The use of colocation as an infrastructure expansion strategy is accelerating. As technology continues to play an ever more vital role in every aspect of business operations today, businesses must evolve as well. In many cases, that means continually expanding IT infrastructure capacity as the volume of data managed grows exponentially. Colocation is the smart IT strategy, and it’s the savvy business’ key to smart scaling, managing growth, and reducing costs.
Expanding the corporate data center—or building a new facility—is expensive, risky, and ties up capital. As a result, organizations (particularly small to mid-sized businesses) are increasingly making use of colocation to sustain their growth.
Colocation can be as simple as renting space, power, and bandwidth from a colocation datacenter—and the customer purchases and owns the hardware and applications. Most colocation providers provide basic services for simple tasks—like rebooting a server when needed–and many providers offer additional optional services, ranging from setup assistance to ongoing support.
And, while a colocation strategy can provide multiple benefits compared to building or expanding data centers, the bottom line is this: colocation provides critical support for business growth while reducing costs. Let’s explore.
A Flexible Growth Strategy
As mentioned earlier, colocation enables businesses to scale up their IT infrastructure quickly. There’s no need to obtain additional physical space within an existing facility or to buy or lease real estate for a new one. “For most enterprises, adding a collocated data center is usually a significantly easier task than creating a primary site from scratch,” says John Edwards of Computerworld.
Electrical power and bandwidth are often limiting factors in expanding an existing data center. Colocation facilities are designed with redundant, scalable power and connectivity that eliminate these bottlenecks. Adding infrastructure incrementally, rather than in big bites requiring additional space, also speeds the approval process for other investments due to the lower dollar amounts involved.
The growth of an organization can provide the catalyst for evaluating a colocation strategy. “Once you see you’re beginning to run out of space, run out of server capacity, [or] when you’re looking to add or upgrade an application, that’s when you begin to look outside,” explains Edwards. “Sometimes the push comes in the form of a business need—a new direction that requires a lot of extra capacity ASAP, or enough that it would push your existing data center over the edge of its existing power usage.”
Finally, regulatory compliance and governance requirements can become more challenging with growth—particularly for businesses in highly regulated areas like financial services, healthcare, e-commerce, or other sectors that deal with sensitive personal data. Building and operating a compliant data center is impractical for all but the largest firms in these segments. Colocation provides a more efficient, affordable, and scalable alternative.
Reducing IT Infrastructure Costs
Comparing the costs of internal data center expansion or building versus colocation isn’t a simple exercise—but it is an important one. While certain costs are incurred in both internal expansion or building and in colocation arrangements, when all cost factors are taken into account, colocation usually provides cost advantages, due to both specialization and economies of scale.
Outsourcing to a colocation provider, whose whole focus is building and running data centers, offer companies flexibility and control over their data and IT environments; allowing them to redirect resources to other vital aspects of managing business.
Costs of colocation generally consist of:
- Hardware (servers, switches, software – owned by company)
- Space (often on a per rack or per cage basis)
- Ancillary services (optional)
Costs of expanding an existing or building a new data center internally include:
- Facilities expansion or construction costs (capital expenditures)
- Building permits
- Utility improvements
- Space (lease or equivalent costs)
- Maintenance (HVAC, electrical, fire suppression, leak detection, other systems)
- Data backup (redundant, off-site)
- Physical security (if applicable: CCTV system, building access system, etc.)
The outcome of such an analysis will vary by business size, industry, location, and company-specific factors. But with rare exceptions where data center management is a core competency of the organization (e.g., large SaaS providers and e-tailers), colocation is the more practical and cost-effective approach, for several reasons:
A colocation arrangement minimizes capital expenditures, so it ties up much less capital and has tax advantages—both of which also typically make it easier to get approved.
Colocation providers can provide better access to Internet connections for customers and do so at often lower—sometimes substantially lower—pricing than they would otherwise receive. This is due to the relationships they’ve formed with multiple, well-established bandwidth providers. It is because of this that many colocation providers blend bandwidth from multiple ISPs to add greater redundancy and ensure continuous connectivity. Something SMBs may find it too hard or costly to do when going it alone.
Operating an entire data center, or even a smaller, in-house IT environment requires ample power for the servers, other IT equipment, and the systems that support the operation of this equipment in order to run properly. But to avoid the devastating impact of either an equipment failure or power outage, data center service providers have a key advantage over most on-prem environments run by SMBs. That key is redundancy.
To deliver power, established data centers and colocation facilities have contingencies built into the power systems they operate. These include things like redundant power generators, fuel tanks, Automatic Transfer Switches (ATSs), Uninterruptible Power Supplies (UPSs), and more, all aligned to help their facilities to remain operational, even in the event a power disruption occurs. For their customers, costs are based on both usage and the need for diverse power feeds. Though contrary to the go-it-alone strategy, it is the data center provider that covers the cost of buying, maintaining, and operating these support systems on a continual basis. Something SMBs are likely hard-pressed to duplicate in their self-hosted environments.
Possibly the most compelling areas of cost savings from colocation, yet the easiest to overlook, are the improved resiliency and minimization of business downtime in the event of a natural or other disaster. In addition to the redundancies we’ve discussed from a power delivery perspective, using a colocation facility as a secondary site for disaster recovery allows businesses to quickly and easily start failover IT operations in the event a disaster strikes that impacts their primary IT infrastructure. In this scenario, Colocation provides a cost-effective path for disaster recovery and often enables companies to restore operation of critical systems in a fraction of the time.
The longer a disaster disrupts communications, the more critical the impact. It’s estimated that in the first hour of a disaster or emergency alone that more than 80 percent of financial institutions would lose anywhere from $1,000 an hour to $100,000 an hour. For businesses that are dependent on information systems to stay in business, it’s estimated their losses could be up to 40 percent of their daily revenues. Those numbers alone are enough to make the case for considering colocation as an integral part of your IT and business strategies.
In summary, colocation offers businesses a smart path for growth and cost reduction, as well as disaster preparedness protection. The precise math behind the internal versus colocation data center analysis will be different for every company, but for most—when all factors are considered—colocation will prove to be the practical, effective, affordable choice. Where are you on this front? Are you considering colocation as part of your business growth strategies? What challenges or questions have you encountered? I’d love to hear your thoughts.
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