What to Consider Before Leasing Excess Data Center Capacity

Investigate an eight-step approach to determine if leasing is an option.

Whether the result of virtualization, application migration or other business events, the trend of excess capacity in the data center is encouraging business leaders to consider how it could be monetized. Many are considering leasing or providing the space as a colocation offering.

Leasing spare capacity effectively requires that the IT organization becomes a colocation service provider, involving functions and roles completely foreign to it and carrying significant financial and legal risk. Business leaders are nonetheless asking their IT organizations to determine how such services could be packaged, and what revenue the business can expect from them.

The complexities and risks inherent in offering commercial colocation will confine the majority of such offerings to educational and governmental agencies, as well as vertical industry ecosystems, through 2018

Ahead of the Gartner Data Center, Infrastructure & Operations Management Summit 2016, Bob Gill, research director at Gartner, suggests how IT executives can prepare for such requests.

“Leasing data center space or offering colocation of third-party equipment may involve establishing a completely new line of business. Most enterprises will be ill-equipped to do this,” Mr. Gill said. “Enterprise risk assessment must consider all legal risks as well as potential impacts on reputation, security, operations and the organization. These must be understood and addressed before a business plan is considered.”

“The pricing of a packaged service must not only cover all costs and account for allowable margin, it must also be performed with competitive commercial offerings in mind. Failure to do so will negatively impact demand, and thus squander capital.”

Eight-Step Approach

IT leaders can follow this eight-step approach if asked to investigate a leasing service:

  1. Determine the intent — The enterprise’s goals must be clear and agreed on by all parties, with consensus on what is being offered and why. There are alternative ways to monetize excess data center capacity.
  2. Determine the granularity of the offering — The data center may not be designed to support a sufficiently granular service. Prospective customers will have different expectations for power or cooling, area (single racks/cabinets vs. isolated areas of space) and contract length.
  3. Quantify potential impacts to the enterprise — Commercial colocation may not be compatible with the existing business model. Inviting external parties into the data center may be untenable if the security of client data or IP is paramount.
  4. Project the organizational impacts — How will the new service affect staff? Look beyond the operations of the data center itself to also consider accounting, marketing and sales.
  5. Uncover the security impacts — Seek consensus on how security practices will need to change to accommodate the presence of external parties. Consider whether the service should merit internal cages, multilevel access and human escorts.
  6. Detail operational impacts — Facilities management will need to change how they perform building and data center maintenance, extending coordination to all of the guest environments.
  7. Calculate the costs — Knowing the costs to provide a service is critical, but difficult for proposed and specific leased offerings as staff and loaded costs are often spread across the data center and other facilities operations.
  8. Create the business plan — Critical to a business plan is comparing the internal costs of provision with competitive pricing for such services. Is the enterprise looking to defray costs, break even or profit from this service? Does demand exist locally at the proposed pricing?

“The complexities and risks inherent in offering commercial colocation will confine the majority of such offerings to educational and governmental agencies, as well as vertical industry ecosystems, through 2018,” Mr. Gill said.

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Client Research
Additional information is available to Gartner clients in the report “Renting Your Excess Data Center Capacity Delivers More Risk Than Reward.”

Gartner Event
Gartner analysts will provide additional analysis on the outlook for the data center market at the Gartner Data Center Infrastructure & Operations Management Conferences 2016, November 28-29 in London and December 5-8 in Las Vegas. Follow news and updates from these events on Twitter using #GartnerDC.

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