CIO Decisions

Weighing the pros and cons of data center outsourcing vs. owning


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Data center outsourcing dilemma: CIOs weigh in on owning vs. renting

Is it better to own or rent data center space? CIOs are seeking more modular, green data center designs and considering data center outsourcing, as consolidation takes precedence.

Driven by the need to consolidate after massive build-outs in the mid-2000s, enterprises are investing in more modular and energy-efficient data center designs. The question, more than ever, is whether it's better to own or rent.

For Angelo Valletta, senior vice president and CIO at Sun National Bank in Vineland, N.J., the issue of data center outsourcing came down to control, flexibility and time to market. He has worked in data centers all his professional life, at one time in a full data center outsourcing model. His mind is open, but when Sun National ran the ROI, it decided to keep its data center and core banking application in-house.

Renting space in an external data center would have been more of a challenge, requiring navigation through an architecture that Sun National didn't own. "Keeping our core banking application in-house allowed the bank to achieve cost savings and the ability to deliver products and services that our customers demand and require," Valletta said.

By creating a mobile banking application that links to in-house systems and uses the cloud for delivery, the bank was the first community bank to deliver mobile banking to its customers in the markets it serves, according to Valletta.

The bank also uses its in-house model to build workflow applications aimed at loan origination, for instance, which requires data input from inception to booking. Not only did this give Valletta greater control over cloud connections, but it also freed him up to think about the business.

"We've been able to dive into true business process re-engineering," Valletta said, "going into a department and having a conversation to eliminate manual redundancies and automate full, end-to-end operational processing." Sun National is positioned to sell these types of products, built in-house, to other community banks, which currently are underserved in this area, he said.

One thing is certain when it comes to data center outsourcing: "There is no universal right or wrong answer to the rent-or-own question," said Douglas Menefee, CIO of Schumacher Group in Lafayette, La. "This forces us to constantly explore options."

Schumacher has two data centers, one in Lafayette and another in Dallas, both of which house more than 150 servers. The company, which provides medical informatics to 2,500 emergency room physicians nationwide, is considering an office relocation in Dallas, and has been exploring colocation options.

"At this time, we are leaning towards keeping the data center in-house. It is very much a dilemma that I continue to grapple with," Menefee said.

"The value proposition of colocation centered on environmental conditions," such as electricity and heating, ventilating and air-conditioning systems, Menefee said. "Doing a colocation solution means that we are paying a premium for those services and eliminating one set of headaches . . . while introducing a whole set of new headaches associated with vendor management."

Four years ago, Schumacher went with a dedicated managed hosting service provided by CedarCrestone Inc. for its PeopleSoft environment. "We utilize CedarCrestone for this service and continue to see positive uptime and patch management value," Menefee said.

However, it comes at premium. "With the strong support I have for cloud-based solutions, I'm not seeing the same cost and performance value associated with moving our data center into a colocation solution. It seems to make more sense for us to maintain the data centers in-house and continue to look for colo or cloud-based solutions on a case-by-case basis, rather than shift our existing infrastructure to a colo," Menefee said.

Modular replaces massive build-outs

"There are a lot of different factors at play," said Bob Laliberte, a senior analyst at Enterprise Strategy Group (ESG) in Milford, Mass. "When you own, you have a lot more control. To a lot of people, that's crucial. They can restrict who gets into the physical space as well as the firewall." The financial industry, for example, is consolidating fast due to all the mergers post-meltdown -- but because of sensitive data, prefers to maintain control.

For the most part, however, the days of building 300,000-square-foot facilities that cost hundreds of millions of dollars and years to complete are over, Laliberte said. "By the time you're in it, the technology is obsolete."

That's one reason why modular, point of distribution-based data centers are gaining steam, with offerings from IBM, Sun Microsystems Inc., Hewlett-Packard Co. and others. Instead of a build-out that lasts months (or years), you can order one and plug it in six weeks later. Plus, they're rapidly scalable, Laliberte said: "When you need to scale, you add another pod."

For service providers in particular, the ability to scale is going to be very important. With a modular data center, "You bring it in and bolt it in," Laliberte said. Businesses sometimes put them into a warehouse or other enclosed space, but they can also be placed outdoors.

Data center outsourcing options

In late 2006 and 2007, massive data center build-outs were still under way, but "by the middle of 2008, it was done," said Drue Reeves, vice president and director of research at Burton Group in Midvale, Utah. The recession forced the need to consolidate, with server virtualization helping enterprises reduce server count and floor space. By early 2009, Data center consolidation was the No. 1 issue for IT departments, according to a Burton Group survey.

Organizations in the process of consolidating are almost twice as likely to evaluate Software as a Service as an outsourcing option, Laliberte said. "As they're consolidating, they're really looking at what they need to [keep] in-house."

Of 515 senior IT professionals with enterprise and midmarket companies in North America and western Europe, one in three is aggressively consolidating data centers, according to an ESG data-center and construction trend survey in which data center consolidation ranked as the third most important enterprise IT initiative for the next 12 to 18 months.

ESG also found that there is still healthy interest in building out new data centers. Nearly one-third of respondents are in the process of constructing new facilities, though most are building only a single new data center as opposed to multiple facilities. Nearly half of the organizations currently reducing or consolidating data centers are also in the process of building at least one new data center, Laliberte said.

At some point, CIOs will be find a balance between owning and renting, with next-generation data centers likely becoming internal clouds. The trend then will be to build hybrid clouds to augment internal capacity, Burton Group's Reeves predicted. "It's not simply a matter of building new data centers versus buying a bunch of services, but rather to spend [operating expenses] and focus on the integration."

Let us know what you think about the story; email Laura Smith, Features Writer.

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