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.