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Why Outsource Your Data Center?

If you are contemplating a decision to outsource all or parts of your data center, or perhaps a decision to bring your IT infrastructure back in house to manage it yourself, please review this short document and consider the cost comparison provided.

What you learn may surprise you.

Executive Summary

In the very short years since the dot-com boom and bust, Internet and connectivity technology have advanced in performance, reliability and ubiquity—so much so that the headlines no longer seem to impress us. Business users and consumers both have come to expect a certain level of connectedness and mobility of information networks and appliances. As these expectations are met and surpassed, new uses of the technologies have evolved and even sometimes revolutionized.

Businesses in this fast-paced market are realizing more and more that to compete they must focus on what they do best and outsource the rest. In the area of information technology, the result is a migration away from the traditional in-house data center and its inherent complexities to hosted services—managed hosting providers (HSPs), application service providers (ASPs) and managed service providers (MSPs). This trend is especially true with small- and medium-sized enterprises (SMEs). SMEs are finding that the business value proposition of most service providers, based on the cost savings and additional security realized from an outsourced solution, is, stated simply: “Why build your own when you can more affordably rent only what you need from a state-of-the art facility?”

Debunking Outsourcing Myths

Many SMEs shy away from outsourcing their data center or part of it because of three myths that have permeated our business culture:

1. Outsourcing Means Less Control Over IT—Outsourcing actually provides a customer with more control, not only over IT but their entire business, while affording access to services potentially outside their reach. Staff can focus on core business activities such as customer service, business development and sales, while a hosting provider delivers large enterprise-grade IT management, security and reliability.
2. Outsourcing = Hiring Expensive Outside Consultants—Partnering with a hosting provider almost always means taking advantage of a la carte managed, web-based services. Businesses large and small can deploy what they need, when they need it, without significant initial investments. Made possible by the economies of scale of a hosting provider, companies can deploy solutions on shared resources or distinct subsets of solutions on dedicated resources—either way, money isn't wasted on unnecessary capacity or function.
3. Outsourcing Requires a Great Deal of Time to Manage—As with every other endeavor, choosing the right partner is half the battle. Look for providers with experience in your industry with the solution you need to implement. Chances are, you'll learn from a good provider's cummulative experience with other clients, and ultimately save significant time and money by letting experts handle the details while you focus on your business

Outsourcing vs. In-House

Hardware costs often drive the outsourcing of key technology applications and services, but your analysis shouldn't stop there. Factoring in the supporting infrastructure and environment maintenance, employee workloads and salaries and benefits, and the core expertise of your IT department also needs to come into play when making the decision to outsource or keep in-house an application/system under the management of your in-house staff.

A comparison of costs, then, can be difficult because while the cost of an outsourced solution is typically easy to calculate—it is on the proposal or invoice—calculating the costs of the in-house solution is not as straightforward.

Cost Comparison

Any cost efficiency comparison of an outsourced hosting solution should take into account all of the following factors:

• Internet Connectivity
• Battery Backup
• Power Generation (Utility Failure)
• Network Configuration
• Environmental Controls (temperature and humidity)
• Physical Security
• Server Configuration and Setup
• On-Site Spare Components
• Hardware Purchase or Lease
• 24/7 Monitoring
• 24/7 Support
• Backup, Recovery and Disaster Preparation

In a study recently completed by an independent hosting organization, the setup and operational costs for two MS SQL Server database servers was compared: in-house versus outsourced, managed hosting. The 12 month operational costs of an outsourced solution, taking into account all of the above factors, were less than one half (48%) of the costs associated with an in-house solution. Startup costs were over $7,000 lower, and monthly savings were just under $3,500, for similar or better equipment and/or services. The majority of the savings were realized in these key areas:

• Power Generation (backup in the event of Utility Failure)
• Network Configuration
• Environmental Controls (temperature and humidity)
• 24/7 Monitoring
• 24/7 Support

These findings are consistent with the general business value proposition of most service providers:

“Why build your own when you can more affordably rent only what you need from a state-of-the art facility?

For a fixed monthly fee you are represented on the Internet and/or poised to take advantage of the practically limitless connectivity for mobile applications, telecommuters and remote offices.