Data Center Build vs. Buy: Decision Guide

Deciding whether to build, buy, or lease a data center is similar to deciding whether to build, buy, or rent a house. There is no one right path. What will be appropriate for your business will depend entirely on your circumstances, goals, and resources. If you’re at a crossroads in your organization and are trying to pick between building, buying, or leasing a data center, this blog will take you step-by-step through what you should be considering.

Should You Build Your Own Data Center vs. Buy or Lease?

Building, buying, or leasing colocation via a data center facility is a big decision to make and will depend on several factors, making the right choice different for each organization. Your business needs, budget, and timeline will dictate the answer to this question the most. Other factors that will come into play include your in-house skills and resources, geographic location, and the predicted growth of your business.

If you choose to build your own data center vs buy, you’ll have total control over the construction and the design of the facility. Every part of the building can be designed with your business needs in mind. However, building from scratch is a complex project that can take several years to finalize. It also requires specific expertise that most businesses don’t have on hand.

Buying a data center that’s already built is a much easier and faster option compared to building. Chances are, businesses can get close to finding facilities that fit their business objectives and customize to adjust after buying the physical building. However, this can add more costs and relies on experts to manage it after purchase.

Leasing space (either via colocation or wholesale) from a third-party provider is often considered the most cost-effective and efficient option of the three, not to mention the speediest. Unlike building or buying a data center, colocation provides flexibility regarding capacity. Businesses can scale their agreement as requirements change. However, organizations that opt for colocation inevitably may have less control over the construction and design of the data center.

Tier Classification by the Uptime Institute

Whether you build, buy, or colocate with a third-party vendor, you’ll want to ensure what you’re purchasing or moving into abides by one of the tier classification standards created by the Uptime Institute.

For businesses that are building facilities, these standards can serve as a helpful guide for how construction needs to go. If you’re leasing, you can use these classifications to understand what should be guaranteed as part of your agreement to lease space in certain tier levels of data centers.

• Tier I data centers have one path to distribute power and cooling and no redundant components. These centers provide 99.671% availability
• Tier II data centers have some redundant components, but still one single path for power and cooling, and have 99.741% availability
• Tier III data centers tend to have multiple distribution paths for power and cooling with one active, redundant components, and have 99.982% availability
• Tier IV data centers have the highest availability and redundancies. They’re fault-tolerant and have 99.995% availability

As you might imagine, data center costs generally go up as you construct your data center to a higher-tier standard. This is mainly because of costs associated with power and cooling capacities.

Calculating the TCO of a Data Center

It’s not just the cloud resources that go into the total cost of ownership (TCO) of a data center when you buy or build; it’s every part of the building and what keeps it operational. If you’re looking at keeping a cost-effective budget, understanding TCO versus the cost of colocating with a third-party provider is vital.

The TCO of a data center can be calculated by totaling up capital costs, operating costs, and various other costs.

• Capital costs come from equipment purchases, land purchases, and construction costs, among other things.
• Operating costs include any expenses involved in keeping the data center running, such as maintenance, energy, and cooling.
• Various other costs to consider include taxes, insurance, and potential costs associated with downtime.

Keep in mind that when you own your own facility, you bear the responsibility for meeting uptime SLAs and associated credits in case of an outage. In contrast, with colocation, the provider assumes the responsibility for such credits.

While some pieces involved in TCO are easy to calculate, and others may be harder to pin down.

Key Considerations When Deciding to Build or Buy a Data Center

Data center construction is on the rise, outpacing the construction industry’s 3.7% per year growth rate at 8%. But does that mean you should be joining the crowd and building a data center?

Deciding to build or buy a data center is not something you should enter into without strong consideration about your timeline, connectivity, scalability, and more. Here are some of the main things you should be thinking about when deciding between building and buying.

Control

When it comes to control of the operations, locations, economics, and design of a data center, nothing beats building. Businesses that build data centers can choose the exact equipment, security measures, and design specifications they want. Instead of being at the mercy of pre-established data centers, organizations that build also have the luxury of picking the ideal location based on geographic diversity, the location of their headquarters, where their customer base is, and so on.

If you buy a data center, you may have more control over the equipment and operations expertise you bring in, as well as the smaller details of design. However, the more major design elements and the location are pre-determined.

When opting for colocation services with a third-party provider, it’s crucial to recognize that you may not have a say in the design and layout of the facility. However, you do retain full control over selecting and tailoring the specific services you need, as well as complete ownership of the equipment you house within your designated space.

Scalability

Do you build what you need, do you anticipate some growth, or aim for somewhere in between? When you build a data center, scalability can be a tricky problem to solve. Chances are, you’ll want to give your organization some wiggle room to increase capacity, but this also means paying for resources you may not use to their fullest potential. What happens when you outgrow a data center? The costs you save from building and managing your own facility can cancel out when you need to relocate in only a few years.

Scalability becomes a more manageable task when opting for third-party colocation services. When organizations choose colocation, they have the flexibility to bring their own equipment or choose to lease equipment within a fully managed data center. In either scenario, resources can be easily scaled to meet specific requirements, allowing for cost-effective operations where organizations only pay for the space, power, connectivity, and management services used.

Financing

A lot of this has to do with how different data centers are financed. All costs associated with a data center, including power, infrastructure, and cooling, are the responsibility of the business in a single-tenant facility. When organizations choose colocation, some of the costs are split between tenants, such as maintenance, security, and management.

Economies of Scale

Think of economies of scale like this: Say you have an expensive gadget you’ve purchased for your kitchen. If you use it all the time, the cost per use decreases, meaning you’re making the most out of your purchase. However, if it sits collecting dust, the cost per use goes up.

The same principle is true when it comes to the resources you might use at a data center. The more you make the most use out of the equipment you have at a data center, the more the cost per unit goes down. Businesses that have predictable workloads and choose to build or buy a data center can benefit from economies of scale. However, the benefits disappear if the company isn’t using the data center to its fullest potential, or if they outgrow the building. Economies of scale don’t normally apply as much to leasing because most costs are correlated with exact usage levels.

Time to Market

How much time do you have before you need to be in a new data center? Businesses that are operating on legacy frameworks but are in no rush may find benefit in building or buying the right data center that matches their exact specifications. However, if time is of the essence and there’s a need to get things running quickly, leasing by colocation with a third-party may be the only suitable option.

The difference in time between colocation, buying, or building a data center can often be significant. Instead of taking years to get everything off the ground, businesses that partner with a third-party facility could get started at a new data center in a matter of weeks.

Connectivity

Connectivity is also a source of additional costs for businesses thinking about buying or building a data center. Carriers and internet service providers (ISPs) may add fiber and local loop charges to your bill. Local loop charges are the fees associated with forming the connection between the customer premises and the telephone central office that’s the closest, also known as a “last mile” connection.

Colocation providers, on the other hand, often have carrier pops or points of presence (PoPs), on-premises to provide easy access and redundancy without charging extra loop fees. Organizations may still pay a portion of fiber costs in a colocation facility; however, it depends on the data center’s pricing model and the amount shared depends on factors such as the number of tenants and what the business is using.

Additionally, colocation (when provided by carrier-neutral data centers) grants organizations access to a diverse range of service providers, all of which are typically located within the facility. This proximity enables efficient connections through cross-connects, eliminating the need for costly local loop charges.

Certifications

Lastly, organizations should be thinking about the certifications they need to operate their data centers in a compliant way. Businesses that build or buy need to be responsible for meeting necessary certifications, like HIPAA or PCI DSS. Third-party data centers often meet many basic and industry required certifications, leaving businesses with one less thing to worry about.

Business Goals

It’s not enough to know where to start. You also need to know where you’re going. Data centers need to align with your business goals, both present and future. How much do you think your business will grow in the coming years? Will you eventually need high-density colocation to accommodate for high-performance computing (HCP) or AI workloads?

For businesses that buy or build, the data center needs to have the capacity to meet this growth. Colocation, however, allows your organization to expand without concerns about infrastructure and running out of space.

In-House Skills and Expertise

What happens if your business lacks the in-house skills and expertise to get a data center to an operational state? There is a greater lift associated with building a data center and you need the greater levels of expertise to match. Before you decide what to take on, you’ll need to determine what IT skills gaps currently exist on your team, and what you’ll do to handle any complexity and interoperability challenges that arise.

It’s a common problem for businesses to lack the necessary skills to implement and maintain a data center. The current tech talent shortage means that for every 100 jobs posted, only 65 candidates are in line to fill the seats. This gap gets even wider when it comes to roles that have very specific skill requirements.

Often, the best solution is to have a combination of in-house help and outside expertise working to get your data center off the ground. Most colocation providers have staff available to maintain equipment, handle on-site technical support, and more.

Data Center Build vs Buy: Finding a Strategy That Fits Your Needs

The perfect data center for your business will be completely dependent on your needs. For some organizations, building a data center for predictable workloads in an ideal location will make the most sense. For many, leasing a data center through colocation will offer the flexibility and cost savings they need. TierPoint’s colocation data centers can meet your capacity and space requirements, fulfill your compliance standards, and allow you to grow in the future. Learn more about our nationwide data center footprint.

Need help determining your strategy? Download our Journey to the Cloud eBook to discover how you can maximize benefits while minimizing risks.

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