a sizable budget and want great support.

Delaware.net is another good example, with its home grown SaaS apps.

And Softlayer's gigabit backend network is great for private server-to-server connectivity. A few months ago, CEO Lance Crosby told me about a company who put all of its franchisers on Softlayer servers and had them communicate with each other and corporate through Softlayer's LAN. See? Case studies really work. Like the Smugmug legend, that example has really stuck in my mind.

Can you think of any other hosting companies that have specifically and uniquely captured any particular "can't get it elsewhere" concept? If you feel your company belongs in this category, maybe you should flood the world with a bunch of success stories.