Colocation and Data Centers: Can Outsourcing Ease Your Headaches?
For all my colo curious friends out there, this one's for you. I'm Max Clark. This is 20 minutes max, and we're gonna talk about data centers and colocation. As, like, a general rule of thumb, let's let's first off, what is colocation? Right?
Speaker 1:I mean, jeez, it's pretty self like like, it's in the word. You are taking your equipment, and you are locating it with somebody else. So colocation and, you know, really what you're getting here is you're getting somebody else to build, manage, operate a data center facility where you're not building, managing and operating that facility. And that's super important to you for a couple of reasons. The first reason is it's massively expensive to build out a data center space.
Speaker 1:I don't care how big it is or how small it is. Let's just say, you know, as as, like, just a ball you know, a round number to $1,000 a square foot to build out a data center. You know, if if you're doing a relatively small build, let's say it's it's, you know, 20 cabinets, and when you calculate up all the power in the space that you need and the generators and the UPS gear and the air conditioning and the racks and the floor tiles and and everything you get into it, you say, you know that space is gonna cost you half a $1,000,000 you're gonna spend half a $1,000,000 on it that's what it's gonna cost you to construct it now you have to run it if you're in certain markets you can't just run generators you have to get special permits for them you have to test them you have a fuel contract for that. You're gonna be unless you're a hospital, you're gonna have a low priority on on refueling. If there's a natural disaster, it's not like you're gonna get, like, a fuel truck to come out and put more more diesel on your generator.
Speaker 1:You're gonna have to maintain your air conditioning. You're gonna have to change filters. You're gonna have to replace coolant or Freon or whatever you're using these things. I don't think we use Freon anymore. You need fire suppression.
Speaker 1:The fire suppression has to be tested. All of these things become depreciating assets, and they all are specialized, and they all require things in addition to what, like, an IT team. I mean, you need to, like, a specific specialized facilities management that then can oversee your electrical, your mechanical, your air conditioning, your HVAC, and now you've got this data center. So you're gonna build this data center out, and you're gonna build it to whatever spec and standard. And the second you turn it on, that thing, it's like driving a car off the lot.
Speaker 1:It is just instantaneously just gonna boom crash in depreciation of value, and it's going to go down. Not like down in terms of offline. It's just like what what what your value is that you get out of it. So that's the first half. Okay.
Speaker 1:You built the facility. Now you've got the 2nd problem. 2nd problem is you gotta connect it to something. And the value also that you get in data centers is networks come to data centers. Carriers come to data centers.
Speaker 1:They build the data centers. Why? Because there's multiple customers there. So it's efficient for them. And when they look at their financials, it's, it's they go, hey.
Speaker 1:Great. You know, we can bring service into this building. We can put equipment there. And as soon as we do that, we can sell it to multiple people. And what happens when you have scale while you have pricing leverage and efficiency?
Speaker 1:So the more people that more companies that are in a data center, the less expensive bandwidth becomes. We can complain about cross connect fees in some some data centers. You know? I will talk to you about cross connect fees and complain about it till the end of the world. The cost of the cross connect in the data center is infinitely cheaper to you than it is to get loop out of, you know, because all you're really doing, by the way, is if you build your own data center, you're just taking and connecting your little data center into another big data center where the network actually sits.
Speaker 1:So you're still dependent on that other data center. It's still coming from that other location. You know? It just happens to be, you know, know, you're bringing into your facility itself. So, you know, so now you've got a situation where, let's say, you outgrow your space.
Speaker 1:You've, you've you've need more power. You need more more more rack space. You need this. You need that. You know?
Speaker 1:What are you gonna do? The answer is you're gonna do nothing because you can't I mean, it's not like you can just go and seize more more parking lot space to put a second generator in. You know? That's not an easy thing, and you can't necessarily go seize more floor space in the building to go do it. So this is very much one of those things for me where if you are in the business of building data centers, you should build data centers.
Speaker 1:If you're not in the business of building data centers, you shouldn't build data centers. You should go lease them because your cost, you know, I might put this into ROI numbers, put this into TCO numbers, put this into operating cost numbers, put this into flexibility, put this into leverage, put this however you wanna put it. It is better for you to colocate. It is better for you to go out and contract with a major data center operator that's in your market or in the market that you wanna be in and go put your equipment there. Now, yes, it's a drag.
Speaker 1:Your IT team, you know, that's maintaining this has to drive from point a to point b. You know, if you're in downtown Portland and, you know, you know, the main data center installations are in Hillsboro. Right? You know, it's not convenient. You know, know, you've gotta get in the car and you gotta drive to Hillsborough.
Speaker 1:Right? And, like, oh, that could be a drag, but, you know, here's the deal. You know? Being trying to build a data center in downtown on Portland versus being in Hillsborough, I mean, there's a reason why they're all in Hillsborough. You know?
Speaker 1:There's there's you know, people that know how to do this at scale are making these decisions for a reason. So without even getting into it, like, just just trust them. They know what they're doing, and they're doing this for a reason. I've had CIOs that wanna have their own data centers, and spend a ton of money building out a data center. And then, you know, get a year into the project, and you start having conversations, and they realize that there's no flexibility anymore in that space.
Speaker 1:And they they've got the great line item on their resume. It says they built a data center, and and, you know, they check off whatever internal, you know, thing that they had about, I wanna build my own data center. And you're like, okay. Great. You built this thing, but what are you gonna do with it?
Speaker 1:It's not even that cool. Like, all you've done is built yourself a headache. Don't build headaches, like outsource headaches. This is this is this is a wonderful part about being in the IT business is you get to outsource headaches to other people. I should really title this outsource your headaches.
Speaker 1:By the way, this is not a cloud versus data center argument. I'm 100% on team data center versus cloud. By the way, all the clouds sit in data center, so you wanna really get into, like, you know, the funny part of all this stuff. But there's ways of doing this that create leverage for you and your business and your operations. That's very smart.
Speaker 1:And whenever you can create leverage for your business and your operations you should create leverage for your business operations so you should be buying not building go cool locate sign a license for a data center space near you drive to it get your badges they're gonna they're gonna deal with all the stuff that you don't you don't wanna deal with, and you're gonna get the advantage of it of things that can get really expensive inexpensive. I mean, you know, right now, okay, you know, if you've built a data center in your building and, you know, you've you've got, you know, GigE circuits, you start looking and say, I wanna upgrade to 10 gig circuits. By the way, it's 2023. You're probably already, hopefully, trying to figure out how to upgrade or have already upgraded to 10 gig. But now you've had 2 other hops, you know, 40 gig, 100 gig.
Speaker 1:What comes after a 100 gig? What do these things look like? And, you know, if you're, if you're in a data center facility, the difference between going to from 1 gig to a 100 gig is just changing the optics. You know, the the the optics in your router change out. I mean, you have different ports, you have different line card, you maybe have a different router to pin your capacity, but yada yada yada.
Speaker 1:Right? Like, who cares? Are we gonna need to, specific? You know, the point there is is you have to change the part. You don't have to change the the infrastructure.
Speaker 1:You don't have to change the loop. You don't have to get a new circuit pulled in. You don't have to go through capacity planning. You don't have to go through all this different stuff. You can just call up somebody and say, hey.
Speaker 1:I need a 100 gig circuit tomorrow, and then go, okay. Great. I mean, no. You're not gonna get it tomorrow because your paperwork with the carrier is gonna take, you know, take you some time. And, you know, if the facility is gonna take a couple days to deliver this, you know, the cross connect, I mean, that's but, you know, I mean okay.
Speaker 1:So great. So we're talking like, you could have it in 2 weeks. In 2 weeks, you could have a 100 gig circuit delivered, you know, anywhere in any data center on the planet. You can't do that in your own facility. You know?
Speaker 1:Without going through and trying to, you know, show you a spreadsheet and and break down, like I mean, if somebody if you really wanna see the spreadsheet, you know, let me know. Comment on this. We'll we'll send you a link, and you can download the spreadsheet, and you can see this stuff because it's no rational person is going to do this. And if you're going to your CFO and you're saying, hey, you know, missus CFO, I want to build a data center and it's gonna cost us this much money. And or we could just go and just sign a license and just have a pure OpEx play and not spend any of this money that we then have to figure out, you know, how to capitalize it, how to pay for it, what are we gonna do for are we or do we have that in our bank account?
Speaker 1:Do we go and and, have to take out, you know, loans in order to do it? And then how do we depreciate it? And do we have to go through cost segregation studies for depreciation? And who's who's a specialized cost segregation person that can actually give us a cost segregation studies on data center assets so we can appreciate the data center properly? And what what what duration do we depreciate?
Speaker 1:And what do we do when we have to replace our, you know, our UPS stack in this many years even though we're gonna depreciate it for another year? I mean, you see, the point that I'm making here is this is all pain you don't want to incur, and you shouldn't incur because there's no value. There's no value to your operations for you having a data center in your office. But, Max, we need to have fast network access to our data center equipment. Great.
Speaker 1:Go get a 10 gig loop. You know, there's so many metro providers. There's so many options. Even if you're not dealing with a specialized metro provider, you want, you know, the phone company and the cable companies, it's dirt cheap today to go get 100 gig circuits from from these companies. Like, you know, a 10 a 10 gig a 10 gig circ you know, loop, you know, diverse loop.
Speaker 1:It's pennies on the dollars compared to where it was 10 years ago. I mean, like, time has gone forward. This stuff is cheap. You know, we've done 100 gig loops, you know, for, like, numbers that make will make, you know, anybody it's just it's it's so it's so inexpensive. We're seeing 10 gig circuits pricing for what t ones cost in the late nineties.
Speaker 1:So if you don't know, a t one was 1.544 megabits per second, and a 100 gig circuit is a whole lot faster than that. This whole thing about, like, oh, it's gotta be close to us, and it's gotta be fast. A metro a metro network is gonna give you, you know, an average probably, like, 5 to 6 milliseconds of latency. Your application requirements in your office does not need something that's faster than 5, 6 milliseconds. Heck, even 15 milliseconds between the client and the server is still faster than you'll ever need for every application that you're running.
Speaker 1:I don't care what you're doing. And now you've got a secure environment that is protected, that has everything that you need, stable security, you know, generators, UPS gear, climate controlled systems, early warning preaction, fire suppression systems, access to every network that you could possibly ever wanna have network access to, you know, on ramps to different cloud platforms if you wanted to have an interconnection with AWS or Oracle or Azure or GCP or or or or or or or it's all available in these things. They are shiny castles on the hill. Go into the shiny castle on the hill. So I could keep going on this one, but I'm gonna stop my rant here.
Speaker 1:If you are in a conversation and by the way, this this came out of, you know, I'm I'm reading articles from a bunch of different municipal governments on, you know, wanting I mean, to spend crazy amounts of money, crazy amounts of money building a data center. This little company, you know, this this this one is like, we have 40 servers, and we need to spend $925,000 building out a new data center for our 40 servers. And it's just like, no, you do not need to spend a $1,000,000 to build a new data center for your 40 servers. You need to take those 40 servers, and you need to spend probably $10,000 a month in a data center. You know?
Speaker 1:Now that's gonna be that price is gonna change based on what market you're in. It's gonna go up and down a little bit. Okay. Fine. Whatever.
Speaker 1:But let's just call it 10 k. So do the forward math on that one. Right? You know, 10 k $10,000 a month, $120,000 a year, $360,000 for 3 years. Right?
Speaker 1:You know? So you're talking to 9 years. You know, 8, 9 years in order to get to what it would cost them to build out just just in construction. Okay? We're not talking about operating cost, management cost, depreciation cost, maintenance, all these other things.
Speaker 1:The math there's here's here's your math. You've you know, I I talked myself into telling you the number. The math is you've got 6, 7, 8 years in equivalency between co locating in a data center and paying that data center all in to run your stuff versus what it would cost you to construct it. Then you've got a factor in what it costs you to run it. And I can tell you it's way more expensive than you would believe.
Speaker 1:So, you know, oh, but then we don't have a data center and blah blah blah this and blah blah that and the next thing. Listen. Here's the thing. Your equipment refresh cycle is gonna be, you know, 4, 5, 6 years anyways. You know?
Speaker 1:So a data center is not gonna you know, at the scale that they're building. You know? Again, going back to that math, 900,000 square feet, $900,000, it's gonna be a government job. So they're not gonna get, you know, 900 square feet. They're gonna end up with, like, 5, 600 square feet of data center.
Speaker 1:In 5 years, the requirements for their data center are gonna be radically different. And they're gonna want more space. They're gonna want less space. They're gonna need, you know, redundancy. They're gonna need this.
Speaker 1:They're gonna need that. They're gonna be and then there's gonna be another thing. Oh, you're gonna see another article. The same thing with news alert. Oh, we've decided, you know, to double the cost of our data center.
Speaker 1:Just don't do it. Just go co locate. Trust me. There are facilities in your in your market. You know?
Speaker 1:Major markets, of course, are easy. You know, take the football cities in the United States, and there are tons of data center options. If you go to the secondary and tertiary markets, there's still data centers. There's way more I mean, everybody know I mean, Los Angeles, Southern California. Right?
Speaker 1:San Diego has data centers. Orange County has data centers. Los Angeles County has data centers. You know, Elsa El Segundo, Downtown Los Angeles. Burbank has data centers.
Speaker 1:There's data centers in Westlake and Thousand Oaks. Right? Okay. We're getting kind of out there. But guess what?
Speaker 1:There's data centers in Ventura. There's data centers in Santa Barbara. There's data centers in Santa Maria. There's data centers in, San Luis Obispo. There's data centers in Monterrey.
Speaker 1:Then there's data centers in San Jose. My point is there's lots of data centers where you might not think that there's a data center, and you don't have to build your own. You can go and you can sign a contract. You can get the whole thing in OpEx. You can save a ton of money in aggravation.
Speaker 1:You don't have to deal with any of the maintenance on it, and it will just work for you, and it'll work beautifully for you. And it'll save you a ton of money, and you get to do all the really cool stuff. You still get you get the fancy badges and the retinal scans or the fingerprint or whatever they're doing at that given time. Go enjoy it. Do not build.
Speaker 1:Go buy. Do not build. Go buy. Do not build. Go buy.
Speaker 1:Do not build. Go buy. That is the that is the moral of the story on on data centers. If you are co curious, reach out. We'll make this really easy for you, but it is it is crazy to me whenever I get into these conversations or read these notes about, you know, companies that wanna build data centers or, you know, lately, it's cities cities that wanna build out their own data centers.
Speaker 1:It's just just don't do it. Do not do it. Do not do not
Speaker 2:do not do not do not do not do not
Speaker 1:do not do not do not. That.
