Server Colocation Pricing Guide:

Colocation Costs You Should Know About

Server Colocation Pricing Guide

In this article, we’ll navigate the opaque world of data center colocation costs. We will discuss the basic elements of a colocation price quote, outline the main services, and identify the various pricing structures and major pitfalls.

Overview

Few industries are more confounding than data center colocation. On the surface, it sounds simple: buyers are looking for a physical environment to store their IT equipment and sellers are seeking to fill their data centers with customers. Put them together and … problem solved. Right?

Not quite. The industry is plagued by unnecessarily slow and complicated procurement processes, and foremost among them is delivering accurate and digestible colocation pricing. The industry uses different pricing structures and each vendor uses terminology in slightly different ways, making pricing hard to comprehend. This not only hamstrings the consumer but also reduces the amount of time that sales reps at data center companies can spend selling their unique data center solutions.

If you can't stay online, you can't stay in business. Server uptime and high performance are mandatory when it comes to supporting your company and your clients. You need to keep your data safe from both online security concerns as well as offline, physical risks. Servers must stay in good physical working order to provide optimum connectivity and improve cost savings. If you want to minimize risk and focus on ROI, server colocation can make a lot of sense.

To that end, we’ll navigate the opaque world of data center colocation costs. We will discuss the basic elements of a colocation price quote, outline the main services, and identify the various pricing structures and major pitfalls. As you will find in Part Two and Part Three of this article, comparing colocation costs can quickly get complicated and confusing.  It’s our goal to eliminate this confusion and provide you with what you need to drive an optimal decision.

Before we get into the elements of a price quote, we want to warn you that arguably the biggest mistake that colocation customers make is assuming that what you see is what you get, and that each vendor is including the same items as others in a base price.

When discussing the main services you will be charged with, we’ll hint at some pitfalls. Look to Part 2 and Part 3 of our post for the more details around avoiding unexpected costs or challenges. Remember that colocation is an allocation of service, not a physical product. 

MAIN SERVICES AND QUOTE COMPONENTS

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So what are the main services you’re buying and components of a quote? Broadly speaking, we can break these components, down into three simple categories: space allocation, power allocation and interconnection. We have also included additional hardware and services that you, as a customer, may expect or assume is in your price quote. More often than not, colocation quotes do not clearly identify what is included and what is not, so it’s important for you to complete due diligence to understand your Total Cost of Ownership (TCO).

SPACE ALLOCATION: Space allocation is inclusive of the physical environment in which your equipment resides. However, this doesn’t necessarily mean that it also includes the actual racks other other equipment you expect. You may see a charge as $/sq or as a one time charge for space.

  • POWER ALLOCATION: Power allocation is the dedicated amount of power that will always be available to you and will enable your equipment to run. However, the actual mechanisms for how your equipment plugs into the electric grid are not always included. Your base rent will most often be calculated using your power allocation, while your power expenses will most often be calculated off of actual usage.
  • INTERCONNECTION: Anything that has to do with how the data within your equipment is transmitted, to other parts of the data center or to your outside networks, will fall under interconnection. Your quote may have an upfront cost and monthly cost related to interconnection.
  • PHYSICAL HARDWARE & CUSTOM SERVICES: Space, power, and interconnection are only services charged for the allocation of each. Colo providers may also offer hardware that can or must be purchased separately. Most colocation data center providers also provide optional on-site services such as rack-and-stack services, remote hands, and security to customers.
  • NRCs and MRCs: Your quote will break out costs into two types – NRCs and MRCs. This stands for Non-Recurring Costs and Monthly Recurring Costs. In short, NRCs are one-time,upfront fees you have to pay to get started – like an onboarding or setup fee. MRCs are the costs you pay related to your ongoing usage of the services.

In this section, we explain the different pricing models of colocation and how they can affect your total cost of ownership.

How Do Data Centers Price Colocation?

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Let us explain the different rent models that determine what services are and are not included in your $/kw base price. That includes how to calculate your kilowatt needs, which is not as simple as it seems at first glance. We’ll have to briefly translate some jargon to explain how this all affects your total cost of ownership

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First, a little translation

 

What can be somewhat tricky in calculating your kilowatt usage is knowing whether we’re talking about “Critical Load,” “Essential Load,” or “Aggregate Load.” Critical Load is the amount of power directly used by your equipment when you plug in. But, as we all know, IT infrastructure can get really hot, and needs to be cooled to run optimally. The energy required to cool your equipment is called the “Essential Load.” And the Aggregate Load is the combined total of both.

CRITICAL LOAD + ESSENTIAL LOAD = AGGREGATE LOAD

A real-life example:

 

In most modern data centers, you’ll need to tack on an additional ~ 50% of your Critical Load to account for the heat produced by your IT equipment (sometimes also referred to as a “Cooling Factor”).

 

If your equipment is rated to use 50kw for its Critical Load, that would be an additional 25kW (Critical Load of 50kW*50% = 25kW). Add it all up, and you get to an Aggregate Load of :

 

75kW (50kW [Critical] + 25kW [Essential] = 75kW [Aggregate])

 

75kW is the all-in power required to both plug in your equipment and cool it. This is just one example, but we wanted to make it clear that cooling might play a large part in your Total Cost of Operations (TCO).

 

Back to Pricing (Lease) Models

The pricing models used in colocation borrow some terminology and concepts from the real estate world. The models are called “Triple Net” (or NNN), “Gross”, and “Modified Gross.” The simplest way to think about it is your Critical Load multiplied by your $/kw is your base rent. Your pricing model will determine if includes utilities (power and cooling) and/or building maintenance (operating expenses) are included.

 

TRIPLE NET PRICING (NNN)

A Triple Net (NNN) pricing model starts with a base price (often quoted in $/kW) and breaks up your bill into three additional categories.

 

First, it includes your proportional share of mutual operating expenses for the building – things like security, maintenance, common electric power and even the cost of mopping up the place. This is usually based off of either your slice of the data center’s total square footage or on your slice of the data center’s overall Critical Load.


Second, the data center will “sub-meter” your monthly personalized Critical Load consumption and pass this expense on to you.


Third, the data center will include the Cooling Factor, which is where your Essential Load finally comes into play. We used 50% as a rough estimate above, but this can really vary from vendor to vendor based on how efficient they are at managing their cooling systems. This ratio is also referred to as the data center’s Power Usage Effectiveness (PUE) (50% = a 1.50 PUE). The lower the PUE, the better, as you will be paying for the power used, and a lower Cooling Factor decreases your overall cost. Sometimes the Cooling Factor is a fixed percentage, but vendors can also use a variable pass-through where you don’t know the exact amount you’ll pay from month-to-month.

 

MODIFIED GROSS PRICING

 

Modified Gross Pricing is very similar to Triple Net, with one important distinction: the base rent includes the pro rata operating expenses (opex). You still have a sub-metered power consumption, making utility rate measurement critical, and you still have a Cooling Factor applied, underscoring the importance of a data center’s PUE.

The actual pro rata opex is a variable expense that may end up being higher or lower than expected. But in Triple Net pricing, the risk lies with the consumer, whereas in Modified Gross, the risk lies with the vendor. Because you’re locking in a fixed amount for the operating expense line item, vendors typically add a risk premium for Modified Gross leases versus Triple Net leases.

 

GROSS PRICING

 

If you’re a smaller customer looking to procure colocation services, you’ll most likely be quoted using a Gross Pricing model. This is an all-in monthly price that does not include any additional line items for power consumption or operating expenses. It makes things a lot easier to digest because you know what your bill is going to be each month. But because everything is lumped in and the vendor is taking on the risk that variable costs like utility rates and taxes might increase at any given time, you’re usually paying based on the vendor’s own, worst-case assumptions for PUE and operating expenses.

In Part 3, we will go into detail with some of the common pitfalls and unexpected charges so you can ask the questions necessary to avoid them.

 

There are other services that you may need and only be able to purchase from your colocation provider. There is equipment that might be included or required and these expenses might be one-time or ongoing.

Here are some of the most common:

 

Server Support Equipment

server support equipment

You may need to provide the actual racks to support your servers, rack-mounted power strips or the cage in which the racks might sit.

In some cases, vendors will also require “containment,” or the use of specialty racks that are designed to contain and direct the heat produced by the equipment so that the data center’s cold air supply doesn’t mix with the hot air emanating from the IT equipment.

Power Connection Equipment

 

As we mentioned in Part 1, the equipment you need to connect to power is not always included. For instance, the branch circuit, also known as a “Whip” or a “PDU cable,” is the final electrical circuit between the outlets in your rack-mounted power strip and the circuit breaker – which itself is usually located in a floor-mounted power distribution unit (PDU). Both the branch circuits and the breakers may be your responsibility to install. Ladder racks, meanwhile, hold the branch circuits in place and are also a potential line item to look out for. Finally, a licensed electrician is required to hook these components up, and not all contracts include this service.

 

Interconnection Equipment

 

Most often the physical cables that connect your equipment to another provider’s equipment are clearly listed as line items within a proposal as Cross Connects, but you still have to look out for whether these charges also include the cable trays that hold and route the cabling and the patch panels that serve as a point of connection for that cabling.

StrataTip: Ask whether the cable trays that hold and route the cabling and patch panels are included in the charge.

Summary

While colocation pricing may seem simple at first glance, it’s far more complicated by the endless ways in which pricing in customized and the lack of standards in what equipment and services are included in a base price. The quote has its main components – space, power, interconnection and hardware & services – but that’s only scratching the surface.

strong data center migration project plan

With the description of pricing models in Part 2 and the knowledge to ask about included hardware and services to support your deployment, you are armed to understand colo quotes and ask the important questions of your sales reps.

Colocation can be an excellent business solution. StrataCore can help put together price quotes from facilities that meet your unique needs so that you can plan your budget before choosing the right colocation solution for your organization.

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