Innovation, automation keep down outsourced data center bills

Renewals for data center outsourcing deals during the past year reveal a drop in prices, thanks to increases in automation, and server and storage demand.

Gas prices have been steadily falling lately -- something outsourced data center costs have also done for buyers...

during the past year.

In the $70 million data center infrastructure utilities space in the U.S. and Canada, prices on renegotiated contracts have eroded by about 10.5% in the past 18 months, according to a survey of about 200 clients by Gartner in 2015. This is among several major data center outsourcing trends identified by the analyst firm.

"What we are seeing are continuous improvement and automation efforts," said David Ackerman, a research director at Gartner.

Among the top outsourced data center vendors are IBM, Hewlett Packard Enterprise, Dell, HCL Technologies, Computer Sciences Corp., Atos, Unisys and Accenture, based on rankings by Gartner that examined each provider's market understanding, product strategy, innovation, customer experience, market responsiveness and operations.

About 30% of outsourced data center pricing is variable, according to Ackerman, with unit-based pricing the most common practice. Variable pricing is also based on shared risk and reward, and some is incentive-based, he said.

One of the data center outsourcing trends Ackerman wants changed is for buyers to push for more innovation in outsourcing deals, and to share the responsibility for the risk and reward from that innovation.

"If you don't have it in the contract, don't expect it," he said.

The price drop comes as demand increases, with a 24% increase in server capacity and a 38% increase in storage demand annually.

The onus is on companies to decide whether to outsource some of their data center operations.

"How long are we going to see value in having our own data center?" said Nick Everard, senior manager of North American Technology Services at Ferguson Enterprises Inc., a plumbing distribution company in Newport News, Va.

Everard is trying to be better informed about his outsourcing options while he operates one on-premises data center and one colocation data center.

I am always analyzing the cost and benefit of maintaining the infrastructure we have.
Nick Everardsenior manager of North American Technology Services, Ferguson Enterprises

"I am always analyzing the cost and benefit of maintaining the infrastructure we have," he said.

Outsourcing his data center might not be the way to go, Everard said. Four years ago, as part of a project to put in place an ERP system from SAP, he moved into two colocation data centers near each other.

Everything changed, though, when the company aborted the SAP move.

"When we threw SAP out and fell back to the legacy ERP, we dropped one of the colos," he said.

The company's on-premises data center is "not quite an enterprise data center," used mostly for test and development with some production applications, according to Everard.

The colo space is an enterprise-class data center, and the goal is to move all of the company's production there.

Don't forget about the cloud

One of the biggest weaknesses for data center outsourcing vendors is that they don't promote cloud computing well, Ackerman said.

Those providers often do not aggressively push to move legacy environments to the cloud, and they should be more aggressive with contracts that allow companies to move to the cloud without penalty, according to Ackerman.

"Many CIOs that I talk to say they would like to see their data centers empty out over time, because they are moving workloads to the cloud," Ackerman said. "That needs to be embraced by providers and their contracts going forward."

Some companies have found that the quality of service from so-called low-cost geographies has been poor, and some providers may not be using data center tools well, such as a data center infrastructure management system.

"It doesn't mean they can't use the tools or know what the tools are, but they may not be using the in-depth features of the tools that can really bring some capabilities to the data center," Ackerman said.

Enterprises need to know their business and IT needs, and pick a vendor to meet those needs. Most users are looking for service providers that can support a specific workload, and not necessarily the biggest vendor or the market leader, Ackerman said.

Strengths of data center outsourcing vendors lie in standardizing processes, consolidating data centers and the service management that is provided, according to Ackerman.

"There's definitely some consolidation and reduced complexity going on out there, and the providers have done a good job on that," he said.

One of the most significant challenges for buyers is dealing with mainframe workloads. The number of Ackerman's clients that are looking for help with mainframe workloads has "escalated significantly" during the past year, with staff retiring and enterprises wondering what to do with the mainframe workload.

IBM is not the only choice for mainframe work, Ackerman pointed out -- half of the top data center outsourcing vendors also do mainframe work.

"You don't have to [go with IBM]," he said.

Some enterprises are also using data center outsourcing for hosting virtual desktops, with 18% of the users surveyed by Gartner doing it with Citrix, VMware and Microsoft making up most of the work.

During the next year, buyers will continue to see vendors make use of economies of scale, and capitalize on expanding server and storage demand, bundle  more services -- for example, data center with networking -- and devise more standardized portfolios.

Robert Gates covers data centers, data center strategies, server technologies, converged and hyper-converged infrastructure and open source operating systems for SearchDataCenter. Follow him on Twitter @RBGatesTT or email him at rgates@techtarget.com.

Next Steps

To run a successful data center consolidation, put a plan in place based on industry best practices. And read up on the methods used by your peers at diverse IT shops -- from the TSA to an 800-year-old university to financial firm Wells Fargo.

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