How to Know Your TCO in the Colocation Marketplace

Dan Meltzer, Managing Director, Sales, at Sabey Data Centers

It’s hard to believe that the colocation industry is only around 20 years old or even younger, depending on how you want to classify it. Its first decade was an experimental business model. Corporately owned and operated data centers were the standard and seemed a far more stable and less risky option than trusting your infrastructure to an outside entity.

Strong performance by the early players in the colocation industry helped establish it as a legitimate option for companies. Many tenants discovered benefits of redirecting their financial and technology resources toward the customer experience rather than maintaining a non-core function like a data center.

For those of us whose core asset is the data center, the growth of Data Center Alley in Ashburn and its side streets in Chicago, Dallas, Santa Clara, Phoenix, Quincy, and Atlanta has been fascinating to experience. Those primary markets have many high-quality data center assets, with still new greenfield development sprouting up over the past few years. Each market has numerous operators providing state-of-the-art facilities built within the past few years. The localities are reasonably friendly to the continued development, and space and power were, if not plentiful, at least not constrained.

In those markets, cost comparisons are reasonably easy to make, and the total cost of ownership (TCO) is calculated with confidence. These new data centers aren’t identical, of course; variety in designs, power configurations, and redundancy levels ensure that customers can select the data center to fit their needs best. But the cost calculations are not difficult to make. Power infrastructure is new, the PUEs are competitive, and projecting your data center costs on a provider-to-provider basis can be made with a certain level of confidence.

Boasting some of the highest real estate values in the world, New York City may be the worst offender in the country when it comes to ascertaining true TCO.

Unique Markets are a Difficult Challenge

Outside of these “big box” data center markets, data center cost projections become more difficult. The most population- and structure-dense cities are also the most challenging in delivering data center inventory. Finding open swaths of affordable land on which to build a data center is a fool’s errand. Given these more significant constraints, the local governments rarely have plans to attract and support data centers and may actively discourage them in many cases. Getting a new data center built in markets like Boston, Philadelphia, San Francisco, Los Angeles, and Miami is a daunting feat.

As such, data centers in urban markets tend to be repurposed facilities or older telecom facilities, making your TCO more challenging to ascertain. Most critical to this calculation is power usage effectiveness (PUE), which varies widely from facility to facility and season to season. Infrastructure quality, and consequently your service level, varies widely in a data center that hasn’t been purpose-built, and so your true TCO is much harder to come by.

Taking a Bite at the Apple

Boasting some of the highest real estate values in the world, my market of New York City may be the worst offender in the country when it comes to ascertaining true TCO. While northern New Jersey’s supply of purpose-built data centers is sufficient for some end users, those committed to reaching NYC’s 10 million users with latency-sensitive applications prefer Manhattan. Given NYC’s obstacles, its colocation market is surprisingly strong, but the TCO calculation remains challenging.

Despite this difficulty, many media, healthcare, and finance leaders have found their data center home in New York City. Their infrastructure teams distill a reasonably accurate TCO from basic tenets of rent, cost of electricity, PUE, and cross-connects but accept a level of uncertainty depending on the repurposed building they choose. Many prospective NYC tenants find a more straightforward path to calculating accurate TCO by evaluating colo facilities, like Manhattan’s single purpose-built data center: Sabey Data Centers’ Intergate.Manhattan.

Dan Meltzer is Managing Director, Sales, at Sabey Data Centers.