Data Center Infrastructure Strategy: CapEx vs. OpEx

Data Center Infrastructure - CapEx vs OpEx

March 4, 2020

In today’s market, there are several approaches to data management and data center infrastructure, the most popular being: 

  • Owning and operating private data centers 
  • Colocation 
  • Public and private cloud solutions 
  • A hybrid mixture of these approaches 

As organizations evaluate which approach best suits its needs, the deciding factor often comes down to business impact and capital expense (CapEx) versus operational expense (OpEx). 

In a recent CIO survey conducted by Credit Suisse (Analyst Sami Badri), results indicated a trend toward Enterprises shedding capital-intensive owned data centers and moving to more of an OpEx model of leasing data center space and leveraging public and private cloud.  

Over half of CIOs expect to shutdown enterprise-owned data centers going forward. And, 76% of CIOs either will be deploying into colocation/wholesale data centers or are still considering their deployment strategy.

This trend suggests that there is a movement to a more OpEx model for both data center space and services that can be delivered via the cloud. Let’s compare the traditional CapEx model to increasingly popular OpEx options to help explain the drivers behind these two approaches to data center infrastructure. 

CAPEX Approach to Data Center Infrastructure (Private Data Centers) 

Organizations (particularly large enterprises or companies that operate in highly regulated industries) have traditionally owned and operated their own private data centers. This infrastructure model is entirely CapEx. The organization is responsible for everything from data center design, to obtaining real estate and equipment, to maintaining and operating the infrastructure full time. 

This approach requires a lot of cash up front, along with future spending to replace equipment or expand capacity. In a best-case scenario, organizations that own data centers will find themselves spending big money to replace equipment every three to five years. However, as anyone who has ever dealt with a data center can tell you, these cycles aren’t always predictable. If something happens (a server or cooling unit needs to be replaced before it’s anticipated end-of-life, the organization scales faster than expected, etc.), companies that have invested in the CapEx, full ownership model will find themselves facing unanticipated expenses. On the other end of the spectrum, if the need for data center capacity diminishes, companies that operate their own data centers will be stuck with unused space and equipment, falling short on their return on the initial investment. Scaling down is not easy in a CapEx model. 

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Overall, running a CapEx approach to data center infrastructure is costly and labor intensive. What many organizations find is this diverts budget and resources away from the core purpose of their business without adding a significant amount of corporate value. 

What You’re Responsible for with Ownership: 

  • Finding real estate for the data center 
  • Equipment procurement 
  • Design and setup of data center infrastructure 
  • Hiring, training, and retaining data center staff 
  • Infrastructure management (replacing and repairing equipment) 
  • Managing scaling needs 
  • Meeting ongoing security and compliance requirements 

OPEX Approach to Data Center Infrastructure (Colocation & Cloud) 

With colocation and public cloud solutions, many organizations are transitioning their data centers from CapEx to more predictable and controllable OpEx. By outsourcing data center infrastructure and management, organizations drastically reduce the time, resources, and requirements associated with the data center.  

With this model, organizations only pay for the space, power, and resources they need in an already built and maintained environment. Details like staffing, security, network diversity, and even special compliance standards like PCI DSS are also handled by the provider. Under the CapEx model, these elements would cost the organization much more to implement and maintain. 

Because data center users are tapping into the provider’s infrastructure, scaling on an as-needed basis is much simpler and cost effective than trying build to scale. When growth is necessary, the infrastructure is  in place and just needs to be tapped into. If need decreases, the infrastructure that is sitting unused didn’t cost your organization CapEx and doesn’t negatively impact the overall ROI. 

Outsourcing the data center is also beneficial for those Enterprises that are adopting a Hybrid Cloud strategy (combining private and public clouds). According to the Cloud Computing Trends: 2019 State of the Cloud Survey, 28% of surveyed companies leverage a hybrid cloud approach. Opting for an OpEx based colocation model, users are easily able to maintain their private cloud connectivity and have immediate low-latency, high-bandwidth access to public cloud providers.   

Overall, OpEx can streamline an organization’s data center infrastructure strategy, freeing up valuable time, budget, and resources to focus on core business values. This strategy can also ensure a more efficient and cost-effective execution on a robust cloud adoption plan. 

What You’re Responsible for with OpEx: 

  • Evaluating and selecting the right provider 
  • Selecting a specific location and facility 
  • Working with the provider to design an environment to your specifications 
  • Communicating needs and changes 
  • Meeting your compliance responsibilities (if applicable) 
  • Ordering network connections 

Choosing Between Data Center CapEx & OpEx 

The choice between CapEx and OpEx comes down to whether it is financially feasible and strategically beneficial to maintain privately owned data centers or whether outsourcing to a trusted vendor is more appropriate. The CapEx model gives organizations complete control over their environment, but also puts full burden in their hands. OpEx solutions allow companies to shift these necessary but mundane tasks to a vendor that spends 100% of their time focused solely on data center maintenance and management.  

With these factors in mind, 451 Research’s Voice of the Enterprise: Datacenters 2019 found that 42% of responding enterprises shifted an application or workload from a privately owned data center to a colocation solution in the past 12 months. The top reasons for the move all center around the theme that owning and maintaining a data center is not the company’s primary business. 

  1. Improved reliability and uptime (42%) 
  2. Improved business continuity and disaster recovery (42%) 
  3. To consolidate company-owned datacenters (41%) 
  4. Business growth is outpacing datacenter space (39%) 

When it comes to a data center strategy, there is no “right” approach. Every corporation is unique and places emphasis on different benefits and risks. Understanding the available options and the burdens of CapEx and OpEx approaches can help you better plan for the future and appropriately align your data center infrastructure strategy with real organization needs and priorities. 

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