Gartner Report “Colocation Pricing Models Are Changing – Don’t Overpay and Don’t Overbuy”

Historically, the complexity and lack of transparency in colocation pricing has made it difficult for customers to compare data centers, services, and prices. For an IT commitment that will last three to five years or even longer, that makes little business sense. But there is a trend toward power-based pricing, which can help you avoid overbuying and overpaying.

Most data center colocation contracts make it very hard for IT leaders to determine exactly what they’re paying for, and how much. Gartner analyst Bob Gill addressed the issue in an October 2014 research note: “This complexity and lack of transparency has favored the sellers, making matching capacity to requirements less than perfect, and accurate comparison between competing offerings nearly impossible.”1

In Colocation Pricing Models Are Changing – Don’t Overpay and Don’t Overbuy, Gartner lists three key challenges associated with current colocation pricing strategies:

1. “Pricing for solutions is often ‘opaque.’ Proposals and offers can seem impossible to deconstruct to line item pricing, making them difficult to compare.”

2. “Colocation is not priced as an interchangeable commodity. Pricing for a given capacity often varies by provider, location, and even by building.”

3. “The historically common model of space-based pricing favors the provider, with overbuying of capacity common and power wasted.”

“A more transparent and usage-based model is sorely needed”

The lack of pricing transparency is in part due to the legacy of the data center colocation agreement being structured more like a real estate lease than a utility-like service. That legacy is increasingly costly for data center customers. Gill writes, “With power costs rising and equipment becoming more power dense, providers are increasingly determined to pass along these costs or profit from them.”

According to the report, “The net result is that customers can easily contract to pay for as much as three times the electricity that is required by their IT equipment.”

But there has recently been a shift toward power-based pricing that works to your advantage as an IT leader. (Find out more about Aligned Data Centers’ pay-for-use data center model.)

There’s power in power-based pricing

According to the Gartner report, the shift to power-based pricing opens the doors to greater transparency, and flexibility. By separating out fee components, including space and power, colocation buyers can truly compare the value being proposed by competing providers. And, with better visibility into what you’re paying for, you have more negotiating power.

“We urge IT leaders to focus on what is negotiable and to establish a standard model for cost analysis to make comparison possible and avoid overbuying and overpaying.”
– Gartner

To avoid overspending, align space and power requirements to actual utilization

Even where pricing seems non-negotiable, you can find significant savings on proposals or contract renewals by aligning your space and power requirements closer to your actual needs. Gill writes, “In numerous cases, we have uncovered power density estimates yielding far higher overall power draw requirements than actually needed. Gartner often sees clients erroneously use their highest density power cabinet as the assumption for all cabinets, which could lead to significant overspending.” (Learn more about how Aligned Data Centers enables you to align the data center to your needs.)

Bottom line from Gartner

1. “Use the trend toward power-based pricing to demand power pricing transparency, as it varies widely and is a common source of overpaying.”

2. “Deconstruct proposals in a given market to the least common denominators to allow ‘like for like’ comparison.”

3. “Plan for growth (or contraction) of both space and power. However, do not overestimate initial demand and do not overbuy for growth – both of which are common mistakes.”

Aligned Data Centers is the first pay-for-use data center provider to offer consumption-based pricing for enterprises, service providers, education institutions, and government organizations who require greater control of their data center.

1 Gartner, “Colocation Pricing Models Are Changing – Don’t Overpay and Don’t Overbuy,” Bob Gill, October 2014.

*Gartner does not endorse any vendor, product, or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

Recap of 451 Research Report: “Aligned Energy Enters Dallas MTDC Market with Consumption-Based Pricing Model”

Although the Dallas multi-tenant data center (MTDC) market is competitive, Aligned Data Centers can find success as its pay-for-use pricing model generates considerable interest from not only cloud service providers but also fast-growing mid-market and enterprise customers that could benefit from it. That’s the takeaway from a recent report by 451 Research.

This is a recap of the 451 Research report, “Aligned Data Centers enters Dallas MTDC market with consumption-based pricing model.” 

As Aligned Data Centers prepared to launch our new Plano data center, 451 Research analyst Rick Kurtzbein took a close look at our strategy to incrementally build out customer capacity in a contained environment, with a pay-for-use pricing model and guaranteed 1.15 PUE and 100% availability. The report describes how we’ve set out to solve the problem of stranded power and cooling, which negatively impacts data centers by wasting energy and inflating costs.

Leveraging 25 years of data center experience

According to 451 Research, we’re poised for success in part because Aligned Data Centers was formed by a group of industry veterans with more than 25 years experience in designing, engineering, building, and operating data centers for some of the largest an most innovative internet, communications, and financial services organizations.

Fixing the issues with fixed density

According to the 451 Research report, “Much of datacenter capacity planning continues to leverage fixed densities and power requirements. In doing so, customers often end up with excessive space and stranded power, as well as ending up locked into long-term fixed ramp schedules that require they pay for more space and power than necessary for IT infrastructures.”

Aligned Data Centers resolves those problems. Our customers determine how much capacity they need, when they need it. They adjust their rack density from 1-25kW based on their variable IT loads. They’re not locked into a fixed ramp schedule. With pay-for-use pricing, our customers align their data center capacity to their business needs. If they use less, they pay less.

Consumption-based pricing model

451 Research explains the Aligned Data Centers pricing model: “Aligned uses a utility approach that charges a baseline fee for capacity, as well as for power and cooling actually used. The firm charges a reduced baseline fee for reserved contiguous capacity (approximately 70% less) to ensure capacity for future growth. At 100% utilization of the capacity, the charge is equal to lowest cost providers but with the PUE of 1.15 gives them a lower total cost. At any utilization below 100% the savings increase. Given that average colocation utilization is between 40-50% the savings are significant. This is Aligned’s vision to simplify capacity planning and eliminate stranded power.”

Strengths and opportunities

In the 451 Research report, Kurtzbein points out that Aligned Data Centers has entered a competitive Dallas wholesale market at a time when several providers have added data center capacity. Yet for the challenges associated with a competitive market, Aligned brings important strengths and opportunities, according to 451 Research:

  • “Aligned Data Centers possesses an innovative approach with its datacenter design, as well as its consumption-based pricing. The firm also benefits from a seasoned senior leadership team with capital backing from BlueMountain Capital Management.”
  • “Aligned Data Centers has positioned itself and its consumption-based pricing model as perhaps the next evolutionary step in pricing for the MTDC sector. We believe the firm will take its model as planned to additional top North American markets.”

Located to the north of the Dallas-Fort Worth metropolitan area with easy access to major freeways and minutes from both Love Field and the Dallas/Forth Worth International Airport, our 100,000 square foot Plano data center is situated on more than 16 acres providing ample room to expand.

Learn more about the Plano pay-for-use data center:

Steve Fairfax on Reliability-focused Data Center Design

When it comes to an always-on, always-available expectation, 100% uptime defines customer satisfaction and business success. Traditional providers believe the only way to deliver that type of reliability in the data center is to build two or more of everything. But it doesn’t need to be that way; we can have our cake and eat it, too. Here, learn from reliability expert Steve Fairfax about how Aligned Data Centers delivers truly best-in-class reliability.

This blog post expands on a video interview with Steve Fairfax, president of MTechnology and leading data center reliability expert.

MTechnology specializes in Probabilistic Risk Assessment (PRA) – applying mathematics and science to optimize data center reliability. The company’s president, Steve Fairfax, explains that probability analysis provides a more complete picture of the interaction between components of the data center building, power distribution system, and cooling system. With that probability analysis, data center operators can use predictive modeling to guide their decisions to optimize uptime and efficiency.

The “most reliable cooling system”

Among the most demanding data center users are financial services institutions; they typically demand very high reliability. According to Fairfax, these institutions’ data centers consistently score between 0.5% and 2% probability of failure per year. Put another way: their data centers should be expected to fail, on average, once every 50-200 years.

MTechnology was first introduced to Aligned Data Centers when working with Inertech, one of the Aligned Energy platform of companies. Inertech invented what Fairfax calls “a very unique cooling system product” for the data center. Particularly unique: its reliability.

“We did a detailed analysis of [the Inertech] system and it scored very well,” Fairfax says. “It was .25% probability of failure per year, which was the best cooling system score we’d seen in almost 20 years in this business.”

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Aligned Data Centers’ reliability target

Where most traditional data center providers bring in reliability experts to assess how well their data centers are running, Aligned Data Centers “was unique in that they approached us while the paper was still blank,” Fairfax says. “Instead of building the facility and asking us what the reliability was, they told us their reliability target and gave us a seat at the table to participate in the design process in order to make sure that they achieved that goal.”

That reliability target: twice as good as the most demanding financial institutions – 0.25% chance of failure per year, once in 400 years.

Best-in-class cooling + best-in-class generation

Fairfax says that when he learned of Aligned Energy’s plan to begin building data centers, he immediately thought of PowerSecure generators. “Our studies have consistently shown that the generator is by far the most important part of a data center in terms of affecting its reliability,” he explains.

Aligned Data Centers already had a best-in-class cooling system; it only made sense to marry that with a best-in-class generation system.

More reliable than nuclear plant standby generators

PowerSecure was the first large generator fleet operator to give MTechnology full access to their operating data. Fairfax remembers that PowerSecure’s reliability was already best-of-breed, equivalent to the reliability of nuclear power plant standby diesel generators.

But PowerSecure didn’t rest on their laurels; Fairfax says that the company has continued to dramatically improve the reliability of their generators by following a process of continuous improvement called Reliability Growth Management. A PowerSecure generator is now 2.5 times more reliable than four years ago.

Planning for long term reliability

At Aligned Data Centers, we’re using the same techniques to design our facilities and to incorporate continuous improvement in the operations and maintenance of the data centers. “By integrating Reliability Growth Management techniques into both design and operations,” Fairfax says, “Aligned Data Centers is creating a new business model for data centers.”

At Aligned Data Centers, we have engineered our data centers to be both highly resilient and energy efficient by removing the complexities of traditional infrastructure. The electrical and mechanical systems we utilize are designed for concurrent maintainability and to significantly reduce water and power consumption, and have been commissioned in some of the most demanding production environments.

Learn more about data center reliability:

• How Conductive Data Center Cooling Delivers 100% Uptime, Reduces Energy Consumption, & Cuts Costs (blog)
• Steve Fairfax Talks About Reliability-focused Data Center Design (video)