Use Nextcloud as a Service and leave the complete provisioning, administration, and maintenance of your secure, GDPR-compliant cloud environment to our team of experts.
Frankfurt/Main, October 10, 2023 – The technology landscape is changing at breakneck speed. This repeatedly challenges in-house data centers to provide sufficient space, power, and cooling. As companies grow and scale, it is almost a given that they will need more data center capacity. Across a wide range of industries—from healthcare and financial services to retail and everything in between—large volumes of data are accumulating. And in every industry, applications are being developed that require high computing power.
However, not all workloads are suitable for the cloud, so a decision must be made. Should a new in-house data center be built (“Make”), or should space be purchased in a colocation facility (“Buy”)? To make a decision, companies must assess current and future infrastructure requirements. If these are variable, the cloud could be an attractive option. If, on the other hand, there is a need for fixed or steady growth, or if in-house hardware is required for other reasons, building or renting a data center is worth considering.
Of course, there are various pros and cons to all approaches: When building, companies have full control over all aspects of the data center. When buying, they gain many of the benefits of a data center but do not have to shoulder massive resource investments, which are required to build their own data center. Today, the trend is to outsource the data center in whole or in part in order to focus resources on the core business. As a result, the data center market has grown exponentially.
All current market trends indicate that this growth will continue at a rapid pace. The shift to the cloud, advancing virtualization, or the Internet of Things. Until now, building an in-house data center was the obvious choice for larger companies. The reason was that it made financial sense and was often the only option. Over the years, however, the scale at which a data center must be built to be financially viable has increased.
Recent independent industry reports show that this is only feasible with a capacity requirement of more than approx. 15 MW. In other words, you have to build a huge facility to make a data center financially efficient. The scale has increased more than fivefold over the past 15 years. It is also likely to continue rising over the next ten years and beyond.
Let us now take a closer look at the “make-or-buy” approach and examine the pros and cons in more detail.
An important factor when investing in your own facility is the associated commitment to a location. Once decided, this location commitment cannot be reversed without significant costs. If it becomes necessary to relocate due to market or geographic changes, this is very difficult with a self-built facility. If you outsource to a colocation provider, however, it often operates multiple data centers. Colocation therefore offers you far greater flexibility to move your capacity to another location—either by physically or virtually relocating the servers.
When considering location, the costs with a colocation provider should also be taken into account. Due to the new CO2 requirements (since January 2021) and Germany’s phase-out of nuclear energy, operating high-performance data centers is becoming increasingly expensive over time. These changes have even put some data center projects on hold.
Globally, some markets are experiencing a shortage of available colocation space. In these cases, a company may be forced to build. In the early 2000s, this was a likely scenario. More than twenty years later, however, there is generally a good supply of data center space worldwide. Most data center providers also have locations in multiple countries and across multiple continents. Today, data center operators are building hyperscale data centers that are so large that many customers can house their equipment there and also benefit from economies of scale within a colocation environment.
In the London market, for example, the availability of data center space has been good in recent years, with more new space being built each year. With a share of around 80% of the total data center capacity in the UK, London has a total data center supply of over 420 MW. This is almost half of the total supply in the key European markets, which also include Frankfurt, Amsterdam, and Paris.
This creates healthy competition in the market, enabling companies to find high-quality facilities at competitive prices. In addition, companies can deploy their servers at ready-built colocation sites in the shortest possible time, which is often business-critical. If needed, additional capacity is available without wasting capacity or requiring extensions.
A key advantage of owning a data center is control. This includes access, maintenance, and future improvements. At the same time, however, this can also be a disadvantage: Hardware refreshes are required every three to five years. In addition, operating a data center may not be among the IT department’s core competencies, which requires additional staff or OpEx.
If a company decides to build its own data center, it has the advantage of being able to do so to its exact specifications and possibly at its ideal location. At first glance, a clear advantage over buying colocation space from a third party. In Germany, there are many planners (dc-ce, TTSP) and also contractors (Mercury, SPIE) who support customers during construction.
However, many data center providers now build their data centers in a modular way, meaning most are located at highly optimized sites. The modular approach enables customers to help shape the design specification and fit-out of the space they purchase. This high level of customer involvement enables flexible customization of a purchased colocation data center. This comes close to the level of building your own environment, while also offering the advantage of leveraging the operator’s expertise.
Financial flexibility is an extremely important aspect when setting up a data center—regardless of whether it is an in-house investment or outsourced to a third party. Setting up data centers is highly capital-intensive and requires major investment. But there are other, often overlooked costs that can add up quickly, such as fire detection and suppression and facility staffing. In addition, when expanding the facility, provisions often have to be made for growth, which makes the facility inefficient in the short term. Sometimes this results in money being invested in space that may never be used.
Beyond the pure costs, the effort required for the day-to-day operation of a highly available data center must also be considered. Is the in-house team experienced and qualified to keep the infrastructure available for at least 99% of the year? Is someone available around the clock to handle emergencies? What about maintenance and updates to the facility and equipment? Annual maintenance costs can add up to as much as 5% of the original building costs.
Even if it is decided that building a data center will pay for itself within an acceptable timeframe, colocation can still be advantageous. A company specializing in data center design and operations runs IT equipment more efficiently with higher power usage effectiveness (PUE) and in a better controlled environment. This extends the hardware’s service life. When purchasing or renting colocation space, most providers offer customers flexible contracts with terms that allow them to:
All of these points help to develop a more predictable spending model with planned costs.
Five to ten years ago, one could certainly have argued that an in-house data center is more secure. However, physical security as well as cloud and cybersecurity have advanced to such an extent that colocation providers generally have far better resources to invest in security than a single company.
The IT industry is one of the fastest-growing sectors in the world. Since the colocation data center market forms the foundation for this growth industry, it must keep pace with this growth. That is why data center providers invest enormous resources in research and development to ensure that their colocation facilities are built to the highest levels of efficiency and operated by experienced, certified professionals. This advantage is passed on to customers, giving them a competitive edge over their competitors.
Companies that choose to buy outsourced colocation space can therefore be confident that the space and power they purchase today will provide future-proof technology and efficiency for years to come. This saves headaches and costs for major data center upgrades that every company would otherwise have to carry out regularly in its own facilities if it does not want to risk becoming increasingly inefficient over the years.
More and more companies are relying on a hybrid cloud model for their IT infrastructure, and easy access to cloud services is crucial. By choosing colocation in a third-party data center, customers are in an environment with a wealth of other customers. Many of these customers offer cloud platforms and applications. This creates a natural ecosystem in which customers can benefit from the services provided by other customers.
Cloud solutions from providers such as Google Cloud, Microsoft Azure, or AWS can be just a cross-connect away in a premium data center that provides a cloud access solution. This easy access to public cloud platforms creates a highly reliable environment.
To support this, most data centers offer a good selection of carriers within their facilities that have deployed extremely dense, high-quality fiber networks. This gives customers a wide range of options for connectivity to cloud platforms and beyond. These connections are often 100% reliable, as resilient options can be designed to mitigate potential outages. For a company’s self-built data center, this option is generally considered too expensive, which is why they often work with only one or two service providers—limiting reliability and potentially increasing risk if an issue occurs.
The debate about “Make or Buy” has been intense for years. Building your own data center is resource-intensive and requires a great deal of experience. And that is not all: Once a data center is built, it must also be managed, updated, and administered—all of which can be incredibly complex, costly, and time-consuming throughout its entire service life.
The “Buy” option offers the best protection against the increasing complexity and the costs and risks of an in-house data center. It also eliminates the need to worry about uptime, outdated technology, and future requirements. “Buy” also means that valuable capital is not tied up and can instead be invested in core business initiatives. Outsourcing is not only more cost-effective, but also more scalable and flexible. It also offers almost all the benefits of an in-house data center, but without consuming resources.
More and more companies have decided to move from their old, often expensive and inefficient facilities to high-quality, third-party-operated data centers. They no longer want to build their own data centers, and many that have done so are looking for options to switch to a colocation/cloud solution and remove the significant real estate costs from their business. The analysis shows that the total cost of owning a data center far outweighs the perceived benefits. It therefore appears that the argument in favor of “Buy” has prevailed once and for all.
