In this recession, with companies loath to make big capital outlays, outsourcing a data center in need of an upgrade can be an attractive option for midmarket CIOs. But hard times or not, a sound data center strategy is first and foremost all about the business, as we found out talking this week with several IT chiefs.
Dave Banks, chief technology officer (CTO) at the growing online auction business PropertyRoom.com Inc., rents space in a colocation facility owned by Savvis Inc. near his company's headquarters in Mission Viejo, Calif., for the IT infrastructure that runs the business' back-end operations. His company already owned servers when he arrived in 2003, and it made sense to make use of them. Any enhancements or fixes needed, he can zip up the road and make the tweak himself.
For PropertyRoom's customer-facing website, which is subject to frequent traffic spikes and generates most of the company's $34 million in annual sales, a different strategy prevails. Banks utilizes Savvis' "cloud" facility in Chicago to ensure bandwidth and scalability. "I've never seen our servers there and don't need to," Banks said.
Data centers are expensive to build, maintain and manage. Depending on the level of redundancy, costs can range from $2,000 per square foot to tens of thousands of dollars per square foot. Facilities have to last a long time to pay for themselves -- a tough calculation in an industry defined by rapid change and at a time when power is at a premium and additional power simply not available in some geographies.
Indeed, Stamford, Conn.-based Gartner Inc. has seen a surge in interest in data center outsourcing from clients since the start of the year, particularly among midmarket companies in the $500 million to $1 billion revenue range.
Still, any sourcing strategy for the data center must take into account what is going on in one's industry and what kind of initiatives the business has planned. If the IT department can efficiently and effectively meet those demands in terms of resources, skills and capital expense, outsourcing may not make sense, said Gartner analyst Richard Matlus.
Data center strategy starts with the business
That rings true for Chad A. Eckes, CIO at Cancer Treatment Centers of America (CTCA), who said it is "highly unlikely" that he would ever outsource his data center.
"CTCA operates an IT environment that is highly integrated to patient care. This requires 100 percent uptime, 24/7/365. In order to manage such an environment, it is critical for team members to be completely aligned with the CTCA mission, vision, values and promise to the patients we serve," Eckes wrote in an email. The CTCA network of four cancer hospitals, spread across the U.S., keeps everything in-house except for two "partially outsourced applications" not related to patient care.
Hamilton Beach Brands Inc.'s Senior Director of IT, Jerry Hodge, who intrepidly took a manadatory Lotus Notes upgrade as good reason to move the appliance maker's email to Gmail, is also not looking to outsource the data center, although he does use a colo for a number of applications. These include backup and hosted services for first-level help desk, network/router management, email, IT project and portfolio management , IT asset management and antivirus/patch management.
As for the data center, space is not an issue, so there are no apparent savings to be had by letting go. Besides, "We would still want to do the monitoring," he said, "and we have iSeries expertise in-house."
What might precipitate a change? Hodge said a merger or acquisition could push space and resources over the limit. For Eckes? With a data center built for flexibility, he has trigger points to accommodate growth. But if business and services change to enhance patient service, so will the data center strategy, he said.
But for PropertyRoom.com's Banks, outsourcing a big portion of his data center was a no-brainer. And not just because he has a staff he can count on two fingers, including himself (with a third hire in the works). It's directly related to how the business needs to operate.
Behind the nebulous cloud, designated servers, virtualization and internal IT freed up to make custom apps
Founded in 1999 by former police officers, PropertyRoom.com takes the stolen and seized goods that find their way into some 1,600 police departments and municipal backrooms and auctions them off, online. And hot stuff it is, from Rolexes and diamond rings to the silver-tone, 37-pound carousel horse "in galloping position" going for $21 with 42 minutes left for bidding on a recent Wednesday. "We had a tombstone once," Banks recalled.
Even better, the good guys win. PropertyRoom gets a cut of the sales and the law enforcement agencies make more money than they ever pulled in when the auctions took place in a basement room or back lot and drew handfuls of buyers. "They end up getting orders of magnitude more customers," Banks said -- indeed, 25,000 to 30,000 visits per day.
In addition to attracting strong interest from bargain hunters and browsers, the business has proved irresistible to media outlets in search of a catchy headline. The day the headline "Police-Seized Loot Is online, and Yes, It's a Steal" appeared on the front page of The New York Times back in 2004, the spike in traffic knocked the website for a loop, Banks recalled. And the press and TV news spots keep coming, trailing huge traffic spikes in their wake. "We can get a seven-times increase in traffic," Banks said.
The auction engine needed a robust, scalable platform, but Banks also has calculated how much he wants to spend on accommodating those traffic spikes. The company started with Savvis using a more traditional model: leasing servers, letting Savvis take care of the management and running PropertyRoom.com's proprietary auction software on top of that.
"Which was good for us," Banks said. The business is really not like most retailers, he said, in that it doesn't order and track inventory in the way a retail goods chain would. Outsourcing also frees up Banks and partners to work on writing the custom software that keeps communication open between the auction site and PropertyRoom's growing chain of warehouses, where goods are tracked from the moment they come in to the minute the FedEx guy picks them up for shipping to the buyer.
But like everyone else, Banks must be mindful of money, so in late 2007 he asked Savvis to help him figure out how to reduce his costs -- and took his first step into what Savvis is calling its cloud computing.
"Cloud computing is a nebulous term," Banks puns. What he and his team did was reduce 14 servers down to seven using VMware Inc.'s virtualization technology, saving approximately 40%. Because the leased servers are used by only PropertyRoom,com, "We know nobody else is sharing them," Banks said, so some of the privacy and security concerns implicit in other cloud models are moot.
"It is a kind of a blend, and we are constantly evaluating the whole model," Banks said. For this hybrid environment, he pays Savvis a monthly fee (which he declined to disclose); it includes the use of the VMware and Windows and Oracle Corp. licenses. Unlike with some other cloud providers, Savvis gives the company service-level agreements, and he has been pleased with the availability.
It may be that at some point it makes sense for the company to change tactics, maybe buying VMware technology itself, but right now, outsourcing makes sense. Just as police departments are optimizing a sideline business by using a better mousetrap built by an outside provider, so is PropertyRoom.com when it comes to the nuts and bolts of computing. Said Banks: "Our data center strategy is an extension of our business model."
Let us know what you think about the story; email: Linda Tucci, Senior News Writer