Historically, the complexity and lack of transparency in colocation pricing has made it difficult for customers to compare data centers, services, and prices. But trends toward use-based pricing are helping to clear up confusion, and helping data center customers avoid over-paying and achieve significant savings over time.

Data center pricing models have evolved, and continue to evolve, as we strive to price these big-ticket resources as efficiently as possible. In the wholesale market, leasing by the square foot gave way to capacity pricing that reflected power and cooling resources reserved for each specific customer. Metered power became the norm. Fixed costs for power allocation and use remain common by the rack. But in the wholesale market, use-based or “pay-for-use” pricing for allocated power and reserved cooling capacity is introducing a rapid delivery model, which reduces overbuilding, overbuying and overpaying. And it helps data center customers achieve operational savings over time.

In a single capacity charge, inefficiency exists because a customer will typically require space and cooling capacity that they expect to grow into without utilizing the conditioned UPS power for some period of time. And very seldom, if ever, will a colocation tenant use 100% of what they are leasing. So in the traditional model, customers pay for the power capacity (i.e., much of the cost of building the data center) even though they are not using it all and most likely never will.

Many factors – compute efficiency, technology refresh cycles, project delivery schedules and variations in the customers’ business itself – contribute to changes in the IT loads that make those loads hard to predict. As such, they’re likely subject to over-provisioning within multi-year contracts for costly data center facilities.

This means it’s important to find a colocation data center provider who offers transparency, flexibility and specific pricing of resources. A data center like that allows IT leaders to find significant savings by aligning space, cooling, UPS power, and pricing closer to their company’s actual needs.

Breaking down data center costs

Because most data center colocation lease terms are 5, 10, or even 15 years long, customers typically reserve space, cooling, and power to ensure they can grow their footprint within that data center. The traditional model only has one charge for that infrastructure, regardless of how much the customer has just reserved for later use and how much they’ve actually provisioned for use.

Because the vast majority of data center capital expenses and operating expenses go to power and cooling, if your colocation provider’s pricing model bills you for that infrastructure regardless of what you’ve actually provisioned for use, the amount you’re “over-paying” could be significant.

In contrast, at Aligned Data Centers, we break the equation into three attributes – to ensure customers only pay for what is used over time, versus what is allocated. Separating the cost of provisioning of space and required heat rejection capacity from the conditioned power allocation is the essential economic efficiency and pricing transparency that Aligned Data Centers brings to the data center market with our pay for use model. Our customers can reserve space and cooling but forgo the cost of conditioned power until it is required. They get the confidence of knowing they can grow without paying 100% of the cost of infrastructure they are not using.

In our model, “Reserved Capacity” is priced at a much lower $ per kW and “Allocated Power” is priced at an industry-competitive $ per kW. Utility rate is metered power consumption multiplied by an industry-leading PUE of 1.15 . Because Aligned Data Centers has bifurcated the infrastructure charge into reserved capacity and allocated power, and each is charged at a different rate, the effect is a dynamic and much more efficient $ per kW pricing that correlates directly to the customer’s actual utilization of the facility, as depicted in the chart below.

This is particularly significant because conditioned power (“Allocated Power”) is the most expensive single cost in a data center. So to the extent that its construction and operational cost and customer use can be more carefully modulated, the reduction in cost for the provider can be passed through to the customer.

Savings with Aligned Data Centers

There are two drivers of savings in the Aligned Data Centers pricing model:

  1. One driver of savings in our model comes from the fact that we have bifurcated the infrastructure charge. The “Reserved Capacity” (space and cooling) charge is roughly 50% or less of the market rate for provisioned power. The “Allocated Power” charge is a more typical market price.
  2. The other element of cost savings comes from the fact that we offer an industry-leading PUE of 1.15.

Together, the bifurcation of Reserved Capacity and Allocated Power and an ultra-low guaranteed PUE yield millions in savings over a contract term, as the example below (a five-year term) illustrates. In this example, Aligned Data Centers is 22% more cost-efficient than the traditional pricing model.

Minimum Obligation is the minimum contracted spend if you never use any power and thus pay only the Reserved Capacity rate. With traditional data centers, you would pay the full Rental Cost whether you used any allocated power or not.

Rental Cost is Reserved Capacity cost plus Allocated Power cost. This is the bifurcated Infrastructure charge described in the pricing model above. With traditional data centers, Rental Cost is not bifurcated – you pay the full Allocated Power cost regardless of what you actually end up using.

Energy Cost is the E described in the pricing model above (Power Consumption × Utility Rate × PUE). Energy Cost is lower at Aligned Data Centers because of a PUE of 1.15 compared to the traditional 1.40. The difference is the saving on the same load over 5 years.

Total Cost of Occupancy is Rental Cost plus Energy Cost. The graphic illustrates the difference over 5 years.

Pricing and contract terms matter more now than ever

Recent revisions to the accounting standards put forth by the Financial Accounting Standards Board (FASB) will require all companies to report leases with terms longer than one year as liabilities on their balance sheet. Because the Aligned Data Centers’ pay for use model provides a dramatically lower contractual commitment based on the actual utilization, the balance sheet impact is dramatically reduced. Read more about reassessing data center colocation agreements in To Find the Silver Lining In New Lease Accounting Rules, Look to the Data Center.

Bottom line

Greater cost transparency and flexibility in your data center contract will give you a better idea of exactly what you’re paying for and how to manage that contract over time. A data center that parses out your costs and provides choices so you can manage them is clearly advantageous.

Because of our dynamic pay per use business model (paying for what you actually use incrementally over the course of your lease), we can save customers significant money over time compared to our competitors’ static approach.

Contact Aligned Data Centers today and request your own custom-built Total Cost of Occupancy comparison.