Data Center Economics: Build vs. Buy

Data Center Economics: Build vs. Buy

Rich Miller for Data Center Knowledge

Does it make more sense to build your own data center, use a colocation center to house your gear, or lease turn-key space from a wholesale data center provider? The size of a requirement has historically been a key decision point in sorting out the economics of data center expansion. But capital, control and speed to market are also important considerations in determining the best approach, according to panelists at the Tier 1 Datacenter Transformation Summit last week in Reston, Va.

A significant number of enterprise companies still prefer to build their own data centers, usually out of a desire to control all aspects of their operation. Security is often a guiding principle for companies that build their own facilities. Many financial services firms build stand-alone data centers to ensure that their critical IT assets are not sharing space with other companies.

“We believe it’s economical for us to build our own data centers,” said Jeff Lowenberg of The Planet, a hosting provider with major operations in Houston and Dallas. “It’s also an issue of control. Nobody has our best interests at heart more than we do.”

Wholesale Benefits from Focus on Capital

The wholesale model, in which a developer leases finished plug-n-play data center space, is increasingly attractive to companies seeking 1 megawatt or more of data center capacity. One company that has made extensive use of wholesale space is Horizon Data Center Solutions of Dallas, which has expanded quickly by leasing space from Digital Realty Trust and Power Loft.

“It was really a CapEx issue and time-to-market issue,” said Lance Smith, the CEO of Horizon. “We are also concerned with the obsolescence of certain technologies in the data center sector.”

Wholesale space allows providers to avoid large up-front investments in data center construction, which typically can cost $1,000 to $1,500 for each square foot of finished space. With many companies seeking to conserve cash amid tight credit conditions, the wholesale model has gained favor.

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