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Small data centers: An endangered species?

With data center outsourcing increasing, only the largest companies will operate their own data centers in the future, says Tier 1 Research analyst Daniel Golding.

Daniel Golding, vice president and senior analyst at Tier 1 Research, a New York-based firm, envisions a day when only the 50 largest global businesses -- those mainly in financial and Internet services -- build their own data centers while everyone else outsources the task.

Golding doesn't offer a specific time frame, but he makes clear that an increase in data center outsourcing is on the horizon.

Why? As IT has grown, data centers have become ever more complex animals that require lots of care and feeding. Increasingly, many organizations have determined that building and maintaining a data center is too burdensome and have opted to offload the task instead.

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Why data center outsourcing is on the rise
Data center hosting companies have encountered "increasing penetration," and Golding estimates that demand for data center services will increase at 13% a year. Framingham, Mass.-based research firm IDC predicts that the IT leasing and financing market is growing at about 8% a year. This includes two kinds of services: managed-hosting services, in which a third party provides all the equipment and services, and colocation, in which the client company provides the IT equipment while a third party provides power and cooling services.

What's driving the data center outsourcing trend? Simple: the purse strings.

"It's hard for a CIO to go to the board of directors and say, 'I need $200 million to build a new data center,'" said Golding. "That's a tough one."

And the costs of building a data center are steep: about $1,300 a square foot, according to Golding; and the price tag often increases as a data center becomes more densely packed. A modern data center usually includes some level of equipment redundancy, from servers and other IT equipment to the facility's power equipment, such as uninterruptible power supplies and generators.

Further, many businesses now have a need for a backup data center, and not one that's just a few miles away from the primary facility. The two data centers need to be far away from one another, have lights-out capabilities and be capable of handling the entire data center load in case one goes kaput. They can't be "fate sharing," said Golding.

I don't think that anyone realistically believes that their mission-critical data needs to be kept close.
Daniel Golding, VP and senior analyst, Tier 1 Research,

"Building a new data center today is much more complex than it was in the '70s or '80s," he said. "It's not the core competency for any enterprise that I've ever seen. Once you get outside the financial companies, very few businesses know how to run data centers of their own."

"Server huggers" slow data center outsourcing trend
But no doubt, there are issues surrounding outsourcing a data center. The primary concern, said Golding, is that some IT folks have built their entire careers on running data centers, and they want to safeguard their livelihoods. Such "server hugging," as Tier 1 Research calls it, refers to a company's belief that its IT employees should be physically close to the servers they maintain. But Golding thinks that making proximity a priority is a big mistake.

"Folks should not be messing with production equipment because most IT managers have trouble instilling discipline in their data centers," he said.

Golding also dismisses the security concerns posed by outsourcing, saying that it's a lack of discipline that causes breaches, not physical distance. "I don't think that anyone realistically believes that their mission-critical data needs to be kept close," he countered.

If you decide to outsource your data center, what's next? Golding advises going through a typical request-for-proposal process to find the third-party data center that best suits your needs.

Data center outsourcing not always the best answer
Golding acknowledges, however, that some companies are better off building their own data centers. Even the largest companies that opt to outsource go with a hybrid approach: They host some data remotely, even if it's just for the direct networking with other companies that a provider like Equinix Inc. offers and then build a massive data center, as Google Inc. has done in The Dalles, Ore., for example.

Golding concluded that companies are starting to catch on, but even if demand increases at 8% or even at 13% a year, the transition will take time. Further, companies turn to data center outsourcing when their own becomes obsolete, said Golding. Some start the data center outsourcing trend with their backup data centers while still holding onto their primary facility.

"There will come a point when upgrading will be too big of a step," said Golding, "and having a third-party data center is more cost-effective."

Let us know what you think about the story; e-mail Mark Fontecchio, News Writer.

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