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February 4, 2009
By Moz Aslam, COLOTRAQ
The relationship between purchasing managers and CFOs mimics the cyclical nature of our economy. During boom times, there is great team chemistry — similar to a cohesive 11-man offensive unit in the NFL, where everyone is striving towards the goal. Here, the goal is increasing shareholder value. And when the economy is reeling, as it is now, the players begin to question one another as to how to achieve the goal. CFOs start to scrutinize every budget presented by IT managers and demand purchasing departments to squeeze more out of every dollar spent. The resulting climate for sales folks like you and me is tenuous at best. However, the business case for data center services continues to make sense and actually is strengthened as capital preservation becomes paramount.
Why outsource the data center? Before assessing the prospects for data center services in 2009, it is helpful to review the business advantages for data center services.
First, outsourcing the data center function can allow a company to achieve a high level of availability while taking advantage of the economies of scale realized by hosting providers. For most, this level of availability is infeasible otherwise. Even for companies with relatively large data center environments, it is difficult to match the savings of a hosting vendor with 10 or more facilities. One of the reasons is because the savings extend beyond the technical arguments and into the regulatory domain. Consider a company that is required to deliver an application out of a data center that has the SAS 70 certification. Hosting vendors can spread this cost among all of their customers as opposed to a single entity footing the entire bill.
Second, the increased adoption of blade servers within the industry requires an inordinate amount of power and cooling infrastructure, which can be delivered only by purpose-built data centers. This technical limitation to insourcing has spurred the construction of facilities specifically built to accommodate these high-density environments.
Finally, like outsourcing any other function, it allows a company to focus on its core competencies by reallocating already limited IT resources to more strategic initiatives.
What’s different now? As we begin 2009, we are faced with a credit-starved economy and restricted access to debt. The lack of financing practically puts the kibosh on any capital-intensive construction projects, such as data centers. This affects both proprietary and commercial data centers. Enterprise data center managers struggling with capacity constraints now will need to accommodate for any necessary server growth through third-party data center services in the form of operating expenditures. And, service providers unable (or unwilling) to raise capital for expansion space already have started to implement measures to squeeze more dollars per square foot. Some are focusing on higher margin customers willing to subscribe to managed services. Other vendors simply are raising rates on existing customers and practically throwing less profitable clients out the door.
The flailing economy also is amplifying the effects of rising energy costs. The higher costs coupled with growing consumption rates are forcing infrastructure overhead expenses to unprecedented highs. Consequently, relocation initiatives are picking up so that companies can take advantage of the utility rates in cheaper markets.
How can we capitalize on these circumstances? Given the current economic climate, it really does feel as though we’re entering the year short-handed. The sales odds are stacked against us, leaving us scrambling. But, we do have a few plays up our sleeves that, if executed properly, will leave us dancing for joy at the end of the year.
Start by looking at what the defense is giving you. Get back to the basics of listening to your customer’s pain points and translating them to business drivers. Here are a few scenarios that you can turn to your advantage:
First, some companies consider IT a vehicle for executing strategy. These companies will be refreshing their equipment inventory and possibly migrating to blade servers. We can categorize these as sure bets since IT budgets will go unscathed relatively and hosting internally likely will be cost- and power-prohibitive.
Next will be companies that currently are struggling with power and space constraints. Here is an opportunity to help the CFO reduce operating expenses from anywhere between 5 percent to 25 percent by proposing a move to a lower cost market.
Finally, some organizations will be facing fiscal catastrophe and the CFOs will make drastic changes in order to stay afloat. If the company has been operating its own data center(s) to date, then there is a potential for a huge cash infusion via a sale/lease back option or outsourcing the data center function all together. There are a number of cash-rich hosting vendors in the marketplace today that will jump at the opportunity for such an asset purchase as an alternative to building new data center space at cost.
Keeping these plays by your side will help you convert empathy for the CFO’s dilemma into actionable results.
Moz Aslam is one of the ground-floor members of COLOTRAQ, a marketplace for telecom and IT services. He also heads up COLOTRAQ’s consulting practice. To date, he has worked on more than 1,000 data center transactions and spearheaded the development of the COLOTRAQ.com marketplace.
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