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An in-depth look at calculating server hardware costs for SMBs

Servers can be expensive, but there's more to the purchase than just the price of the hardware. Learn what additional items an SMB must factor into the overall cost.

Even though many larger organizations run a significant percentage of their workloads in the cloud, there are some compelling benefits for SMBs to run workloads on an in-house server rather than outsource those workloads to the cloud.

But before an SMB can begin estimating its server hardware costs, it must determine its hardware needs. Every small business is unique, and a server that works well for one business might not necessarily meet the needs of another.

Small businesses have different server needs

SMBs can determine their server needs based on their use cases. For example, a web server generally has different hardware requirements than a server that's hosting database services or is acting as an email server. The server's use case affects the disk space, memory, CPU resources and network bandwidth the organization will require.

Another way an organization can determine its server hardware needs is to examine the system requirements for both the server OS it plans to use and for the applications that will run on the server. But keep in mind that the minimum stated hardware requirements for an application might be insufficient for running the application in production. The SMB will likely need to adjust its hardware requirements based on its anticipated workload. An organization that plans to host its own email server, for example, will require additional disk storage for each mailbox.

The application vendor's website can help determine actual hardware requirements. As the organization decides what hardware it needs to buy, it must also consider future capacity needs.

Cost of hardware, OS and apps

Server hardware can be expensive, so it's only natural for an organization to plan its budget around the hardware it considers purchasing. But there are additional items an SMB must factor into the overall cost estimate.

Purchasing a server involves much more than just the initial hardware acquisition costs. An organization must consider the total cost of ownership, not just the purchase price.

First is the server OS. Depending on which OS the organization chooses to run, it could conceivably cost as much as the server itself, if not more. Windows Server 2019 Datacenter edition, for example, has a retail price of $6,155. Microsoft does offer an Essentials edition that's designed for small businesses for $501, but to qualify, a business must have fewer than 25 users and 50 devices.

Microsoft also offers a Standard edition of Windows Server for $972. It's worth noting that Microsoft only recommends using Windows Server 2019 Standard edition for workloads running on physical servers or in environments that are minimally virtualized.

Also keep in mind that Microsoft uses core-based licenses for Windows Server 2019 Standard edition and Datacenter edition. This means the license only covers 16 CPU cores, so an organization will need an additional license for every 16 cores. Standard and Datacenter editions of Windows Server 2019 also require the SMB to purchase a Client Access License for every user or device that accesses the server.

In addition to the server OS, the organization must consider the cost of the applications that will run on the server. Perpetual software licenses are becoming increasingly rare, so it's quite possible the SMB will need to budget for an annual license renewal or for software update fees.

The pros and cons of renting vs. owning a server

At one time, renting server hardware was a relatively common practice. Although there are still a few vendors that will lease physical hardware to businesses, hardware rentals have been replaced almost entirely by cloud hosting. Cloud providers generally host multiple tenants -- several companies that subscribe to the cloud -- on each of their servers, but the larger providers such as Microsoft and Amazon will allow an organization to lease dedicated hardware in the cloud.

Although much of the world has adopted a cloud-first approach to deploying new workloads, there can be some compelling benefits for an organization to have its own server. For starters, having a server in-house enables the SMB to configure the server, its OS and applications as it sees fit. Cloud providers often block access to low-level configuration settings.

Purchasing a server might also be less expensive in the long run. Cloud providers bill for the resources that an organization consumes. Running a lightweight workload in the cloud will usually cost a lot less than buying a server. But cloud costs increase as the workload is used more heavily. Not only can running a workload in the cloud become quite expensive, the costs can be unpredictable. In addition, the monthly cloud subscription fees continue for as long as the SMB hosts its workload in the cloud. Over time, those monthly fees can collectively far exceed the cost of purchasing a server.

One disadvantage of an SMB hosting its own server is that the organization is solely responsible for the server. If the server gets damaged by lightning, for example, the organization will have to bear the cost of repairing or replacing the server. On the other hand, cloud providers maintain the hardware on their customer's behalf and don't bill for hardware damage or hardware maintenance.

Server administration and maintenance costs

Another cost that an organization must consider is server and application administration. If the SMB has its own IT staff, then the necessary administration might not result in tangible costs. But organizations that don't have IT departments might need to periodically use a consulting service or hire an IT pro to take care of the server and its applications.

In addition to the server's initial cost, there are several ongoing costs that an organization must consider as well. For example, it will need to budget for periodically replacing worn-out server components such as hard disks. Similarly, an SMB will likely need to perform at least one hardware upgrade during the life of the server. This might involve, for instance, adding more memory or additional storage capacity.

It's also important to ensure the organization has a budget for getting technical support when necessary. Although some vendors offer free technical support, others provide support on a pay-per-incident basis. This is especially true for incidents when help is urgently needed.

Calculating total cost of ownership of a server

Server costs can be broken down into two distinct categories: acquisition costs and ongoing costs.

Acquisition costs usually include the following:

  • server hardware cost;
  • extended warranties or maintenance contracts;
  • the server's OS;
  • application licenses; and
  • a rack to mount the server in if one is needed.

Ongoing costs typically include the following:

  • technical support;
  • power consumption;
  • cooling for the server room if the organization has a dedicated server room;
  • replacement server components such as hard disks;
  • administrative costs; and
  • software upgrades.

Purchasing a server involves much more than just the initial hardware acquisition costs. An organization must consider the total cost of ownership (TCO), not just the purchase price. Although the purchase price is part of the TCO, the SMB must also consider the cost of software upgrades, maintenance items and other ongoing costs related to the server and its workload. An SMB should review its options and make decisions based on what it needs to achieve its goals.

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