Types of Data Center Business Model [How They Make Money]
By: Author Tony Martins Ajaero
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Do you need a detail explanation of how a data center business model works? If YES, here are 3 types of data centers and how they make money.
A data centre is a facility that centralizes an organization’s shared IT operations and equipment for the sole aim of storing, processing, and sharing data and applications. Since these facilities house an organization’s most important and proprietary assets, data centres are very crucial to the continuity of daily operations.
Some years back, these data storage facilities were highly controlled physical infrastructures, but the public cloud has greatly changed that model.
Aside where regulatory restrictions mandates an on-premises data centre without internet connection, most modern data centre infrastructures have moved and improved from on-premises physical servers to virtualized infrastructure that supports applications and workloads across multi – cloud environments.
What Does a Data Center Looks Like?
The architectures and requirements of data centres are known to vary greatly due to use and intentions. For instance, a data centre built for a cloud service provider like Amazon satisfies facility, infrastructure and security requirements that greatly vary from a completely private data centre, such as one built for a government facility that is dedicated to securing classified data.
But irrespective of classification, a working data centre operation is achieved through a balanced investment in the facility and the equipment it houses. Since data centres are known to house an organization’s most important data and applications, it is very pertinent that both facility and equipment are secured against intruders and cyber attacks .
Currently, there are over 7 million data centres around the world and almost every business and government entity builds and maintains its own data centre or has access to someone else’s, if not both models.
Also, there are varying options available in this modern age, such as renting servers at a collocation facility, using data centre services run by a third party, or using public cloud – based services from hosts like Amazon, Microsoft, Sony and Google.
3 Major Data Centre Models Used in the United States
Just like it was stated above, there are different models used by data centres in the United States, and the architectures and requirements of each of these models tend to differ greatly from another. Naturally, there are pros and cons to each data centre model and they are properly explained below.
1. On – Site Data Centres
In this particular data centre model, managers take charge of their own data centre at their own location. According to experts, an on-site data centre improves efficiencies for some business needs.
Indeed, it also comes with maintenance requirements and it can be more difficult to scale this investment up or down: any wrong step and the cost of this model can be much higher than other choices. Also note that every activity and easiness attached to cloud computing makes it seem like on – site data centres are outdated, but there are a couple of different reasons why companies may choose to own their own data centre.
For instance, some companies have static requirements and perform a good amount of processing on an ongoing basis, and they have invested in the data centre capacity to do that.
With time, these businesses might make changes to the data centre, but it ends up being more expensive to go into a leased facility or into the cloud unless there is a good reason to do it, such as changes in operations or technology. Insurance companies and banks are a good example of businesses and industries that use this data centre model for a long time – they’re part of the organization’s core capabilities and are considered to be a strategic advantage.
Also note there are companies that work with large data sets, like oil and gas firms. Moving those large data sets around to different locations – like into the cloud – is very expensive and time – consuming. There are also businesses whose workloads aren’t designed for cloud or can’t be virtualized, such as applications written in COBOL for mainframes.
Altering those applications and replicating that software in a different environment tend to be a very large and expensive undertaking. Although, at some point, legacy applications such as this will end up being rewritten to run in virtualized or cloud – native environments when the needs justify the expense and risk of doing so.
MTDCs provide businesses with the ability to pay for infrastructure as a utility instead of managing the data enter in – house. Note that even complex enterprise resource planning (ERP) environments with millions of dollars tied up in customization might not actually justify establishing and owning a private data centre.
At this point, it may be ideal for them to move it into a hosted facility and buy space, power, cooling and connectivity from the MTDC. And, since it is normal route for major public cloud, service and content providers to also have a presence in MTDCs, enterprises can connect directly to them.
Have it in mind that this can significantly reduce latency and user experience, and simplify their planning by having their public and private clouds, and carrier connectivity, under a single roof.
3. Cloud Computing
From a business perspective, the Data Centre industry seems to be warming up better to the use of cloud over time. Note that when an organization transfers its workload to a cloud environment, it is different than simply converting to virtual machines (VMs).
Enterprise data centres are renowned for supporting many different applications, and this can mean hundreds or thousands of VMs. Have it in mind that it can be quite challenging to manage this new virtualized environment while also making sure of high security and availability.
Adding automation and orchestration tools tend to effectively enhances operational efficiency and can turn multiple VMs into a private cloud. And with resources being agile and easily available, it works well for any workloads the business may need to deploy.
Under this model, also note there are private and public cloud environments and they also differ in several ways. When a company decides to use a private cloud environment, the company has the advantage of absolute control. Also internal operating costs may be much lower than the monthly charges from using a public cloud depending on the way the data centre services are used.
Also note that transferring to a private cloud is a lot easier from a security and management perspective than moving to a public environment; it is common practice for the enterprise for the most part. The public cloud, on the other hand, is a rental environment that provides much of the same facilities seen in private cloud.
However, the next wave of applications is typically rewritten as cloud – native applications to run on specific types of public platforms. Public cloud are known to move companies completely out of the infrastructure business, and might provide better security than small or mid – sized enterprises can manage on their own.
But it is very crucial to note that regulations can be an issue: the regulatory environment may not have caught up with what is possible with public cloud. For some companies, there are many regulatory issues to surmount before moving to a public cloud. That’s why many banks, for instance, often host private clouds in their own facilities.
Another issue with public cloud is that it lacks standardization across cloud platforms. Cloud vendors have their own ways of doing things and it can be very hard to change to another vendor down the road. Putting software into a different cloud environment can be very daunting and expensive.
If you have very large datasets in the cloud, it can be hard and expensive to move them into another facility. Also, according to experts, cloud forces managers to give up a certain amount of control in terms of service level agreements. Once a public cloud fails, managers have to know about backup and recovery plans . Once he or she has made a commitment to the public cloud, it may be impossible to move back.
4 Ways How Data Centers Work and Make Money
With massive amounts of cable running through the facility and a confusing array of ports and plugs to manage, how data centres work can be a confusing topic for anyone who isn’t used to those systems. Data Centres are more or less a hybrid business made up of real estate , technology, and service.
They function like hotels where you rent a room (server) for as long as you need to host your website. The hotel offers everything you need, housekeeping, room service and laundry (networking, power, and maintenance), while you pay for the convenience. Below is a breakdown of how these facilities work and the services they render to generate income.
a. Infrastructure As A Service
Data centres normal provide equipment to customers who don’t want to or cannot invest in building their own facility for private use. The client then pays for what they use and have the added benefit of being able to use more hardware as the demand increases.
Note that the infrastructure offered normally consists of storage space, hosting services, servers, firewalls etc. The service provider is then tasked with the maintenance and upgrade of all the equipment letting the customer focus more on developing software or application to use that infrastructure.
b. Software As A Service
According to reports, it is often cheaper to purchase software just when you need it than to buy a lifetime licence especially if buying for many people for example in a company. Presently, in this age, you can access software as a service through your web browser without installing them on your devices, thus, allowing people to easily collaborate as it allows easy data sharing.
Data centres are renowned for offering software such as word processors or spreadsheet programs in a similar way. Note that it also does not mean that they have to make the software themselves but they can offer discounted packages for existing software like Google Docs or Office 365 etc.
c. Network As A Service
Aside from just offering equipment, a data centre can also offer network services like phone services over the internet (VoIP), Virtual Private Networks (VPNs), private telephone network for use within a company (Private Branch Exchange) and Unified Communication.
This is good for startups that are looking to access enterprise level network hardware without costs of getting technical expertise to setup or maintain similar services for their needs. The service is billed on a pay as you go basis.
d. Platform As A Service
Note that this service is mainly for developers as it offers a sustainable environment for them to build and deploy applications. The data centre provides a platform that supports certain programming languages and one that caters for most of the configuration of servers and networks. This also allows developers to specialize on their code, build quickly and ship early.
Also note that a developer can scale up their application easily as resource demand increase especially since they don’t have to bother about upgrade costs. The expense of getting more access to hardware through the different packages offered by this service tend to be less than when the developer purchased the hardware and set it up for themselves.
In conclusion, note that a lot of companies use more than one data centre model. A company might decide to use public cloud to enable self – service access to computer resources, for instance, while it runs proprietary, business – critical applications in an on – site data centre or an MTDC.
However, different companies choose different needs, and they use different data centre models to meet them. There are several alternatives available today, and anyone can customize the investment strategy and the migration path to implement a combination of hardware/software approaches.
Cloud is becoming more popular, MTDCs are becoming much more capable, and regulators are trusting off – premises solutions more. The only option is to use the best model for the task at hand.
- Data Center Business Plan [Sample Template]
- How to Start a Data Center Business
- How Much Does It Cost to Build a Data Center?
How to Start a Data Center Business
Main Sections In This Post Steps To Starting A Data Center Business Points to Consider Resources Knowledge Is Power Featured Video
This article provides insights into running a data center business with a comprehensive, step-by-step guide.
It also offers valuable resources for both the startup phase and operational stage of your data center. Save this page for future reference and share it if you find it helpful!
Let’s get started with the steps.
Steps to Starting a Data Center Business
Below are the steps to starting a data center business.
Each step is linked to a specific section, allowing you to jump to your desired section or scroll to follow the steps in order.
- An Overview of What You’re Getting Into
- Data Center Business Overview
- Researching Your Data Center Business
- Looking at Financials
- Choosing A Business Location
- Creating Your Mission Statement
- Creating A Unique Selling Proposition (USP)
- Choose a Data Center Business Name
- Register Your Company
- Create Your Corporate Identity
- Writing a Business Plan
- Banking Considerations
- Getting the Funds for Your Operation
- Software Setup
- Business Insurance Considerations
- Supplier Considerations
- Physical Setup
- Creating a Website
- Create an External Support Team
- Hiring Employees
1. An Overview of What You’re Getting Into
Is Starting a Data Center Business the Right Step for You?
Passion: The Key to Success
There is a key factor to succeeding in the data center business, and that factor is you!
Understanding Your Passion
Understanding how you feel about owning and running a data center business is important.
Passion Drives Success
Passion is a crucial element for success in your own data center business.
The Driving Force
Passion is the driving force you need.
Passion vs. Challenges
When you’re passionate about your data center business, you seek solutions when problems arise. Without it, you’ll look for a way out.
Measure Your Passion
How passionate are you about owning your own data center business?
An Interesting Perspective
Imagine you were granted 5 wishes for anything you want. No restrictions!
The Revealing Question
Would you start a data center business with one of your wishes in this situation?
Passion Indicates the Right Direction
If your answer is yes, it shows that you are passionate about owning and operating a data center business and are heading in the right direction.
However, if your answer is no, it prompts another question:
Consider Your Preferences
What would you prefer to do instead? Perhaps, you should pursue that path instead.
Passion is Paramount
In summary, you need to be passionate about the data center business you are starting to increase your chances of success. Without passion, you may be fighting an uphill battle.
For More, See How Passion Affects Your Business . Also, see, Considerations Before You Start Your Business to identify key points for a new business owner.
2. Gaining an Overview of Owning a Data Center Business
Next, let’s spend some time on key issues to give you an overview of what to expect from owning and running your business.
a.) A Quick Overview of Owning a Data Center Business
A data center business focuses on providing a secure and reliable environment for companies to store their critical IT infrastructure.
This includes servers, storage devices, networking equipment, and other vital hardware.
The main purpose is to ensure digital resources are accessible around the clock and safeguarded from potential threats like power outages, cyberattacks, or natural disasters.
Data centers have various security measures, from physical barriers like gates and guards to advanced cooling systems ensuring the equipment doesn’t overheat.
They play a crucial role in today’s digital era, allowing businesses to operate seamlessly on the internet, host websites, run applications, and store vast amounts of data.
Day-to-Day Tasks in Running a Data Center
Maintenance and Monitoring: One of the most essential activities is ensuring that all equipment runs optimally. This involves monitoring server health, checking hardware issues, and replacing faulty components.
Security Measures: Keeping the data safe is a top priority. Daily tasks include reviewing security logs, updating firewalls, and checking for any signs of breaches or vulnerabilities.
Backup and Recovery: Regularly backing up data ensures that the information can be quickly restored in case of a system failure or other disruption.
Cooling System Checks: Maintaining an optimal temperature is essential to prevent equipment from overheating. Routine checks on the cooling system and making necessary adjustments are crucial.
Network Management: Ensuring the network is efficient and stable involves monitoring traffic, managing bandwidth, and resolving connectivity issues.
Customer Support: Data center operators often provide technical support to their clients. Addressing client concerns, troubleshooting issues, and ensuring they have the necessary resources are part of the daily routine.
Software Updates: Keeping the software up-to-date helps in protecting against potential threats and ensuring the smooth running of operations.
Energy Management: Monitoring and managing power usage is essential to maintain efficiency and reduce operational costs.
In essence, running a data center requires a mix of technical expertise, vigilant security measures, and proactive maintenance to ensure uninterrupted service for its clients.
b.) A Key Points To Succeeding in a Data Center Business
Points To Succeed in Operating a Data Center Business
Building a Solid Customer Base:
In the initial stages of your business, attracting customers can be challenging.
It’s essential to position your data center to meet a specific need or gap in the market, making it appealing to potential clients.
Cultivating Strong Relationships:
Your interactions with customers, suppliers, and employees lay the foundation for long-term success.
Building trust and maintaining open lines of communication can lead to fruitful partnerships and a loyal customer base.
Offering Desired Products and Services:
Understand the specific needs of your target market and tailor your offerings to match their demands.
Valuing Customer Feedback:
Always be open to input from your clients. Take action when they point out areas of concern that align with your operations.
This improves your services and shows customers that you value their opinions.
Prioritizing Customer Service:
Remember, your customers are the backbone of your business. A high level of service will differentiate you from competitors and foster customer loyalty.
Delivering Consistent Value:
Always focus on providing exceptional value.
Whether in terms of service quality, pricing , or additional benefits, ensure your customers see and experience this value.
The success of your business is also determined by the team you have.
Ensure that each employee, from technicians to customer service representatives, is the best fit for their role.
Staff Management and Team Environment:
Treat every employee respectfully and promote a team-oriented atmosphere. This boosts morale, increases productivity, and helps retain top talent.
Cash Flow Management:
Regularly review and manage your finances. Ensure that your income exceeds your expenses, and always have a contingency plan for unforeseen costs.
While it’s essential to minimize costs, and never compromise on the quality of service or customer experience, finding the balance is crucial.
Adapting to Change:
The tech industry, especially data centers, is ever-evolving.
Stay updated with the latest trends, adapt to new business processes, and embrace technological advancements.
Managing Revenue Fluctuations:
There might be peak and low revenue times. Having a strategy to navigate these fluctuations will ensure business continuity.
New competitors will emerge, and existing ones might up their game. Always have a strategy to differentiate yourself and offer something unique.
Marketing and Advertising:
Elevate your business’s visibility through effective marketing strategies.
Whether you’re doing it in-house or hiring experts, ensure that your marketing efforts resonate with your target audience and convey your brand’s message effectively.
Following these points and continuously evolving set your data center business up for lasting success.
c.) Making Your Costume Rental Business stand out
Unique Selling Proposition (USP):
Every business needs a USP. What makes your data center different? Whether it’s state-of-the-art cooling systems, unbeatable uptime guarantees, or exceptional security measures, pinpoint and promote it.
As sustainability becomes more important to consumers and businesses, data centers that prioritize green energy and eco-friendly practices can attract a broader clientele.
Education and Workshops:
Offer workshops, seminars, and training sessions related to data management, cybersecurity, or the latest trends in the tech industry. This positions your business as a thought leader in the sector.
Regularly share detailed reports on uptime, security breaches (if any), and maintenance activities. Customers value transparency and trust businesses that offer it.
Tailor your offerings based on customer needs. Whether it’s flexible pricing, customizable storage solutions, or specialized support, making your clients feel valued will make you stand out.
Engage with the local community through CSR activities, sponsorships, or hosting tech-related events. A business actively involved in the community resonates well with customers and partners.
d.) Add on Ideas for a costume rental Business
Beyond just providing space and hardware, offering managed IT services where your team takes care of the client’s infrastructure, software updates, and other technical needs.
Disaster Recovery Solutions:
Offer specialized packages that provide swift data recovery solutions for major disruptions or catastrophes.
Help clients seamlessly integrate their on-premises infrastructure with cloud solutions, allowing them to scale and adapt to changing needs.
Given the increasing importance of cybersecurity, offer consultations to help clients bolster their defenses and understand potential vulnerabilities.
Dedicated Customer Portals:
Develop a portal where customers can easily monitor resource usage, manage accounts, and access support.
Combine the best of traditional data center offerings with newer technologies to offer hybrid solutions tailored to specific industry needs.
Customizable Storage Solutions:
Instead of one-size-fits-all packages, allow clients to customize their storage, bandwidth, and other services based on their unique requirements.
Incorporating these add-ons and making your data center stand out requires a proactive approach, enhancing your market position and customer relationships.
e.) Data Center Business Models
Types of Data Center Business Setups and Their Business Models
Traditional Data Center:
This is the conventional type of data center where companies rent out space to host their servers and IT infrastructure.
Business Model: Leasing out physical space, usually measured in racks or units, and charging based on the size and duration of the lease.
Cloud Data Center:
These data centers offer cloud services, allowing businesses to scale their resources up or down based on demand.
Business Model: Subscription-based, where clients pay for the resources they use, such as storage space, processing power, and bandwidth.
Colocation Data Center:
Here, businesses rent space in a data center to place their equipment but manage their own hardware and software.
Business Model: Renting out rack space, with pricing often depending on power usage and additional services like security and cooling.
Edge Data Center:
These are decentralized data centers designed to process data closer to the source or edge of the network, reducing latency.
Business Model: Leasing space to businesses that require low-latency processing, often in combination with other data center services.
Managed Services Data Center:
These centers provide space and offer a range of services, from hardware maintenance to software updates.
Business Model: Comprehensive service packages that combine infrastructure leasing with IT management services, billed monthly or annually.
Green or Sustainable Data Center:
These data centers emphasize energy efficiency and eco-friendly operations, attracting sustainability-conscious businesses.
Business Model: Premium pricing for eco-friendly services, often combined with showcasing savings in energy costs to potential clients.
Hybrid Data Center:
A mix of traditional, cloud, and other types of data centers, offering flexibility to businesses.
Business Model: Tailored packages that allow businesses to combine the features of different types of data centers, usually on a subscription or contract basis.
Choosing the right business model from the beginning is crucial, as switching your model later is more challenging.
Identifying a profitable and high-demand niche for your data center business is essential.
f.) Questions You Need to Consider for Your Data Center Business
Questions to Consider Before Starting Your Data Center Business
Data Center Business Model:
What type of data center business model are you considering?
Will you personally handle all the work, or will you hire employees to share the responsibilities?
Do you intend to manage your data center hands-on, or are you considering hiring a dedicated manager?
Partnerships and Investments:
Are you interested in seeking partners or investors to bolster your capital or expertise?
Do you plan to start a home-based data center (which may be more suited for smaller, cloud-based models), or are you aiming to operate from a more expansive, commercial location?
If applicable, are you leaning towards a physical brick-and-mortar setup, or do you plan to operate primarily online?
Vision for Growth:
Have you considered how you’d like to grow in the future? What are your long-term goals for the business?
How do you plan to ensure the data security you’ll be housing? Have you considered both digital and physical security measures?
Will your data center prioritize green or sustainable practices? If so, how will you implement these practices?
Customer Service Approach:
How will you handle customer inquiries and concerns? Are you planning to set up a dedicated support team?
Financing and Budgeting:
Have you mapped out your initial costs and ongoing expenses? How do you plan to finance these costs, especially in the early stages of your business?
Regulations and Compliance:
Are you aware of the local and federal regulations surrounding data centers? How do you plan to ensure that your business stays compliant?
Considering the answers to these questions will better prepare you to tackle challenges and position your data center business for success from the outset.
g.) Pros and Cons of Owning a Data Center Business
Pros of Running a Data Center Business
Becoming the Boss: Owning a data center business means you are in charge. No more reporting to superiors; you’re the decision-maker.
Running the Show: You can call the shots and run the business according to your vision and values.
Unleashing Creativity: You can innovate and implement new strategies or technologies that benefit the business.
Potential for High Revenue: Given the increasing demand for data storage and processing, a successful data center business can generate significant revenue.
Flexibility in Working Hours: Once the business is thriving and you have a reliable team, you can choose your working hours, offering a better work-life balance.
Control Over Working Environment: You can decide the company culture, facility layout, and the technology and tools used in your data center.
Stable Demand: In today’s digital age, the need for data centers is growing consistently, ensuring a stable customer base.
Diverse Client Base: Data centers cater to various industries, from tech startups to established enterprises, providing diverse clients.
Cons of Running a Data Center Business
All Problems Fall on You: As the owner, you’ll need to tackle every challenge head-on, whether it’s technical glitches, employee disputes, or financial hiccups.
Irregular Income: Especially in the beginning, you may face months with little to no income as the business establishes itself.
Challenging Start-Up Phase: Setting up a data center involves numerous challenges, from choosing the right location to sourcing the right equipment.
Customer Acquisition and Retention: Attracting and retaining clients in a competitive market can be demanding and requires constant effort.
Long Working Hours: Expect to put in extra hours in the initial stages, often beyond the usual nine-to-five.
Success Pressure: The pressure to succeed can be immense, with significant investments and reputation at stake.
Initial Capital Requirement: Data centers need state-of-the-art equipment, security systems, and backup solutions, all of which require substantial investment.
Constant Evolution: The tech industry evolves rapidly. Keeping up with the latest technologies and updates is both essential and challenging.
Business Risks: Running a data center comes with its share of inherent risks, from cybersecurity threats to equipment malfunctions.
High Overhead Costs: The costs of maintaining servers, cooling systems, security protocols, and electricity bills can add up, impacting profit margins.
Expertise is Essential: Making informed decisions can be tricky without a deep understanding of the technology and industry trends.
Understanding the advantages and challenges of running a data center business will help potential owners make informed decisions and prepare for the journey ahead.
For more, see Pros and Cons of Starting a Small Business.
Data center business research.
Research: The Foundation of Success
You must conduct thorough research for the data center business you intend to open before taking any other action.
With quality information, you will know what you’re getting into. Otherwise, you might find yourself in a situation you don’t expect.
Seek Wisdom from the Experienced
One way to get the best information is from people experienced in running a data center business.
They are qualified to give you information you can depend on.
Priceless Knowledge Sharing
The time you spend with them can be priceless and an opportunity to gain insights from their knowledge and years of experience.
I have written an article with ideas to help find the right people to contact and approach them in an acceptable and non-threatening way.
The steps go beyond this post, but I strongly suggest you read the article from the link below to understand what you’re getting into.
See An Inside Look Into the Business You Want To Start for all the details.
Overview: The Importance of Understanding Your Target Audience
Understanding your target audience is vital for a data center business.
When you know your target market, you can tailor your offers to appeal to customers effectively and provide products and services that genuinely interest them.
This strategic approach enhances customer satisfaction and boosts business growth.
Target Market Ideas:
- Information Technology (IT) Companies
- E-commerce Businesses
- Financial Institutions
- Government Agencies
- Healthcare Providers
- Research and Development Organizations
- Media and Entertainment Companies
- Education Institutions
- Startups and Small Businesses
- Cloud Service Providers
For more, see How To Understand Your Target Market.
4. Looking at Financials:
Data Center Business Overview: Startup Costs, Revenues, and Profits
Accurately estimating startup costs is crucial to ensure a successful launch of your data center business. It will smooth the process from planning to opening.
Underestimating costs could lead to financial constraints, delaying your business opening.
Overestimating may make your venture seem risky to potential investors.
Costs depend on operation size, location, employee hiring, equipment (new or used), and rental or leasing options.
Create a comprehensive list of needs and gather prices during research to refine your estimate.
For more detailed information, refer to my article on Estimating Startup Costs.
Sales and Profit:
Your data center’s sales depend on:
- The popularity of your products and services.
- The demand for data center solutions.
- Effective marketing to reach the right audience.
Profitability encompasses more than earnings per sale. It involves careful consideration of expenses like rent, payroll , and overhead costs.
Your sales must cover monthly expenses and provide a sustainable salary to succeed.
For More, See Estimating Profitability and Revenue
Sample Financial Lists As a Starting Point
Below are three overly simplified sample financial lists to give you a broad overview of the areas to focus on.
SAMPLE Estimated Costs to Start a New Data Center Business in the USA:
- Land/Lease Costs : $200,000 – $1,000,000
- Construction/Infrastructure : $500,000 – $5,000,000
- Server Equipment : $250,000 – $2,000,000
- Cooling Systems : $100,000 – $800,000
- Security Systems (Physical & Cyber) : $50,000 – $300,000
- Backup Power Supplies (Generators, UPS) : $50,000 – $400,000
- Licensing and Permits : $5,000 – $50,000
- Marketing and Initial Promotion : $20,000 – $150,000
- Insurance (Initial Payment) : $10,000 – $50,000
TOTAL : $1,185,000 – $9,750,000
SAMPLE Estimated Monthly Expenses for a Data Center Business in the USA:
- Loan Payments : $5,000 – $50,000
- Employee Salaries : $30,000 – $150,000
- Utility Bills (Electricity, Water) : $10,000 – $100,000
- Maintenance and Repairs : $5,000 – $20,000
- Security Monitoring and Upgrades : $1,000 – $10,000
- Software Licenses and Updates : $2,000 – $15,000
- Insurance : $1,000 – $5,000
- Marketing and Promotion : $3,000 – $20,000
TOTAL : $57,000 – $370,000
SAMPLE Sales and Profit Outline:
- Server Rack Rental (50 racks at $1,000 each) : $50,000
- Cloud Services (100 clients at $500 each) : $50,000
- Managed Services (20 clients at $2,000 each) : $40,000
- Total Revenue : $140,000
Expenses (from the above sample) : $57,000 (lowest estimate) – $370,000 (highest estimate)
Profit : $140,000 – $57,000 = $83,000 (best case) Profit : $140,000 – $370,000 = -$230,000 (worst case)
These are fictitious examples. So you can understand the issues to consider when planning to start your data center business.
Adjusting costs makes a significant difference in whether the business will be successful.
A slight shift in profit per sale on high-volume sales will make a difference in your overall profits.
Also, note many new businesses take time to become profitable because it takes building a customer base, building a reputation, and fine-tuning operations.
Your figures will be different. Every situation is different, and many factors come into play.
Research and consider getting professional advice when calculating your business’s startup costs, expenses, and potential revenues and profits.
5. Choosing The Right Business Location
Choosing the Right Location for Your Data Center Business
Location Impact on Success:
It can make the difference in whether or not your data center business succeeds or fails according to your choice of location.
Avoiding Unsuccessful Locations:
Operating in a location with no demand for data center services will lead to failure even before you launch your business.
Striking the Right Balance:
If you open your data center in an area with too much competition, you will struggle to get a share of the market.
Seeking Demand and Feasibility:
Ultimately, you want a location with demand and an acceptable level of competition.
Another important point is that you need a location that suits your budget.
The Balance of Exposure and Profitability:
Operating in a highly populated area offers more exposure, but you must ensure your data center business will be profitable with the extra expense.
Weighing Sales Potential:
Similarly, if you opt for an inexpensive area, it should still generate enough sales to sustain your data center business.
For some data center business models, operating from home is a viable option, especially for online or less customer-interaction-intensive ventures. It can be a starting point, with the possibility of moving to a commercial location as the business expands.
Research is Key:
Choosing a location is an important factor in the success of your data center business. Make sure to research it carefully!
For more about business locations, see Choosing The Best Location for Your Business.
6. Create Your Mission Statement
Overview: The Importance of a Mission Statement
A mission statement helps identify the core purpose of your data center business.
It keeps you focused and reminds you of the primary benefit you aim to provide customers and the community.
Examples of Mission Statements for a Data Center Business:
- “Empowering businesses with cutting-edge data solutions to thrive in the digital age.”
- “Enabling seamless connectivity and secure data management for enterprises worldwide.”
- “Our mission is to be the leading data center provider, offering exceptional reliability and efficiency to fuel our clients’ success.”
For more, see, How To Create a Mission Statement .
7. Creating A Unique Selling Proposition (USP)
Overview: The Significance of Unique Selling Proposition (USP)
A Unique Selling Proposition (USP) aids in identifying and creating distinctive features that set your data center business apart from others, making it special and appealing to customers.
Examples of USPs for a Data Center Business:
- “Guaranteed 99.999% uptime for uninterrupted data access and reliability.”
- “Tailored data security solutions designed to meet specific industry compliance standards.”
- “24/7 expert support and personalized data management services to cater to unique business needs.”
8. Choose a Business Name
Selecting a Data Center Business Name : Catchy and Memorable
When choosing your data center business name, aim for something catchy and appropriate. Opt for a name that is easy to pronounce and remember.
Remember, business names are usually long-lasting, so make a thoughtful choice.
Ensure the availability of a matching domain name for your online presence and avoid conflicting with existing registered names.
30 Data Center Business Name Ideas:
- DataTech Hub
- SecureConnect Solutions
- InfoNexus Services
- PowerGrid Data Centers
- TechVault Solutions
- DataMaster Pro
- Cyberspace Hub
- CloudSource Data
- NetworkNest Center
- DataSphere Solutions
- InfoGuardian Hub
- DataLink Depot
- TechTower Centers
- InfoVortex Solutions
- NetSafe Data Centers
- DataPulse Hub
- ConnectX Services
- CyberGate Data
- CloudBridge Solutions
- InfoFortress Centers
- DataHive Hub
- TechMatrix Solutions
- NetworkPrime Data
- InfoBolt Center
- DataScope Solutions
- CyberShield Hub
- CloudCore Data Centers
- InfoPeak Solutions
- NetEdge Services
- DataZenith Hub
Let these ideas spark your creativity to come up with an original and fitting name for your data center business.
For more, see the following articles:
- How To Register a Business Name
- Registering a Domain Name For Your Business
9. Register Your Company
Ensuring Your Data Center Business is Legal and Compliant
Running a data center business requires careful attention to legal considerations to ensure smooth operations and compliance with regulations.
Seeking professional advice is essential for setting up the business correctly to benefit from tax advantages and minimize liability risks.
Consulting with Professionals:
Considering the complexity of legal requirements, consulting with professionals, such as lawyers and accountants, is prudent to ensure your data center business is legally sound and well-structured.
Common Types of Registrations for a Data Center Business:
- Business Entity Registration: Choose the appropriate legal structure, such as LLC, corporation, or sole proprietorship, and register your data center accordingly with the state.
- Tax Identification Number (TIN): Obtain a TIN from the IRS for tax purposes and identification.
- Business Licenses: Acquire local, state, and federal licenses to legally operate a data center business.
Permits and Licenses for a Data Center Business:
- Zoning Permits: Ensure compliance with local zoning regulations for operating a data center in a specific area.
- Building Permits: Obtain permits for any construction or renovations needed for your data center facility.
- Environmental Permits: Obtain relevant environmental permits if your data center involves cooling systems or other equipment that may impact the environment.
- Fire Safety Permits: Comply with fire safety regulations and obtain the necessary permits to ensure a safe data center environment.
- Health and Safety Certifications: If your data center handles sensitive information or critical infrastructure, meet health and safety standards.
- Occupancy Permits: Ensure that your data center facility meets occupancy and operational use requirements.
Taking the time to address legal matters and securing the appropriate registrations, permits, and licenses will enable your data center business to operate legally and confidently.
It also ensures you comply with the relevant industry laws and regulations.
- How to Register Your Business
- How To Register a DBA
- How to Register a Trademark
- How to Get a Business License
- How to Choose a Business Structure
- Pros & Cons of a Sole Proprietorship
- How To Form an LLC
- How To Register a Business Partnership
- How To Form a Corporation
- How To Choose a Business Registration Service
10. Create Your Corporate Identity
Developing a Corporate Identity for Your Data Center Business
What is a Corporate Identity (Corporate ID)?
A Corporate Identity is a visual representation of your data center business.
Key Components of a Corporate Identity:
A Corporate ID consists of various components such as your:
- Business cards
- Business sign
- Promotional items
The Importance of Consistency:
Naturally, you want a constant professional design to impress new and existing customers.
Credibility and Brand Recognition:
Maintaining a consistent and professional design across these elements is crucial to leaving a lasting impression on both new and existing customers.
A cohesive Corporate ID enhances your data center’s credibility and helps build brand recognition in the competitive market.
Reflect Your Values and Message:
Ensure your logo and other visual elements align with your data center’s core values and overall brand message.
A well-crafted Corporate ID communicates professionalism and reliability, boosting trust among potential clients and partners.
Building Brand Loyalty:
Additionally, a strong Corporate Identity fosters a sense of brand loyalty among customers, making them more likely to return for your data center services and recommend your business to others.
An Essential Tool for Growth:
As your data center business grows, your Corporate ID becomes essential for building a strong and recognizable brand presence in the industry.
You can see our page for an overview of your logo , business cards , website , and business sign , or see A Complete Introduction to Corporate Identity Packages.
11. Writing a Business Plan
Crafting a Business Plan for Your Data Center Business
The Significance of a Business Plan
A business plan is a critical document for your data center business. It serves multiple purposes, including acquiring funding and attracting investors.
Additionally, it acts as a guide to steer you through the startup phase and when your data center is fully operational.
Vision and Effort
Writing a data center business plan demands time and effort as you create a vision of what your business will be like once it’s operational.
Careful planning and attention to detail are necessary for its successful expression.
A Clear Roadmap
The effort invested in the business plan will be worthwhile, as it provides a clear vision of what you need to start and how to effectively operate your data center.
Exploring Different Options
When creating your business plan, consider the various options available to you. You can start from scratch, hire a professional, use a template, or utilize business plan software.
Active Participation is Key
Regardless of your chosen approach, active participation in the process is crucial.
Even if you hire a professional, your involvement ensures a distinctive plan effectively communicating your data center’s nature and management strategies.
A Living Document
Your data center’s business plan may evolve with experience. Regularly reviewing and optimizing the document is advisable as your business grows.
This allows you to make necessary changes and adjustments to align your operations with your long-term goals.
A Fictitious Business Plan Example for a Data Center
ABC Data Solutions is a new, forward-thinking data center startup based in Silicon Valley.
We intend to provide secure, reliable, and efficient data management services to small and medium enterprises (SMEs) in the tech sector.
Our goal is to minimize our client’s downtime and maximize their data efficiency, offering them a competitive edge in their respective markets.
Founded by experienced tech entrepreneurs, ABC Data Solutions will leverage state-of-the-art technology and a customer-centric approach to provide tailor-made data storage and management solutions.
Our services will encompass server rack rental, cloud services, and managed services designed to cater to our clients’ unique needs.
With the tech sector’s rapid growth, the demand for secure and efficient data centers has never been higher. Especially among SMEs, the need for reliable yet affordable data center solutions is a pressing concern.
We plan to target SMEs in the tech sector. These businesses need robust data services but often lack the resources to establish and maintain their data centers.
Server Rack Rental:
We will provide space for businesses to house their servers in our secure and climate-controlled environment.
Our cloud services will offer flexible and scalable storage solutions focusing on security and accessibility.
For businesses looking for comprehensive solutions, our managed services will offer a suite of features, including monitoring, maintenance, and technical support.
Sales and Marketing Strategy
Our sales and marketing strategy will focus on building relationships with our potential clients.
We will employ a multi-channel approach, utilizing targeted online advertising, networking events, and partnerships with local businesses.
We will begin by leasing a commercial space suitable for a data center.
Our team will be composed of qualified technicians and customer service representatives to ensure smooth operations and excellent customer service.
We will continually invest in the latest technology to maintain our competitive edge.
ABC Data Solutions will be profitable within two years of operation.
Our initial financial needs are estimated at $5 million, which will be financed through a combination of owner’s equity and bank loans.
Our long-term goal is to build a profitable, sustainable business.
However, in the event of potential acquisition interest from larger players in the industry, we are open to discussions.
This fictitious business plan is intended to serve as a guide. Each data center business will have unique needs and circumstances to consider when developing a comprehensive business plan.
Remember, this process is crucial for understanding your business goals, measuring your progress, and achieving success.
For information on creating your business plan, see, How to Write a Business Plan.
12. Banking Considerations
Financial Considerations for Your Data Center Business
Choosing a Business-Friendly Bank
Consider choosing a nearby bank that caters to business owners for your data center business.
The Importance of a Separate Business Account
Opening a separate business account is essential to separate your data center’s expenses from personal spending.
This separation makes it easier to track expenses, manage bookkeeping, and provides proof in case of a tax audit.
Building a Professional Relationship with Your Banker
Developing a professional relationship with your banker is a good idea.
They can provide valuable advice and financial services, streamlining application processes for your data center business.
Facilitating Payment Processing
To enhance customer convenience, consider applying for a merchant account or a similar setup to accept credit and debit card payments at your data center.
This will improve transaction efficiency and cater to modern payment preferences.
For more, see, How to Open a Business Bank Account. You may also want to look at, What Is a Merchant Account and How to Get One.
13. Getting the Funds for Your Operation
Overview: Funding Your Data Center Business
If you need a loan to start your data center business, this section offers valuable tips to guide you through the funding process.
Securing funds to establish and operate your data center is essential for a successful launch and sustained growth.
Exploring Funding Options
Several funding options are available to support your data center business, including:
- Traditional lenders
- Private loans
- Selling assets
- Using collateral
Meeting with a Loan Officer: Considerations
When meeting with a loan officer, keep these considerations in mind:
- Be prepared to discuss your data center business plan and financial projections.
- Highlight your industry experience and expertise in data center operations.
- Demonstrate how the loan will be utilized to grow your business.
Documents Needed to Apply for a Business Loan for a NEW Data Center Business:
To apply for a business loan for your new data center business, you’ll likely need to provide the following documents:
- Business plan outlining your data center’s goals and strategies.
- Financial projections and cash flow forecasts.
- Personal and business credit history.
- Bank statements and financial statements (if applicable).
- Proof of collateral or assets (if using them for securing the loan).
- Legal documents, such as business licenses and registrations.
By understanding your funding options, preparing thoroughly for loan meetings, and compiling the necessary documents, you can increase your chances of securing the financial support needed to establish and grow your data center business.
See, Getting a Small Business Loan for more.
14. Software Setup
Software Considerations for Your Data Center Business
Choosing the right software is crucial for efficient operations and data management when setting up your data center business. Here are some essential considerations:
Implementing Software from Scratch:
Research the software options carefully, as it’s easier to implement a program from scratch than to switch to a new system after your data is already in another program.
Choose a software solution that aligns with your data center’s needs and growth plans.
Exploring Demos and Reviews:
Look for software providers that offer demos, allowing you to test the functionality and user-friendliness of the system.
Additionally, read reviews and participate in forums to gather insights from other data center professionals using the software.
3. Financial and Tax Preparation Software:
Consider reliable accounting software for tracking expenses and preparing financial documents for tax filing.
Consulting with your bookkeeper or accountant can help you select the best-suited accounting software for your data center business.
Software Options to Consider for Your Data Center Business:
- Data Center Management Software
- Data Security and Encryption Software
- Cloud Management and Backup Software
- Remote Monitoring and Control Software
- Networking and Connectivity Management Software
- Customer Relationship Management (CRM) Software
- Accounting and Financial Software
- Project Management and Collaboration Software
- Inventory and Asset Management Software
- Environmental Monitoring and Cooling Management Software
Evaluate each software’s features, scalability, compatibility, and customer support to make informed decisions that will optimize your data center operations.
Software Considerations for a Data Center Business.
Check out Google’s latest search results for software packages for a data center business.
15. Get The Right Business Insurance
Insurance Considerations for Your Data Center Business
Ensure your insurance policy provides comprehensive coverage, protecting your data center, customers, employees, and anyone on the premises.
Professional Liability Insurance:
Consider professional liability insurance to protect your data center against potential lawsuits related to professional services.
Home-Based Business Insurance:
If you operate or manage your data center business from your home, inform your home insurance agent. Failure to do so could nullify your existing home insurance policy.
Obtain property insurance to protect your data center’s physical assets, including servers, networking equipment, and other valuable items.
Cyber Liability Insurance:
Given the nature of your business, consider cyber liability insurance to protect against data breaches, cyberattacks, and potential data loss.
Business Interruption Insurance:
Consider business interruption insurance, which can cover lost income and ongoing expenses if your data center experiences a significant disruption.
Workers’ Compensation Insurance:
If you have employees, ensure you have workers’ compensation insurance to cover medical expenses and lost wages in the event of work-related injuries or illnesses.
General Liability Insurance:
General liability insurance is essential to protect your data center from third-party claims, such as bodily injury or property damage on your premises.
Consult a competent insurance broker who specializes in data center businesses. They can guide you through the process and ensure sufficient coverage tailored to your needs.
Prioritize insurance to mitigate potential risks and protect the long-term success of your data center business.
For more, see What to Know About Business Insurance . You can also browse the latest Google search results for data center business insurance .
16. Suppliers & Inventory
Selecting Suppliers for Your Data Center Business
Items and Services Purchased from Suppliers
A data center business may purchase the following items and services from suppliers:
- Servers and networking equipment
- Cooling and HVAC systems
- Power distribution units
- Data storage solutions
- Networking cables and accessories
- Security and surveillance equipment
- Software licenses and subscriptions
- Maintenance and support services
The Importance of Strong Supplier Relationships
Establishing a strong relationship with your suppliers is crucial for the success of your data center business.
Competitive Prices and Profit Margin
A reliable supplier can offer competitive prices, enabling you to pass on savings to your customers and increase your profit margin.
Ensuring Smooth Operations
Additionally, a trustworthy supplier ensures you always have the necessary stock to run your data center business smoothly, minimizing downtime and customer dissatisfaction.
Mutually Beneficial Partnerships
Treating your suppliers respectfully and ensuring they benefit financially from the partnership is important. This approach improves your working relationship with them and fosters long-term cooperation, contributing to the success of your data center business.
For More See, How To Choose a Supplier.
17. Physical Setup
Layout: Physical Setup of a Data Center Business
A data center business’s physical setup/layout is crucial for efficient operations.
It includes arranging servers, networking equipment, cooling systems, and power distribution units. A well-organized layout ensures smooth data flow, effective management of resources, and easy maintenance.
Security measures like access control systems and surveillance cameras are also integrated into the layout to safeguard critical data and infrastructure.
Signage: Directing People and Demonstrating Professionalism
Setting up signage is essential for a data center business. In addition to the main business sign, display signs strategically at relevant locations, such as parking lots, exits, and special areas.
Well-designed signs direct people effectively and enhance the professionalism of your operation.
Clear signage guides visitors and instills confidence in your data center’s reliability and attention to detail.
Office Setup: Boosting Productivity and Efficiency
An organized office setup is vital for managing your data center business efficiently.
As your operations center, the office should be fully equipped with everything needed for effective management.
Furnish the office with essential tools, computers, communication devices, and stationery.
Maintaining a clutter-free workspace enhances productivity and streamlines workflow, ensuring you can focus on the core aspects of running a successful data center business.
See, Here are Considerations for The Setup of Your Office, for tips and ideas to make your office work for you. Also, have a look at our article About Company Signs.
18. Creating a Website
Overview: The Benefits of Having a Website for a Data Center Business
Having a website is highly advantageous for your data center business. It is a digital storefront, providing customers with essential information about your services and offerings.
A website enhances your business’s visibility and accessibility, making it easier for potential clients to find and connect with you.
A Marketing Tool
Your website can also function as a powerful marketing tool.
You establish yourself as an expert by creating informative and engaging blog posts about the data center industry and offering valuable tips and insights tailored to your customers.
This builds trust with your audience, potentially leading to increased sales and long-term customer loyalty.
24/7 Availability and Reach
With a website, your data center business is accessible 24/7, allowing customers to learn about your services and contact you at their convenience.
It extends your reach beyond local boundaries, attracting clients from different geographic locations and contributing to business growth and expansion.
Showcasing Services and Expertise
You can showcase your data center’s services, technology, and expertise through your website.
Highlighting successful projects and client testimonials further reinforces your credibility, helping potential customers make informed decisions about partnering with your business.
Improved Customer Support
A well-designed website can offer a seamless customer support experience.
Provide an FAQ section and contact forms for inquiries, ensuring customers can easily get the assistance they need, thus enhancing customer satisfaction and loyalty.
Competing in the Digital Landscape
A website is essential for data center businesses to remain competitive in the modern business landscape.
It allows you to keep up with industry trends, engage with your target audience, and adapt your services to meet evolving customer needs.
For more, see How to Build a Website for Your Business .
19. Create an External Support Team
Data Center Business: The Importance of an External Support Team
An external support team of professionals is a group of people you can depend on for advice and services. It’s also important to note these people are not on your payroll.
Benefits of Engaging an External Support Team
Ideally, you use their services peruse, contract, or hourly. Even though you probably already work with some individuals, focusing on them as your team helps you better understand their significance as well as adding more members.
Gradual Building of Your External Support Team
You don’t need to have all these people in place before you start because it takes time to build professional relationships and people you can count on, but it is something you will want to continue to work on.
Enhancing Your Data Center’s Capabilities
When you have a strong team, they can help when you need them. Your group may include; an accountant, a lawyer, a financial advisor, a marketing specialist, technical advisors, consultants, etc.
Having a reliable and diverse external support network enhances the efficiency and effectiveness of your data center operations, ensuring smooth functioning and growth in the competitive market.
For more, see, Building a Team of Professional Advisors for Your Business.
20. Hiring Employees
Adapting Original Content for Data Center Business:
In the early stages of operating a data center business, you might consider handling everything yourself to avoid the immediate cost of hiring employees.
This approach can be viable as payroll expenses can be significant, particularly during the initial phase.
However, as your data center business grows, you may find it challenging to single-handedly manage and operate all aspects effectively.
At this point, hiring employees becomes essential, as having the right people onboard can significantly enhance productivity and overall operations.
List of Jobs Needed to Run a Data Center Business:
The following are job positions or outsourced services you may want to consider as your data center business grows and becomes successful:
- Data Center Technicians: Responsible for the day-to-day operations and maintenance of the data center equipment, ensuring smooth functioning and timely troubleshooting.
- Network Engineers: Manage the data center’s network infrastructure, ensuring high-speed connectivity and secure data transmission.
- Systems Administrators: Oversee server configurations, software installations, and system updates to maintain optimal performance and security.
- Security Specialists: Implement and monitor data center security measures to safeguard against cyber threats and unauthorized access.
- HVAC Technicians: Ensure proper climate control and cooling systems to prevent equipment overheating and ensure energy efficiency.
- Facility Managers: Oversee the overall physical infrastructure of the data center, including space utilization and equipment placement.
- Customer Support Representatives: Provide responsive and efficient customer support to clients with inquiries or technical issues.
- Sales and Marketing Professionals: Promote the data center’s services, attract new clients, and maintain positive customer relationships.
- Finance and Accounting Personnel: Handle financial matters, including budgeting, billing, and expense management.
- Compliance and Legal Advisors: Ensure the data center adheres to industry regulations and legal requirements.
As your data center business expands, considering these positions and outsourced services will play a vital role in sustaining success and meeting the growing demands of your clients.
For more, see, How and When to Hire a New Employee.
Points To Consider
Hours of operation:.
Hours of Operation for a 24/7 Data Center Business:
Operating a data center business requires round-the-clock support and availability to ensure seamless service delivery. Here are the hours of operation to consider:
- 24/7 Facility Access: The physical data center facility should be accessible 24 hours a day, 7 days a week, to accommodate clients and technical staff for equipment maintenance and emergencies.
- Technical Support: Provide 24/7 technical support to address any client inquiries, server issues, or network problems promptly and efficiently.
- Monitoring and Surveillance: Continuous monitoring and surveillance of the data center’s infrastructure and security systems are necessary 24/7 to detect and respond to potential threats or anomalies.
- Customer Service: Offer 24/7 customer service availability to assist clients with account management, billing inquiries, and general information.
- Remote Hands Support: Provide 24/7 remote hands support for clients who may need assistance with hardware installations, troubleshooting, or server reboots.
- Network Operations Center (NOC): The NOC should be operational 24/7, responsible for monitoring network performance, handling incidents, and implementing necessary adjustments.
- Security Operations Center (SOC): Maintain a 24/7 SOC to oversee data center security, conduct threat analysis, and respond to security incidents.
- Escalation Procedures: Establish clear escalation procedures to ensure critical issues are addressed promptly, even during non-standard hours.
- Data Center Engineers and Technicians: Have teams of engineers and technicians available on-site or on-call 24/7 to handle maintenance, repairs, and emergencies.
- Power and Cooling Management: Ensure 24/7 monitoring and management of power and cooling systems to prevent outages and maintain optimal equipment conditions.
By operating 24/7, your data center business can provide reliable services to clients, minimize downtime, and swiftly respond to any issues that may arise, thereby establishing a reputation for excellence in the industry.
A List of Equipment and Supplies to Consider for a Data Center Business:
Infrastructure & Facilities
- Server Racks & Cabinets: Structures to house servers, networking equipment, and related components.
- Raised Flooring: Allows efficient cable management and airflow.
- Fire Suppression Systems: Specialized systems designed for electronics and data center environments.
- Air Conditioners & Cooling Units: Precision cooling systems designed for data centers.
- Hot & Cold Aisle Containment: Efficient airflow management solutions.
- Uninterruptible Power Supplies (UPS): Provides backup power during outages.
- Power Distribution Units (PDU): Distributes electrical power to servers and network equipment.
- Generators: Backup power source for prolonged outages.
- Transfer Switches: Switch between primary and backup power sources.
- Batteries: Store power for UPS systems.
Connectivity & Networking
- Routers: Directs data traffic between networks.
- Switches: Connects devices within a network.
- Firewalls: Provides security by filtering incoming and outgoing traffic.
- Load Balancers: Distributes network traffic across servers.
- Optical Network Terminals: Converts optical signals to electronic signals.
- Patch Panels: Provides an interconnection environment for network cabling.
- Cabling: Fiber optic cables, Ethernet cables, etc.
- Servers: Multiple types depending on need (file servers, application servers, database servers, etc.)
- Storage Devices: SAN (Storage Area Network) and NAS (Network Attached Storage) systems.
- Backup Drives & Tape Libraries: Backup and archival solutions.
Security & Monitoring
- CCTV Cameras: Surveillance of the facility.
- Access Control Systems: Biometric scanners, keycard systems, etc.
- Environmental Monitors: Monitor temperature, humidity, and more.
- Security Gateways: Hardware appliances that provide an array of security functions.
- Intrusion Detection Systems: Monitors network traffic for suspicious activity.
Management & Maintenance
- KVM (Keyboard, Video, Mouse) Switches: Allows control of multiple servers from a single device.
- Server Lifts: Aids in the installation and removal of server equipment.
- Cable Management Tools: Organizers, ties, labels, etc.
- Coolant & Refrigerants: For cooling systems.
- Cleaning Equipment: Specialized vacuums, anti-static wipes, etc.
Redundancy & Backup
- Redundant Servers: Backup servers for failover.
- Backup Software & Systems: Automated tools for data backup.
- Disaster Recovery Solutions: Tools and systems to recover data during catastrophic failures.
In the data center business, having customers is essential for success. Attracting clients may be challenging in the beginning, as your data center is new, and awareness about it is limited.
However, as you establish a good reputation over time, attracting customers will become easier. Additionally, you’ll gain valuable marketing experience, which will further support your efforts.
Marketing your data center business should be an ongoing endeavor.
The more you invest in effective marketing techniques, the more revenue you can generate. While you don’t always need a marketing agency or expert, you can certainly explore those options if needed.
Simplifying the marketing process involves creating awareness about your data center business whenever an opportunity arises.
This approach allows you to continuously reach potential clients and make them aware of the valuable services you offer.
By being proactive in marketing, you can steadily grow your customer base and solidify your position in the competitive data center industry.
See our article How To Get Customers Through the Door
Potential Referral Partners for Your Business
IT Consultants and Firms:
These professionals regularly work with businesses that require robust data solutions. A partnership can be mutually beneficial, as they can direct clients who need data center services to you.
Web Hosting Companies:
While many of these companies have their own data centers, they might have clients with specific needs that they can’t cater to. A referral partnership could be beneficial for such niche requirements.
Managed Service Providers (MSPs):
MSPs manage IT services for various businesses. Partnering with them could allow you to offer specialized data center solutions to their clientele.
Local Business Chambers and Associations:
Becoming a member or forming partnerships with these organizations can open doors to various local businesses that might need your services.
Commercial Real Estate Agents:
These agents often work with businesses setting up new offices or expanding. They could refer clients who need data center spaces.
Companies that offer cybersecurity services might encounter businesses needing secure data storage solutions.
Software Development Companies:
These firms often work with businesses that need robust and reliable data storage solutions for their applications.
E-commerce Platforms and Service Providers:
E-commerce businesses require reliable data centers for smooth online operations. Partnering with platforms or service providers catering to these businesses can be lucrative.
Local Universities and Research Institutions:
Educational institutions often have substantial data needs, especially research departments. Forming partnerships can help cater to these specialized needs.
Telecom companies often require vast data storage and could benefit from specialized data center services.
Banks, credit unions, and other financial establishments require secure and reliable data solutions due to the sensitive nature of their data.
Government and Public Sector Entities:
Government projects often have extensive data requirements. Partnering or becoming an approved vendor can be beneficial.
In all partnerships, it’s vital to ensure that the benefits are mutual. Offering referral fees, discounted services, or bundled packages can incentivize these businesses to refer their clients to your company.
Building trust and maintaining a high standard of service will solidify these relationships and ensure a steady stream of referrals.
Offer Ideas for New Customers:
- Free First Month: Offer the first month of service for free when they commit to a 12-month contract.
- Bundle Deals: Provide discounted bundles for services like data storage, backup, and security when availed together.
- Referral Bonuses: Offer discounts or bonuses to those referred by existing clients.
- Free Migration Assistance: Help new clients transfer their data from another service or location at no extra cost.
- No Setup Fee: Waive the initial setup or installation charges for new clients.
Offers for Existing Customers:
- Loyalty Discounts: Offer reduced prices for clients who’ve been with you for over a year or two.
- Upgrade Bonuses: Provide free upgrades in storage or security measures as a thank-you for their patronage.
- Anniversary Specials: Offer special discounts or perks on the anniversary of their signup date.
- Feedback Rewards: Provide discounts or bonuses for customers willing to give feedback or testimonials.
- Refer-a-Friend Program: Existing customers can get discounts or bonuses for every friend or business they refer.
Sample Classified Ads for a Data Center Business:
- “Unmatched Data Solutions Await!” Secure, reliable, and affordable. Discover our state-of-the-art data center services today!
- “Your Data Deserves the Best!” Premium storage and backup solutions with top-notch security. Inquire now!
- “Move with the Future!” Upgrade to our next-gen data center services and experience seamless operations.
- “Data Overloads? We’ve Got Space!” Expand your business without data worries. Special offers for new clients!
- “Sleep Soundly, We Guard Your Data!” Round-the-clock surveillance and cybersecurity. Trust us with your data.
- “Fast, Efficient, Secure – That’s Us!” Join the best in the data center industry. Exclusive deals available!
- “Making Data Management Simple!” Hassle-free, scalable, and customizable solutions. Dive into the future of data storage with us!
Remember, these offers and ads aim to convey value and trustworthiness, reassuring businesses that their data is in safe hands.
Simple Marketing Ideas
Local Networking Events:
Attend local business events or join a chamber of commerce to meet potential clients face-to-face. Sharing business cards or brochures can be an effective way to introduce your services.
Social Media Presence:
Set up profiles on platforms like LinkedIn, Twitter, and Facebook. Share updates, industry news, and client testimonials to engage and inform your audience.
Host Open Houses or Tours:
Invite local businesses to see your facilities firsthand. This not only showcases your infrastructure but also builds trust.
Email Marketing :
Start a newsletter with updates, tips on data management, and special promotions. This keeps your business in the minds of potential clients and nurtures relationships with existing ones.
Engage in Content Marketing:
Start a blog or write articles about data management, security, and other relevant topics. This positions you as an expert in your field and can attract organic website traffic.
Invest in ads in local newspapers , magazines, or radio stations . While digital marketing is critical, local outlets can still reach a significant audience, especially in specific demographics.
Leverage Customer Testimonials:
Encourage satisfied clients to share their positive experiences. Display these testimonials prominently on your website and marketing materials.
Partner with Related Businesses:
Form mutually beneficial partnerships with businesses that offer complementary services. They can refer clients in need of data center services.
Offer Workshops or Webinars:
Hold sessions on data security, efficient data management, or other relevant topics. This educates potential clients and showcases your expertise.
Engage in Community Events:
Sponsor or participate in community events, such as charity runs, local festivals, or educational fairs. It raises awareness about your business and solidifies your presence in the community.
Promoting a data center business requires a blend of traditional and digital strategies. While online methods offer vast reach and precision, local strategies foster community ties and trust.
The key is to remain consistent in your efforts and always prioritize genuine relationships.
See our marketing section for articles that will provide ideas to bring awareness to your business.
It is crucial to prioritize your skill set and assess your ability to operate a data center business.
Evaluating your skills ensures you can effectively manage the complex tasks involved.
If you lack a critical skill, remember that acquiring knowledge or hiring someone with expertise to fill that gap is possible.
Essential Skills for a Data Center Business Owner:
- Technical Knowledge: Understanding data center infrastructure, networking, and server management.
- Business Management: Efficiently handling operations, finances, and strategic planning.
- Customer Service: Delivering excellent client support and building strong relationships.
- Problem-Solving : Tackling technical and operational challenges with resourcefulness.
- Communication: Effectively conveying ideas and instructions to team members and clients.
- Adaptability: Being flexible to adjust to the dynamic nature of the data center industry.
- Security Expertise: Implementing robust measures to safeguard sensitive data and systems.
- Leadership: Inspiring and guiding the team toward achieving business goals.
- Project Management: Organizing and executing data center projects efficiently.
- Continuous Learning: Keeping up with technological advancements and industry best practices.
These essential skills equip the data center business owner to navigate complexities and excel in a competitive market.
Exploring expert tips is beneficial for skill improvement, regardless of your expertise level.
Experts can discover more efficient approaches and gain new perspectives. Novices can learn countless tips to enhance their skills and knowledge significantly.
See the latest search results for expert data center tips to gain tips and insights.
Trends and Statistics
Examining industry trends and statistics offers significant advantages for a data center business.
It provides valuable insights into market dynamics, customer preferences, and emerging technologies, enabling informed decision-making and fostering a competitive edge.
See the latest search results for trends and statistics related to the data center industry.
Data Center Associations
Trade associations present several benefits, such as keeping businesses updated on industry news and providing valuable networking opportunities.
These advantages are especially prominent during events organized by the associations.
See the search results related to data center associations.
Top Data Center Business
Examining established data center businesses can spark ideas to identify untapped opportunities in the industry that you can implement in your own business.
It also aids in recognizing areas of improvement that may have been overlooked previously.
See the latest search results for the top data center businesses.
The Future of the Data Center Industry
Researching the industry’s future offers aspiring data center business owners valuable insights.
It helps understand upcoming trends, potential challenges, and growth opportunities, enabling informed decisions and strategic planning for a successful venture.
See the search results for the future of the data center industry.
Data Center Businesses for Sale
In the data center business, acquiring an existing operation has both advantages and disadvantages.
Benefits of Buying an Established Data Center Business:
- Immediate Revenue: You start earning revenue from day one of taking over.
- Skipping Startup Phase: Bypass the challenges of starting from scratch.
- Proven Business Model: You know the business is already functional.
- Financial Insight: Understand existing revenue, profit, and expenses.
- Existing Customer Base: Benefit from an established customer pool.
- Reputation: The business comes with a built-in reputation.
- Higher Cost: Acquiring goodwill and the customer base can increase the cost.
- Customer Transition: Changing business practices may lead to customer loss.
- Inherited Reputation: You acquire both positive and negative aspects of the business’s reputation.
Even if an exact match for a data center business isn’t available for purchase, exploring options within the same industry can provide valuable insights. Use the provided link to assess available opportunities.
Businesses for sale: See the latest results for a data center business and others related to this business model.
Franchise Opportunities Related to a Data Center
A data center franchise has advantages and disadvantages, making it essential to explore before starting a business.
Assessing these opportunities may lead to unexplored data center-related possibilities.
Pros of Buying a Data Center Franchise:
- Proven Business Model: Follow a well-established plan provided by the corporate office.
- Existing Reputation and Marketing: Benefit from the franchise’s established brand image and marketing efforts.
- Comprehensive Understanding: Gain insights into all aspects of the business before diving in.
- Corporate Support: Receive assistance and guidance from the corporate office.
- High Costs: Acquiring a franchise can be financially demanding.
- Limited Autonomy: Major changes require approval from corporate.
- Restricted Products and Services: You can only offer approved products and services.
- Operational Restrictions: Bound by the terms of the franchise agreement.
- Ongoing Fees: Pay ongoing franchise fees.
Even if an exact data center franchise match isn’t available, exploring franchises in the same industry through the provided link can unveil potential opportunities worth considering.
See the latest search results for franchise opportunities related to this industry.
Knowledge Is Power if You Use It!
Knowledge is a powerful tool in the data center business when applied effectively!
You can access abundant industry information online. Follow the links below for valuable insights that will aid you during research, startup, and full operation of your data center business.
See the search results related to customer expectations for a data center business.
Data Center Business Insights
Exploring tips and insights can spark innovative ideas, highlight pitfalls to avoid in managing your data center business, and significantly enhance your industry knowledge.
This process fosters continuous improvement and enables you to stay ahead in the competitive data center market.
See the latest search results leading to resources about Data Center Business Insights.
Data Center Industry Publications
Publications offer an excellent means to stay informed about the latest information in the data center business.
They provide valuable insights, updates, and industry trends, ensuring you remain up-to-date with relevant developments and advancements.
See the search results for Data Center Industry publications.
Data Center Industry Forums
Engaging in data center forums enables participation in trending discussions and fosters industry relationships.
It offers insights into customer perspectives, providing valuable and firsthand information for business growth and improvement.
See the latest search results related to Data Center Industry forums.
Courses offer an excellent avenue for learning and enhancing your skillset while staying updated with industry trends.
They provide valuable knowledge and insights to keep you relevant and competitive in the field.
See the latest courses related to Data Management and our management articles to provide insights and tips on managing Your business.
Data Center Blogs
Subscribing to data center blogs offers valuable ideas and industry updates.
You can explore various blogs, opting for regularly updated ones that provide value.
Curating a collection of such blogs ensures a constant flow of relevant information to enhance your knowledge and decision-making.
Look at the latest search results for data center blogs to follow.
Data Center Industry News
Staying informed about the Data Center Industry is easy through news updates.
Setting up alerts ensures you receive timely notifications whenever new developments are covered in the media.
Watching videos about the data center industry provides valuable tips and insights.
Exploring related videos on YouTube can also lead to unexpected topics, broadening your knowledge beyond what you initially sought.
See the links to YouTube Videos Below.
- Videos related to starting a data center business can be found here.
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- Digital Infrastructure and Transforming Markets
Data Center Models and Their Customers
Data centers may be powerhouses of the digital economy, but they come in all shapes and sizes, with different services models, different business models, and different locational advantages. dotmagazine asked dr. béla waldhauser, from the alliance for strengthening digital infrastructures in germany, to unravel the complexities and explain what kind of customer business cases are most appropriate for what kind of data center..
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Dr. Béla Waldhauser
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Watch the 9-minute video above or on YouTube, or read the transcript below:
dotmagazine: Could you explain the different data center models and their respective customer profiles?
Dr. Béla Waldhauser: So first of all, let me focus on colocation data centers. Colocation is very simple. We have the big building. We are supplying power, cooling, and security. That's it. Our customers are bringing in their own I.T. and telco equipment. So that's what I would like to talk about in the next few minutes.
The Colocation Boom-Within-A-Boom in Frankfurt
Economic Engine - Digital Infrastructure: doteditorial
Large colocation data centers
We have a concentration of fairly big data centers of those kind of colocation data centers in the Tier 1 cities like London, Paris, Amsterdam, Frankfurt and, in the meantime, also Dublin. These kind of data centers are for any kind of customer. I mean, we have very small customers with one, two, three, or four racks, usually carriers providing connectivity – because these data centers with hundreds of customers usually are a marketplace. They are a marketplace in itself, an ecosystem so to say. So we attract enterprises, the public sector, finance sector, and corporates, but also carriers, ISPs, Managed Service Providers, and cloud players.
If you're talking about the last three to four years, then more and more cloud providers are coming to Continental Europe in order to provide their cloud services.
And usually they use our colocation data centers to start with, which is part of the growth we have at the moment – because these cloud providers are taking up three, four, or five megawatts, and even more. So, that's part of the growth.
But I've just signed a big deal with a German automotive supplier for Frankfurt, because they did the traditional make-or-buy decision, and they decided to buy the data center but still own and operate their own I.T. So this is fundamentally the business case. And honestly speaking, we cannot build fast enough. Demand at the moment is much higher than supply.
So the business case is very simple. We just need a lot of money, and building permission just to build it, and then it's in most cases filled up already before we're even ready for service.
Small regional colocation data centers
On the other hand, we have smaller data center providers, usually not in the Tier 1 cities but maybe Tier 2 or Tier 3. The prime example in Germany is noris network, which are based in Nuremberg, but they are not a pure colocation provider. They do that business as well, but they are mainly a managed service provider focusing on regional enterprises, some public sector as well, providing them a much wider range of services. So it's not just building, power, cooling, and security.
Edge data centers
Then Edge is a buzzword. At the moment I don't see edge data centers – at the moment in 2018, that is – but we'll see the need for more edge data centers in the near future. Not because most Internet of Things applications need a very low latency. If you think about your fridge connected to the Internet: the fridge and you don't care about latency. But if you're talking about 5G, connected cars, autonomous driving, and smart city, these are real applications for very, very low latency. That means you need processing units and storage units – small data centers – all across the country. This is true for all countries – it is not German or Europe-specific. This is global. So, we will see more of these edge data centers – however they are (maybe containerized) – in the near future with the deployment of 5G. But also Industry 4.0 is latency-sensitive. So in a factory you need an edge data center for latency-sensitive applications.
I think you will see the whole range of small data centers maybe at the edge, medium-sized data centers maybe regionally, and bigger data centers in the big hubs where, for example you have the big Internet exchanges like DE-CIX in Frankfurt, AMSIX in Amsterdam, or LINX in London.
Hyperscale data centers
And you will see the hyperscale data centres. If you look at the press, then the hyperscale data centers are mostly placed in Scandinavia or Dublin, if we are talking about Europe. There's not a clear definition of hyperscale data centers, but maybe 100 megawatts and above I would call a hyperscale data center. If you look at the analyst reports, then more and more data will be processed and stored in these hyperscale data centers. From a German point of view, I'm not happy that we don't have any hyperscale data centers at the moment in Germany. I think we need these hyperscale data centers as well. Digital sovereignty is one of the buzzwords – because my personal preference is to have the data in Germany and not somewhere else.
If I'm looking at all these different kinds of digitalization, like 5G, connected cars, autonomous driving, smart city, and IoT, the amount of data processed and stored will increase substantially and therefore the need for new data centers. So I think for the next five to 10 years we will see another big growth in the data center arena.
dot: Is there a need for small and medium-sized regional data centers to take a new strategic approach in order to remain successful and build their business cases?
Dr. Waldhauser: As long as these regional data centers focus on regional enterprises, I think they will be successful. But in addition to pure colocation, they need to offer additional services. And that's a reason I mentioned earlier noris network in Nuremberg, because they're providing a much broader scale of services to their customers. I think that the prime example of these – I would not call them data center providers, more managed service providers – is to help the medium-sized enterprises or small enterprises in the regions on their way to digitalize their business. Because that's where we are lacking, not only in Germany but in Europe. A lot of these medium-sized enterprises don't know how to digitalize their business. They will be eaten up if they don't do this, because digitalization is very disruptive. So you need to be very fast. And these businesses, these suppliers, can support the small and medium enterprises.
Theoretical physicist Dr. Béla Waldhauser is Chief Executive Officer of Telehouse Deutschland GmbH and KDDI Deutschland GmbH. Previously he was responsible for the German operations of Global Switch, and prior to that TeleCity. Before this, he was Managing Director for Germany and Austria for Teleglobe. For several years, he has been Leader of the eco Competence Group "Data Center Infrastructure" and since 2011 Member of the Jury for the "German Data Center Prize" in conjunction with the annual "Future Thinking" congress. In 2014 he was invited by the German Federal Ministry of Education and Research, as an expert and as a member of the eco Association, to actively participate in establishing the new strategy platform for “ITC in Horizon 2020”. Dr. Waldhauser is also Spokesperson of the Alliance to Strengthen Digital Infrastructures in Germany, set up in early 2018 under the umbrella of eco to support Germany's development as a digital location.
Switch: A Data Center Company With A Differentiated Business Model
- Switch has a differentiated business model.
- It has invested and is benefiting from growth in the connectivity component of revenues.
- The company's high capex levels are justified.
- There are risks in this period of reduced economic activity but not looking significant enough to constitute a headwind.
- Also, data centers fared well during the last recession.
As a data center professional, I have been following Switch ( SWCH ) for years. This is a company which operates data centers throughout the US and was the first one to offer a Tier 5 certification. According to me, this move by the company to have a Tier 5 offering while others were only proposing Tier 3 and Tier 4 showed its dedication to excellence despite the high costs it had to endure as a result. Moreover, the fact that it was managing to fill those data centers with customer racks and servers and building more shows that the business model is a working one.
With this in mind, I take a deep look at the business model, capital expenditures (capex), its debt level and along the way, will compare its yearly growth with the competition.
I will also consider the effect of the considerable reduction in economic activity and social distancing measures can have on the company’s revenue in the risk part.
Differentiated business model
All data centers provide collocation services whereby customers IT departments either bring their cabinets or use the on-premises cabinets to hosts (house) their servers and other critical IT hardware which need to be operating on a 24/7 basis throughout the year. They deal only with data center staff for cross-connects, that is connecting their servers to each other within the data center and leave the connectivity from the data center to their offices or other data centers to carriers like AT&T ( T ).
Figure 1: Switch connectivity difference.
However, when they work with Switch, things are different as they have the option to procure the connectivity part as well. Not only can they procure the connectivity option to connect their server rack to the outside world but with Switch, they can also purchase connectivity solutions even if they do not have any racks in the company’s data centers.
Also, with Switch, companies can benefit from lower pricing made available through the Switch PRIMES, which provide a sort of independent telecommunications cooperative called " The C.O.R.E. Cooperative" , not associated with any carrier. Only Switch provides such a pricing scheme which is not available at any other data centers in the world.
I also consider the management thought on connectivity in the words of the CFO, Gabe Nacht during the Q4-2019 earnings:
So it has traditionally grown along with collocation. However, there are customers that are understanding that Switch can deliver connectivity that doesn't have to touch any of our data centers at the same compelling price. And if their corporate contracts expire with carriers, they're taking advantage of the power of the cooperative to lower their own telecommunications needs." So we're not forecasting an over index in 2020. But it could very well be the case, particularly with some of these large enterprise organizations that literally spend hundreds of millions of dollars a year on connectivity."
This management thought is translated in hard figures as evidenced in the increasing revenue from connectivity.
Increasing revenue from connectivity.
The trend in the connectivity component in the last three years is an upwards one.
Figure 2 : Revenues from segments - Year ending Dec 2019
Source : Annual Report For the fiscal year ended December 31, 2019
Figure 3 : Revenues from segments - Year ending Dec 2018
Source : Annual Report For the fiscal year ended December 31, 2018
Comparison of the data shows that connectivity option has been increasing steadily as from 2017. From 2017 to 2018, the connectivity component as part of total revenue increased by 9%. The increase from 2018 to 2019 was 15%. Now, with Switch hosting the servers and having to cater for the connectivity needs of some very large enterprise organizations that spend hundreds of millions of dollars a year on connectivity, the revenue trend should be higher.
With the covid-19 pandemic and companies having staff to do work-from-home and people having to stay-at-home and consuming multi-media ( movies and games) at a higher pace, I foresee an increase in the 25% range.
Finally, the company has built up its connectivity sales team by hiring Jeffrey Bryce as Senior Vice President of Solutions Architecture, who is from a telco background and was previously from Level 3 Communications, Century Link ( CTL ).
With the strong growth potential in connectivity ,not requiring the same level of capex as collocation, I next turn my attention to those high capital expenditures (Capex) that have been daunting some investors.
Finances: the CAPEX and increasing yield per cabinet
SWITCH growth relies heavily on capex. The company has been spending significantly year after year. Capital expenditure consists of land on which the company erects data center buildings, carries out expansion of existing locations as well as installs power and cooling for customer equipment.
However, when considered as a percentage of revenue, the relative capital expenditure has been decreasing. From a figure exceeding 100% in 2017, when the company was spending more on capex than generating revenues, capex is now 70% of revenues.
Figure 4: Capex spend as a percentage of revenues
Source: Q4-2019 Earnings call presentation
Therefore, two successive years with relatively lower capex shows that the company is now in better control of its capital expenditure.
Additionally, digging down in the basics of data centers, the reason for this high level of capex is that Switch offers a hyper-scale type of data center: one where customers can fit higher density equipment compared to other data centers. Higher density equipment consists of higher power density servers and storage that have been made possible by technological development at the chip level and require more power and cooling than those with lower density.
Switch has thus invested higher than its competitors in its data centers and provides customers the ability to host higher than average power densities per cabinet area.
This represents a significant advantage for customers as they just need to add servers in existing cabinets and thus do not have to rent additional space in the data center but instead, just have to pay for the additional power consumed. For Switch the advantage is that they are able to charge customers on additional power requirements and this means increasing the yield per cabinet.
Therefore, this has been capex well spent by Switch plus those investments on connectivity starting to pay off in terms of higher revenues. However, in an environment where there is a significant decrease in economic activity and possible risk of recession, I take a detailed look at the risks.
The company faces operational risks following the measures to limit spread of viral agents through social distancing measures. The following risks have been identified:
- Staff not being able to access site
- staff being infected with the virus
- Supply chain disruptions
- Review Maintenance procedures because of social distancing measures
However, here, the mitigation factors are that data centers are critical infrastructure and permits are issued by the federal government and states to allow access to the site in case of confinement or curfew (drastic measures to curb people movement). Moreover, the company has an acceptable use policy which make access to site a tightly controlled process. Finally, data centers being built in secured and isolated locations, there is less risks that Switch's staff is infected by the virus through social interactions.
Finally, with the government itself having cabinets in Switch data centers (figure 5), its a strategic asset with priority in terms of maintenance procedures.
Revenue decline risks
Revenues call fall if some customers opt to have their servers powered off and removed in case they face business uncertainty and revenue loss. Here, one point which mitigates the loss is the fact that the company does not have a high customer concentration risk, that is, revenue is distributed among the customer base.
Figure 5: Customer revenue by industry
Also, the company serves customers across several industries and it derives less than 20% of revenue from a single customer.
Figure 6: Top ten customers
Still, I take a deeper look, as the top customer is a retail and consumer goods company from which 14% of revenue is derived. Retail and consumer goods are suffering a decline in sales due to supply chain issues, product shortages and even delivery concerns as a result of more covid-19 infections.
However, there should be an increase in e-commerce sales by retailers because of more confinement. One such retailer is Livingspaces , which rents 4 cabinets in Switch data center and has an online shopping portal whereby customers can order products.
Now, in order to carry online sales, companies still need to have their servers fully functional in Switch data centers throughout the US. Therefore there should be no fear from investors that customers are going to phone Switch to to power down servers and abridge collocation contracts.
Now, in the extreme case of customers leaving and revenue short-fall, this will be compensated by two factors: one is increasing demand for digital content and multimedia industry which contributes to 15% to Switch revenues and second is the fact that the stimulus agreement includes USD 100 billion package for hospitals and health systems across the nation and Switch hosts the servers of Amgen ( AMGN ), in fact hundreds of them spread over 179 cabinets.
Therefore, the risks are mitigated and the social distancing measures could even be taken advantage of by Switch as some marketing experts are predicting that e-commerce sales will only increase as there are more covid-19 infections.
I next consider Switch's debt level and compare it with competitors.
Debt level and competition
Some investors have questions about the debt level. Well, if compared with competitors, Switch’s debt level is along the same lines.
Figure 7: Comparing Switch with Digital Realty Trust ( DLR ), Coresite Realty Corp( COR ) and Equinix( EQIX )
However, not satisfied by this comparison, I consider the ability of the company to meet its debt obligations in case there is a prolonged decrease in revenues. As of December 31, 2019, the total indebtedness was of USD 751.4 million. Moreover, when taking into consideration the payment terms for the long term debts, it is found that the only USD 6 million matures in the year 2020.
Figure 8: Long term debt term
Source : Switch annual report
Now, the company has USD 330 million under current credit facilities. Therefore, there is no risk that the company fails to meet its debt obligations. Finally, company has about USD 10 million of short term debts.
Moreover, when compared to competitors (figure 7), there is one important difference in terms of revenue growth. The company’s double digit growth at 14% is more than two times its peers and it is important to point out that for Switch, this is all organic growth.
I believe that this revenue growth looks likely to be maintained because of the very low annual churn rate of 0.6%. For comparison sake, Equinix has a much higher churn rate of 2.4% .
With Switch looking to be an interesting investment proposition, I next turn to the valuation.
First, there is the interesting fact that during the last recession back in 2008, data centers fared well. In the words of David Gross , contributor at SeekingAlpha writing back in Jun. 29, 2010:
Few industries have withstood the recession as well as data centers. Lease rates are still rising, capacity is being filled up, and new centers are opening every week. The industry's great recession was not in 2008 or 2009, but in 2002, when it was decimated by dot com overbuilding, and some facilities were turned back into warehouses”
Second, I consider the fact that the downside in the company's share price by more than 15% at the end of February following the earnings miss is not rational. The reason for this is that despite the earnings miss of USD 0.01 (0.04 actual v/s 0.05 expected), the fourth-quarter sales rose by 17% Y-o-Y.
Figure 9: Switch share price evolution
Therefore, taking into consideration the wider sector performance during recessions, stock downside and not forgetting those impressive growth figures, the stock price should be at least USD 16. This is a conservative estimate not taking into consideration potential gains in the connectivity part of revenues.
The differentiated business model of providing connectivity as a separate solution in addition of a bundled service (bundled with collocation) is a key factor which will propel the company revenues to a new high.
With carriers being under pressure for delivering more amidst rising network traffic, customers are more likely to switch to the low communications prices being offered by Switch.
Those high capex, which has been the subject of criticisms by analysts has in fact resulted in increasing customer loyalty (less churn rate) as their equipment benefit from a better environment and with less probability of going faulty.
While the debt ratio is comparable with competitors, Switch is growing at twice the rate. Risks are mitigated and there are no credit risks.
Finally, historical good performance of data center stocks during the last recession, high consumption of digital services alongside with those unprecedented stimulus by the US authorities are strong positives which should compensate for any temporary downsides.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SWCH over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. This is an investment thesis and is intended for informational purposes only. Investors are kindly requested to do additional research before investing and most welcome to request any clarification through the comments.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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A data center is a physical room, building or facility that houses IT infrastructure for building, running, and delivering applications and services, and for storing and managing the data associated with those applications and services.
Data centers have evolved in recent years from privately-owned, tightly-controlled on-premises facilities housing traditional IT infrastructure for the exclusive use of one company, to remote facilities or networks of facilities owned by cloud service providers housing virtualized IT infrastructure for the shared use of multiple companies and customers.
- Learn how BBC Studios implemented automation to manage its IT environment
There are different types of data center facilities, and a single company may use more than one type, depending on workloads and business need.
Enterprise (on-premises) data centers
In this data center model, all IT infrastructure and data is hosted on-premises. Many companies choose to have their own on-premises data centers because they feel they have more control over information security, and can more easily comply with regulations such as the European Union General Data Protection Regulation (GDPR) or the U.S. Health Insurance Portability and Accountability Act (HIPAA). In an enterprise data center, the company is responsible for all deployment, monitoring, and management tasks.
Public cloud data centers
Cloud data centers (also called cloud computing data centers) house IT infrastructure resources for shared use by multiple customers—from scores to millions of customers—via an Internet connection.
Many of the largest cloud data centers—called hyperscale data centers—are run by major cloud service providers like Amazon Web Services (AWS), Google Cloud Platform, IBM Cloud, Microsoft Azure, and Oracle Cloud Infrastructure. In fact, most leading cloud providers run several hyperscale data centers around the world. Typically, cloud service providers maintain smaller, edge data centers located closer to cloud customers (and cloud customers’ customers). For real-time, data-intensive workloads such big data analytics, artificial intelligence (AI) , and content delivery applications, edge data centers can help minimize latency, improving overall application performance and customer experience.
Managed data centers and colocation Facilities
Managed data centers and colocation facilities are options for organizations that don’t have the space, staff, or expertise to deploy and manage some or all of their IT infrastructure on premises—but prefer not to host that infrastructure using the shared resources of a public cloud data center.
In a managed data center, the client company leases dedicated servers, storage and networking hardware from the data center provider, and the data center provider handles the administration, monitoring and management for the client company.
In a colocation facility, the client company owns all the infrastructure, and leases a dedicated space to host it within the facility. In the traditional colocation model, the client company has sole access to the hardware and full responsibility for managing it; this is ideal for privacy and security but often impractical, particularly during outages or emergencies. Today, most colocation providers offer management and monitoring services for clients who want them.
Managed data centers and colocation facilities are often used to house remote data backup and disaster recovery technology for small and midsized businesses (SMBs).
Most modern data centers—even in-house on-premises data centers—have evolved from traditional IT architecture, where every application or workload runs on its own dedicated hardware, to cloud architecture, in which physical hardware resources—CPUs, storage, networking—are virtualized. Virtualization enables these resources to be abstracted from their physical limits, and pooled into capacity that can be allocated across multiple applications and workloads in whatever quantities they require.
Virtualization also enables software-defined infrastructure (SDI)—infrastructure that can be provisioned, configured, run, maintained and ‘spun down’ programmatically, without human intervention.
The combination of cloud architecture and SDI offers many advantages to data centers and their users, including the following:
Optimal utilization of compute, storage, and networking resources. Virtualization enables companies or clouds to serve the most users using the least hardware, and with the least unused or idle capacity.
Rapid deployment of applications and services. SDI automation makes provisioning new infrastructure as easy as making a request via a self-service portal.
Scalability. Virtualized IT infrastructure is far easier to scale than traditional IT infrastructure. Even companies using on-premises data centers can add capacity on demand by bursting workloads to the cloud when necessary.
Variety of services and data center solutions. Companies and clouds can offer users a range of ways to consume and deliver IT, all from the same infrastructure. Choices are made based on workload demands, and include infrastructure as a service (IaaS) , platform as a service (PaaS) , and software as a service (SaaS) . These services can be offered in a private data center, or as cloud solutions in either a private cloud , public cloud , hybrid cloud , or multicloud environment.
Cloud-native development. Containerization and serverless computing, along with a robust open-source ecosystem, enable and accelerate DevOps cycles and application modernization as well as enable develop-once-deploy-anywhere apps.
Servers are powerful computers that deliver applications, services and data to end-user devices. Data center servers come in several form factors:
Rack-mount servers are wide, flat standalone servers—the size of a small pizza box— designed to be stacked on top of each other in a rack, to save space (vs. a tower or desktop server). Each rack-mount server has its own power supply, cooling fans, network switches, and ports, along with the usual processor, memory, and storage.
Blade servers are designed to save even more space. Each blade contains processors, network controllers, memory and sometime storage; they’re made to fit into a chassis that holds multiple blades and contains the power supply, network management and other resources for all the blades in the chassis.
Mainframes are high-performance computers with multiple processors that that can do the work of an entire room of rack-mount or blade servers. The first virtualizable computers, mainframes can process billions of calculations and transactions in real time.
The choice of form factor depends on many factors including available space in the data center, the workloads being run on the servers, the available power, and cost.
Most servers include some local storage capability—called direct-attached storage (DAS)—to enable the most frequently used data (hot data) to remain close the CPU.
Two other data center storage configurations include network-attached storage (NAS), and a storage area network (SAN).
NAS provides data storage and data access to multiple servers over a standard Ethernet connection. The NAS device is usually a dedicated server with multiple storage media—hard disk drives (HDDs) and/or solid state drives (SSDs).
Like NAS, a SAN enables shared storage, but a SAN uses a separate network for the data and consists of a more complex mix of multiple storage servers, application servers, and storage management software.
A single data center may use all three storage configurations—DAS, NAS, and SAN—as well as file storage , block storage and object storage types.
The data center network, consisting of various types of switches, routers and fiber optics, carries network traffic across the servers (called east/west traffic), and to/from the servers to the clients (called north/south traffic).
As noted above, a data center’s network services are typically virtualized. This enables the creation of software-defined overlay networks, built on top of the network’s physical infrastructure, to accommodate specific security controls or service level agreements (SLAs).
Power supply and cable Management
Data centers need to be always-on, at every level. Most servers feature dual power supplies. Battery-powered uninterruptible power supplies (UPS) protect against power surges and brief power outages. Powerful generators can kick in if a more severe power outage occurs.
With thousands of servers connected by various cables, cable management is an important data center design concern. If cables are too near to each other, they can cause cross-talk, which can negatively impact data transfer rates and signal transmission. Also, if too many cables are packed together, they can generate excessive heat. Data center construction and expansion must consider building codes and industry standards to ensure cabling is efficient and safe.
Redundancy and disaster recovery
Data center downtime is costly to data center providers and to their customers, and data center operators and architects go to great lengths to increase resiliency of their systems. These measures include everything from redundant arrays of independent disks (RAIDs) to protect against data loss or corruption in the case of storage media failures, to backup data center cooling infrastructure that keeps servers running at optimal temperatures, even if the primary cooling system fails.
Many large data center providers have data centers located in geographically distinct regions, so that if a natural disaster or political disruption occurs in one region, operations can be failed over to a different region for uninterrupted services.
The Uptime Institute (link resides outside ibm.com) uses a four-tier system to rate the redundancy and resiliency of data centers:
Tier I— Provides basic redundancy capacity components, such as uninterruptible power supply (UPS) and 24/7 cooling, to support IT operations for an office setting or beyond.
Tier II— Adds additional redundant power and cooling subsystems, such as generators and energy storage devices, for improved safety against disruptions.
Tier III— Adds redundant components as a key differentiator from other data centers. Tier III facilities require no shutdowns when equipment needs maintenance or replacement.
Tier IV— Adds fault tolerance by implementing several independent, physically isolated redundant capacity components, so that when a piece of equipment fails there is no impact to IT operations.
Data centers must be designed and equipped to control environmental factors—most of which are interrelated—that can damage or destroy hardware and lead to expensive or catastrophic downtime.
Temperature: Most data centers employ some combination of air cooling and liquid cooling to keep servers and other hardware operating in the proper temperature ranges. Air cooling is basically air conditioning—specifically, computer room air conditioning (CRAC) targeted at the entire server room, or at specific rows or racks of servers. Liquid cooling technologies pump liquid directly to processors, or in some cases immerse servers in coolant. Data center providers are turning increasingly to liquid cooling for greater energy efficiency and sustainability—it requires less electricity and less water than air cooling.
Humidity : High humidity can cause equipment to rust; low humidity can increase the risk static electricity surges (see below). Humidity control equipment includes the aforementioned CRAC systems, proper ventilation, and humidity sensors.
Static electricity: As little as 25 volts of static discharge to damage equipment or corrupt data. Data center facilities are outfitted with equipment to monitors static electricity and discharge it safely.
Fire: For obvious reasons, data centers have must be equipped with fire-prevention equipment, and it must be tested regularly.
Modern converged infrastructure (CI) solutions combine servers, storage and networking into one integrated platform.
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Guide to Data Center Industry KPIs
This guide highlights the key performance indicators for the Data Center industry and where investors should look to find an investment edge. While this guide is not a fully integrated data center industry primer, as the market leader in granular consensus estimates data, Visible Alpha works with partners and clients to determine the key performance indicators in the data center industry. This guide will aid market participants in identifying industry trends and the future performance of data center companies, by region and service type.
- Industry Introduction
- Business Model
- Industry Drivers
- Comp Tables
Digital advancements have made it crucial for businesses to invest in data centers to house critical computing infrastructure, servers, external power systems, networking and communication systems, cabling systems, and security systems, among others. Data centers are specialized facilities that house such computer systems and associated components.
Data centers can be of different types, depending on the needs of businesses. Some common types include:
- Enterprise data centers, owned and operated by companies in-house.
- Colocation data centers that rent individual servers, racks/cabinets, bandwidth, other equipment, and space to companies/tenants on lease.
- Managed data centers that not only offer servers or cabinets for rent but also provide management services including maintenance, system upgrades, and restoring services, among others.
- Cloud data centers that provide third-party cloud services to set up virtual data centers on the cloud. This concept is similar to colocation data centers but is off-premise and hosted by a cloud service provider.
Data center REITs, where REIT stands for real estate investment trust, own and manage data center facilities. They offer a range of products and services to help keep a company’s servers and data safe, including providing uninterruptible power supplies, air-cooled chillers, and physical security. The core services offered by data center REITs include network infrastructure, storage infrastructure, and computing resources.
Industry Business Model
In this guide, we’ve divided the data center industry into two main categories based on their business models. These categories include:
- Pure-play data centers
- Qualified Data center REITs
Analysts model pure-play data center companies based on either power consumption or capacity. For simplicity, we explain the business model of data centers by diving into three business models; Pure-play Data Centers – Capacity, Pure-play Data Centers – Power Consumption, and Qualified Data Center REITs.
Pure-play Data Centers – Capacity
Pure-play data centers generate revenue by providing colocation, interconnection, managed, and other related services to their customers/tenants and charging a margin for the services rendered. They charge their customers fees for the area (square footage) occupied, power consumed, interconnections, and other aligned services. Revenue generated by pure-play data centers can be bifurcated into recurring and non-recurring revenue. Recurring revenue mainly comprises colocation, interconnection, managed infrastructure, and other revenue.
Colocation services involve providing companies with physical space, power, and security to host their critical applications and workloads in an integrated ecosystem. Colocation spaces are offered under fixed duration contracts (typically three years) and billed monthly generating monthly recurring revenue (MRR). Colocation revenue is calculated as the average number of billing cabinets multiplied by monthly recurring revenue (MRR) per cabinet. A cabinet is like a rack in that it can hold assorted modules for electronic equipment. Further, the average billing cabinet is computed by multiplying the average cabinet capacity by the utilization (%).
Interconnection is a point-to-point cable link between two or more cabinets within a data center or between two different data centers. With interconnection, clients receive a fast, convenient, and affordable integration with their partners and service providers. They also receive highly reliable and extremely low-latency communication, system integration, and data exchange. Revenue generated from rendering these services falls under interconnection revenue.
Interconnection revenue is calculated as average cross connects multiplied by MRR per interconnection. A cross-connect is a physical direct connection between two different termination locations. Recurring revenue also includes revenue from offering managed infrastructure services, and other revenue earned by the data center.
Non-recurring revenue primarily comprises installation services related to a customer’s initial deployment and professional services.
Pure-play Data Centers – Power Consumption
Similar to the capacity-based business model, revenue generated by pure-play data centers is modeled based on power consumption and can also be bifurcated into recurring and non-recurring revenue. Here, however, recurring revenue is computed as total utilized capacity (megawatt, MW) multiplied by average revenue per MW (/month). Further, total utilized capacity (MW) is calculated as total capacity (MW) multiplied by utilization rate. Average utilized capacity (MW) is the sum of total utilized capacity MW (current period) and total utilized capacity MW (previous period) divided by 2.
Qualified Data Center REITs
Data centers REITs generate revenue from rendering rental services, tenant reimbursement, interconnection, and other related services. Together, rental revenue, tenant reimbursement revenue, interconnection revenue, and other revenue account for total REITs revenue. Total rental revenue is calculated as the average area utilized (sqm/sqft) multiplied by the monthly service revenue per sqm/sqft (MSR). Further, the average area utilized (sqm/sqft) is the product of the area in service (sqm/sqft) and utilization (%).
Data Center Business Models
CLICK DIAGRAMS TO EXPAND
Expenses for pure-play data centers and data center REITs include utility costs, rent expenses, employee payrolls, real estate taxes and insurance, electricity sales, and marketing expenses, and research and development expenses. Some major expenses include:
- Property maintenance and repair expenses are expenses related to repairs and maintenance of the real estate property, management fees, utilities, and insurance costs.
- Capital expenditures (Capex) – The data center industry is a capital-intensive industry that requires a substantial amount of capex for the development and overall modernization of a data center. This makes capex a major expense for a data center.
Other Key Operational and Business Metrics
Some key metrics applicable to data center REITs include:
- Funds from operations (FFO) is a measure of operating and financial performance and is calculated as net income applicable to common stockholders excluding non-cash adjustments.
- FFO payout ratio helps investors to understand dividend payment as a percentage of earnings and is calculated as total dividends paid divided by funds from operations.
- Adjusted funds from operations (AFFO) is a financial measure used to estimate the value of a real estate investment trust (REIT) and is calculated as FFO excluding capital expenditures and maintenance capex.
- AFFO payout ratio helps to understand dividend payment as a percentage of its earnings and is calculated as total dividends paid divided by adjusted funds from operations over the same period.
Key Data Center Industry Metrics
Key performance indicators (KPIs) are the most important business metrics for a particular industry. When understanding market expectations for Data Centers, whether at a company or industry level, some Data Center KPIs to consider are:
Pure-play Data Center – By Storage Capacity
Cabinet capacity is the total number of cabinets that are available at a data center, i.e., the total cabinet capacity at which the data center operates. Clients can combine and use multiple adjacent cabinets within a data center, based on their requirements.
Utilization rate indicates the ratio of utilized cabinets in service. It showcases the percentage of cabinet capacity utilized.
Billed cabinets are the total number of cabinets that are used by clients.
Average monthly revenue per cabinet indicates revenue generated by a data center from each cabinet. It is calculated as total revenue divided by the average number of cabinets occupied.
Pure-play Data Center – By Power Consumption
Capacity in service is the total power capacity available at a data center to operate the facility, i.e., electricity consumption, specifically kilowatts (kW) and megawatts (MW).
Utilization rate indicates the ratio of utilized capacity to capacity in service. It showcases the percentage of capacity utilized.
Utilized capacity is the total of all capacity sold in MW for utilization where the service has commenced.
Average monthly revenue per MW indicates revenue generated by a data center from each unit of megawatt (MW). Average monthly revenue per MW is calculated as total revenue divided by the average utilized capacity (MW).
Data Center REITs
Portfolio occupancy rate measures the occupancy rate or the percentage area of a REIT’s property that has been leased. It is calculated as leased space divided by total leasable area. The portfolio occupancy rate is a measure of success that a REIT has had in attracting tenants and leasing the space it owns. The higher the occupancy rate for a REIT over time (compared to its peers), the better.
Total square feet (K) is the total amount of floor space available for rent to retail tenants.
Square feet to expiring lease (K) is the number of square feet of lease which is expiring in a period.
Average cost of debt (%) is a measure of the average interest rate paid to fund a retail business. It is calculated as interest expense paid divided by average debt (secured and unsecured loans and revolving credit facilities)
Visible Alpha’s Standardized Industry Metrics
To understand market expectations for the data center industry, a key information source is sell-side analyst estimates and consensus forecast data. The buy-side, sell-side, and public companies leverage this type of data to conduct competitive analysis, a type of analysis conducted by professional analysts that involves comparing standardized metrics of one company with those of similar companies. Because companies report metrics differently – and sometimes report on different metrics altogether – standardizing the key metrics for each company can be a cumbersome process.
Visible Alpha Insights includes analyst data, company data, and industry data at a level of granularity unparalleled in the market. Our industry data – Standardized Industry Metrics – enables market participants to quantify and compare market expectations for companies across 150+ industries.
Data as of January 2023
Our Integrated Data Center Industry Data Set Includes:
Available comp tables – consensus estimates.
Visible Alpha offers one data center-related comp table, comparing forecasts for key financial and operating metrics, to make it easy to quickly conduct relative analysis, whether you are interested in looking at key values for global data centers, Americas, or Europe. Every pre-built, customizable comp table is based on region, sub-industry, or key operating metrics.
Financial and Operating KPIs Available for Data Centers:
Pure-Play Data Center
- Cyxtera Technologies Inc (CYXT_US)
- GDS Holdings Ltd (GDS_US)
- Switch, Inc (SWCH_US)
- NEXTDC Ltd. (NXT_AU)
- Chindata Group Holdings Ltd (CD_CN)
- Keppel DC REIT (KEPE_SG)
- DIGITAL REALTY TRUST INC. (DLR_US)
- EQUINIX, INC. (EQIX)
Industry KPI Terms & Definitions
Cabinet Capacity Cabinet capacity is the total number of cabinets that are available at a data center, i.e., the total cabinet capacity at which the data center operates. Clients can combine and use multiple adjacent cabinets within a data center, based on their requirements.
Utilization Rate (%) Utilization rate indicates the ratio of utilized cabinets in service. It showcases the percentage of cabinet capacity utilized.
Billed cabinets Billed cabinets are the total number of cabinets that are used by clients.
Average Monthly Revenue Per Cabinet Average monthly revenue per cabinet indicates revenue generated by a data center from each cabinet. It is calculated as total revenue divided by the average number of cabinets occupied.
Capacity In Service Capacity in service is the total power capacity available at a data center to operate the facility, i.e., electricity consumption, specifically kilowatts (kW) and megawatts (MW).
Utilized Capacity Utilized capacity is the total of all capacity sold in MW for utilization where the service has commenced.
Utilization Rate (%) Utilization rate indicates the ratio of utilized capacity to capacity in service. It showcases the percentage of capacity utilized.
Contracted Capacity Contracted capacity is the capacity for which clients are required to pay reservation fees.
Average Monthly Revenue per MW Average monthly revenue per MW indicates revenue generated by a data center from each unit of megawatt (MW). Average monthly revenue per MW is calculated as total revenue divided by the average utilized capacity (MW).
Portfolio Occupancy Rate / Utilization (%) Portfolio occupancy rate measures the occupancy rate or the percentage area of a REIT’s property that has been leased. It is calculated as leased space divided by total leasable area. The portfolio occupancy rate is a measure of success that a REIT has had in attracting tenants and leasing the space it owns. The higher the occupancy rate for a REIT over time (compared to its peers), the better.
Total Square Feet (K) / Area in Service Total square feet (K) is the total amount of floor space available for rent to retail tenants.
Square Feet of Expiring Lease (K) Square feet to expiring lease (K) is the number of square feet of lease which is expiring in a period.
Expiring Rent Per Square Feet Expiring rent per square foot is the rent per square foot at the time of expiration of the lease.
Average Cost of Debt (%) Average cost of debt (%) is a measure of the average interest rate paid to fund a retail business. It is calculated as interest expense paid divided by average debt (secured and unsecured loans and revolving credit facilities)
Guide to Data Center KPIs for Investment Professionals
This guide highlights the key performance indicators for the data center industry and where investors should look to find an investment edge, including:
- Data Center Business Model & Diagram
- Key Data Center Metrics PLUS Visible Alpha’s Standardized Industry Metrics
- Available Comp Tables
- Industry KPI Terms & Definitions
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Sharpening data center due diligence
Asking a board of directors for several hundred million dollars to obtain new data center capacity is one of the least popular requests a senior technology executive can make. As one CIO said, “I have to go to the executive committee and tell them that I need a billion dollars, and in return I’m going to give them exactly nothing in new functionality— I’m going to allow them to stay in business. I’m not looking forward to this.”
Investments in data center capacity are a fact of business life. Businesses require new applications to interact with customers, manage supply chains, process transactions, and analyze market trends. Those applications and the data they use must be hosted in secure, mission-critical facilities. To date, the largest enterprises have needed their own facilities for their most important applications and data.
How much data center capacity you need and when you need it, however, depends not only on the underlying growth of the business but also on a range of decisions about business projects, application architectures, and system designs spread out across many organizations that don’t always take data center capital into account. As a result, it’s easy to build too much or to build the wrong type of capacity. To avoid that, CIOs should ask a set of questions as part of their due diligence on data center– investment programs before going to the executive committee and the board with a capital request.
1. How much impact do our facilities have on the availability of important business applications?
Resiliency is among the most common justifications for data center investments. Out-of-date, low-quality data centers are often an unacceptable business risk. Yet upgrading facilities typically isn’t always the most direct or even the most effective means of making applications more available. At the margin, investments in improved system designs and operations may yield better returns than investments in physical facilities.
Downtime overwhelmingly stems from application and system failures, not facility outages. An online service provider, for example, found that facility outages accounted for about 1 percent of total downtime. Even the most aggressive improvements in facility uptimes would have a marginal impact on application downtimes.
Organizations with high-performing problem-management capabilities can achieve measurably better quality levels by identifying and eliminating the root causes of incidents across the technology stack. Yet many infrastructure organizations do not have integrated problem-management teams.
2. How much more capacity could we get from existing facilities?
In many cases, older data centers are constrained by cooling capacity, even more than by power capacity: insufficient air-conditioning infrastructure limits the amount of server, storage, and network equipment that can be placed in these sites. The data center team can often free up capacity by improving their cooling efficiency, sometimes through inexpensive and quick-to-implement moves.
A large European insurance company, for example, wanted to consolidate part of its data center portfolio in its largest, most resilient data center, which was cooling constrained. The company freed up one to two critical megawatts of capacity in this facility—with approximately $40 million in capital cost savings—by replacing worn floor tiles, cable brushes, and blanking plates (all of which improved air flow) and increasing the operating-temperature range. As a result, the company consolidated facilities and provided capacity for business growth without having to build new capacity. 1 1. Data center capacity is measured by the amount of electricity that servers, storage devices, and other equipment consume.
3. What does future demand for data center capacity look like and how can virtualization affect it?
World-class data center organizations deeply understand potential demand scenarios. Rather than make straight-line estimates based on historical growth, they use input from business and application-development groups to approximate the likely demand for different types of workloads. They then model potential variations from expected demand, factoring in uncertainties in business growth, application-development decisions, and infrastructure platform choices.
Without a business-driven demand forecast, IT organizations tend to build “just in case” capacity because few data center managers want to be caught short. A large European enterprise, for instance, cut its expansion plans to 15 critical megawatts, from 30, after the data center team conducted a deeper dive with business “owners” to better understand demand growth.
Even after years of rationalization, consolidation, and virtualization, many technology assets run at very low utilization rates, and every incremental server, storage frame, and router takes up space in a data center. Mandating that applications be migrated onto virtualized platforms in the facility, rather than moved onto similarly configured infrastructure, can be a powerful lever not only for reducing IT capital spending broadly but also for limiting new data center capacity requirements. A global bank, for example, cut their six-year demand to nearly 40 megawatts, from 57— a more than 25 percent reduction—by leveraging its data center build program to accelerate the use of virtual machines (Exhibit 1). This translated to a 25 percent reduction in new capacity build. That achievement helped create a political consensus for implementing virtualization technology more aggressively.
4. How can we improve capacity allocation by tier?
Owners of applications often argue that they must run in Tier III or Tier IV data centers to meet business expectations for resiliency. 2 2. The Uptime Institute has created four standard classifications for data center resiliency and functionality. Tier IV guaranties the highest level of reliability—99.995 percent uptime performance—by deploying multiple electrical and cooling backup systems. Tiers III, II, and I are categorized by diminishing levels of backup and redundancy, and thus lesser levels of performance. Tier I data centers guarantee 99.671 percent reliability. Businesses can, however, put large and increasing parts of their application environments in lower-tier facilities, saving as much as 10 to 20 percent on capital costs by moving from Tier IV to Tier III capacity (Exhibit 2). By moving from Tier IV to Tier II, they can cut capital costs by as much as 50 percent.
Many types of existing workloads, such as development-and-testing environments and less critical applications, can be placed in lower-tier facilities with negligible business impact. Lower-tier facilities can host even production environments for critical applications if they use virtualized failover— where redundant capacity kicks in automatically— and the loss of session data is acceptable, as it is for internal e-mail platforms.
With appropriate maintenance, downtime for lower-tier facilities can be much less common than conventional wisdom would have it. One major online service provider, for instance, has hosted all its critical applications in Tier III facilities for 20 years, without a single facility outage. This level of performance far exceeds the conventional Tier III standard, which assumes 1.6 hours of unplanned downtime a year. The company achieved its remarkable record through the quarterly testing and repair of mechanical and electrical equipment, the preemptive replacement of aging components, and well-defined maintenance procedures to minimize outages that result from human error.
It is inherently more efficient and effective to provide resiliency at the application level than at the infrastructure or facility level. Many institutions are rearchitecting applications over time to be “geo-resilient,” so that they run seamlessly across data center locations. In this case, two Tier II facilities can provide a higher level of resiliency at lower cost than a single Tier IV facility. This would allow even an enterprise’s most critical applications to be hosted in lower-tier facilities.
5. How can we incorporate modular designs into our data center footprint?
Three modular construction approaches, in-space cooling units.
Specialized racks that can have self-contained cooling and electrical (for instance, UPS 1 1. Uninterruptible power supply. ) systems. In-space cooling units can be deployed in very small increments (rack size) and don’t require a raised floor, so they can be deployed in almost any office space.
Prefabricated containers (about the size of trucking containers) that come prepopulated with server, storage, and network equipment and with cooling and electrical systems. They can be shipped to a facility and “plugged in” to a utility and network spline or fitting, require minimal construction within facilities (for instance, there’s no need for raised floor space), and provide for small incremental capacity.
Complete facilities, sometimes with raised floors, that are built in small, phased increments. These construction techniques often leverage prefabricated facilities. Extreme examples modularize mechanical and electrical plants, providing for varying types of plug-and-play technology.
There is a traditional model for data center expansion: enterprises build monolithic structures in a highly customized way to accommodate demand that is five or sometimes ten years out. In addition, they design facilities to meet the resiliency requirements of the most critical loads. New modular construction techniques (see sidebar “Three modular construction approaches”), however, have these advantages:
shifting data center build programs from a craft process for custom-built capacity to an industrial process that allows companies to connect factory-built modules
building capacity in much smaller increments
making it easier to use lower-tier capacity
avoiding the construction of new facilities, by leveraging existing investments (see sidebar “Deploying modular capacity: Two case studies”)
Deploying modular capacity: Two case studies
A large government contractor was running out of critical capacity at a Tier III data center facility with an almost 40-year-old shell. This low-density space housed low-density computing platforms, as well as high-density virtual platforms, which ran at about 60 percent rack utilization. The company spent some $3 million to expand the mechanical and electrical plant to support an additional 500 kilowatts of critical load.
Those improvements helped the company to move high-density servers and storage equipment into in-space cooling units, which allowed it to run racks at 100 percent utilization while keeping the low-density equipment on an existing raised floor. This turned out to be much cheaper than building a brand-new 1-megawatt Tier III facility, which might have cost as much as $20 million. The company applied the same approach to its complete portfolio of data centers and avoided some $60 million to $80 million in capital costs as a result.
Modular facility-design techniques also help companies to segment applications into lower tiers within existing facilities. A large bank, for example, cut its build costs by up to 20 percent by using a modular, multitier facility design, which gives it the flexibility to change its facilities incrementally to meet the requirements of constantly evolving applications. As the software becomes more resilient, for example, the organization will be able to shift its data center portfolio to favor lower tiers.
6. What is the complete list of key design decisions and their financial impact?
Even after the company has established its capacity requirements, dozens of design choices could substantially affect the cost to build. They include the following:
redundancy level of electrical and mechanical equipment
floor structure (for instance, single- or multistory)
cooling technology (such as free-air cooling, evaporative chillers, and waterside economizers)
degree to which components are shared between or dedicated to modules
storm grade (for instance, the maximum wind speed a data center can withstand, as defined by regional or national standards, such as the Miami–Dade County building code and the Saffir–Simpson Hurricane Wind Scale)
Individual choices can have a disproportionate impact on costs per unit of capacity even after a company chooses its tier structure. A large global financial-services firm, for example, looked closely at its incident history and found that electrical failures—rather than mechanical ones—caused almost all of the issues at its facilities. Knowing this, the firm increased its electrical redundancy and decreased mechanical redundancy, shaving off several million dollars in construction costs per megawatt.
Given the scale of the investment required—billion-dollar data center programs are not unheard of— CIOs must undertake aggressive due diligence for their data center capital plans. They can often free up tens of millions of dollars from build programs by asking tough questions about resiliency, capacity, timing, tiering, and design. Perhaps more important, they can tell the executive committee and the board that they are using the company’s capital in the most judicious way possible.
James Kaplan is a principal in McKinsey’s New York office, where Allen Weinberg is a director; Brent Smolinski is an associate principal in the Atlanta office.
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How to Start a Data Center Business [Business Plan]
A data center is a facility that centralizes an organization’s shared IT operations and equipment for the purposes of storing, processing, and disseminating data and applications. The average data center occupies approximately 100,000 square feet of space. On the other end of the scale, there are behemoth data centers that consume as much power as a mid-sized town.
The utilization of a data center allows a business to outsource its power needs. Organizations benefit from data centers in a variety of ways. Most specifically, they allow a company to focus on its consumer objectives instead of technological maintenance.
The United States Data Center Market was valued at USD 8.4 billion in 2020, and it is expected to reach USD 13.91 billion by 2026, registering a CAGR of 8.63% during the forecast period (2022-2026).
Steps on How to Start a Data Center Business
Conduct market research.
If you are considering starting a data center business, you would need reliable market research to be able to maximize profits from the business. The first step in the market research process for your data center business should be to develop market-based research questions in line with your overall business goal and objective.
In this regard, you should source information that will help you maximize your business, information that will help you know what your potential market is looking for from a data center business, and also help you operate your data center business with strategies that will help you compete favorably and build the business to profitability.
a. Who is the Target Market for Data Center Business?
- Banks, Insurance Companies, and other related Financial Institutions
- Blue Chips Companies
- Corporate Organizations
- Manufacturers and Distributors
- Real Estate Owners, Developers, and Contractors
- Research and Development Companies
- The Government (Public Sector)
- Schools (High Schools, Colleges, and Universities)
- Sport Organizations
- Religious Organizations
- Political Parties
- Television and Radio Stations
- Printing Press (Publishing Houses) and Authors
- Branding and Advertising agencies
- Individuals and households who own computers
- Entrepreneurs and Start-Ups
b. Is Data Center Business a Profitable Business?
Yes, the data center business is very profitable. In recent times, the need for secure and reliable data storage has exploded, and is expected to continue to do so. That makes them great investments. Data-heavy devices will hit the market in increasing numbers over the coming years.
c. Are There Existing Niches in the Industry?
No, there are no existing niches when it comes to the data center business.
d. Who are the Major Competitors?
- China Mobile
- China Telecom
- DuPont Fabros Technology
- QTS: Atlanta Metro
- Range International Information Group.
- Switch SuperNAP
- The Citadel Campus
- Utah Data Centre
- Digital West
- Cloud Nine Realtime
e. Are There County or State Regulations or Zoning Laws for Data Center Business?
Yes, there are county or state regulations or zoning laws for data center business, and please note that if you are planning to house your data center in a purpose-built facility or proposing an extension to an existing building, you must apply to your local planning department for approval.
An architect experienced in factory planning will draft your initial plans. They might collaborate with, or seek input from your local Fire Safety Officer to ensure that the appropriate safety measures have been accounted for, following the safety regulations as defined in the Regulatory Reform Order.
f. Is There a Franchise for Data Center Business?
Yes, there are franchise opportunities for data center business, and here are some of them;
g. What Do You Need to Start a Data Center Business?
- A Feasibility Report
- Business and Marketing Plans
- Business Licenses and Permits
- Business Facility
- Startup Capital
- Equipment and Gadgets
- EIN (Employer Identification Number)/Federal Tax ID Number.
- A Corporate Bank Account
Choose a Memorable Business Name
When looking to start a business, before you can begin to file the necessary documents with the constituted authorities or start your website, it is necessary that you come up with a name that you will be recognized with. It is essential that the name you come up with can easily be pronounced, is unique and easily memorable.
Some of the catchy business name ideas suitable for a data center business are;
Creative Data Center Business Name ideas
- Emmet Group© Data Center, Inc.
- Brest Technologies® Data Center, LLC
- Bally Tryone© Data Center, Inc.
- Data Solutions® Data Center, Inc.
- Marshal Kings™ Technologies, Inc.
- Green Group™ Data Center, LLC.
- Cloud 24™ Data Center, LLC
- Techie Jones® Data Center, Inc.
- AmEx© Technologies, Inc.
- 3D Technologies© Data Center, Inc.
- Redo Technologies® Data Center, LLC
- Orange Group® Data Center, LLC
- Canto Technologies™ Data Center, LLC
- Fred Junes© Data Center, Inc.
- Back Upfront® Technologies, Inc.
- Dominic Perez™ Data Center, Inc.
- Reco Technologies™ Data Center, Inc.
- Purple Tree © Data Center, Inc.
- Big Network® Data Center, LLC
- Freo Technologies™ Data Center, Inc.
Register Your Business
A. what type of business structure is best for data center business.
When it comes to the business structure of a data center business, the one that most players in this line of business consider is an LLC. It is common to consider an LLC because providers want to protect themselves from lawsuits. Please note that an LLC will need an EIN if it has employees or if it will be required to file any of the excise tax forms listed below.
b. Steps to Form an LLC
- Choose a Name for Your LLC.
- File Articles of Organization.
- Choose a registered agent.
- Decide on member vs. manager management.
- Create an LLC operating agreement.
- Comply with other tax and regulatory requirements.
- File annual reports.
c. What Type of License is Needed to Open a Data Center Business?
- General Business License
- Zonal Permits
- Signage Permit
- Operational State Facility Inspections
d. What Type of Certification is Needed to Start a Data Center Business?
- Cisco CCNP and CCIE Data Center
- Epi’s Certified Data Center Professional (CDCP)
- Epi’s Certified Data Center Specialist (CDCS)
- Uptime’s Accredited Tier Designer (ATD), Accredited Tier Specialist (ATS), Accredited Operations Specialist (AOS)
- BICSI’s Data Center Design Consultant (DCDC)
- VMware Certified Professional 2019.
e. What Documents are Needed to Open a Data Center Business?
- Business and liability insurance
- Federal Tax Payer’s ID
- State Permit and Building Approval
- Certificate of Incorporation
- Business License
- Business Plan
- Employment Agreement (offer letters)
- Operating Agreement for LLCs
- Insurance Policy
- Contract Document
- Company Bylaws
- Memorandum of Understanding (MoU)
e. Do You Need a Trademark, Copyright, or Patent?
No, you don’t need a trademark, copyright, or patent for your data center business.
Cost Analysis and Budgeting
A. how much does it cost to start a data center business.
The average startup cost for a data center ranges from $10 million to $25 million. A little less than half is spent on hardware, software, disaster recovery, continuous power supplies, and networking. Another large portion goes toward the maintenance of applications and infrastructure.
Please note that it will cost you about $1000 a square foot to build a small data center. That’s not taking into account that it can often cost over $10,000 per mile to have fiber installed to reach your location.
b. What are the Costs Involved in Starting a Data Center Business?
- The total fee for registering a business in the United States of America – $750.
- Legal expenses for obtaining licenses and permits as well as the accounting services total – $3,200.
- Marketing promotion expenses (2,000 flyers at $0.04 per copy) for the total amount of $80.
- The cost for hiring a business consultant (writing of business plans inclusive) – $4,500.
- Insurance (general liability, workers’ compensation, and property-casualty) coverage at a total premium – $12,400.
- The cost of software, accounting software, CRM software, and Payroll Software – $150,500
- The cost for leasing a facility (long-term lease agreement) – $235,600.
- The cost for facility remodeling and installations – $20,000.
- The cost for the purchase of hardware, equipment, and parts: $750,000
- Phone and utility deposits will cost – ($2,500)
- Operational cost for the first 3 months (salaries of employees, payments of bills et al) – $90,000
- The cost for the purchase of office furniture and gadgets (computers, printers, telephone, TVs, tables and chairs et al) – $45,000.
- The cost of launching an official website – $600
- Miscellaneous – $2,500
c. What Factors Determine the Cost of Opening a Data Center Business?
- The size of the data center business
- The choice of location
- The required licenses and permits
- The cost of hiring and paying a business consultant and attorney
- The cost for branding, promotion, and marketing of the data center business
- The cost of furnishing and equipping the data center business – facility
- The cost of insurance
- The cost of registering the business
- Cost of recruiting and training your staff
- The cost for the purchase and customizing of uniforms
d. Do You Need to Build a Facility? If YES, How Much Will It Cost?
Yes, you would have to build a new facility for your data center and it will cost you a minimum of $10 million and the rate of $1000 a square foot to build a small data center. That’s not taking into account that it can often cost over $10,000 per mile to have fiber installed to reach your location. The average data center occupies approximately 100,000 square feet of space.
e. What are the Ongoing Expenses of a Data Center Business?
- Computer and server parts
- Utility bills (internet subscriptions, phone bills, signage, and software renewal fees et al)
- Salaries of employees
- Hardware maintenance
- Marketing costs
f. What is the Average Salary of your Staff?
- Chief Operating Officer (President) – $60,000 Per Year
- Data Center Operations Manager – $48,000 Per Year
- Admin and HR Manager – $42,000 Per Year
- IT Specialists – $41,800 Per Year
- Network/Computer System Engineers – $40,000 Per Year
- Marketing and Sales Executive (Business Developer) – $36,000 Per Year
- Accountant – $36,000 Per Year
- Help Desk Officer – $33,100 Per Year
g. How Do You Get Funding to Start a Data Center Business?
- Raising money from personal savings and sale of personal stocks and properties
- Raising money from investors and business partners
- Sell shares to interested investors
- Applying for a loan from your bank/banks
- Pitching your business idea and applying for business grants and seed funding from the government, donor organizations, and angel investors
- Source for soft loans from your family members and your friends.
Write a Business Plan
A. executive summary.
Cloud 24® Data Center, Inc. is a registered and licensed data center business that will be based in Los Angeles, California. We are in business to store data for both the United States and international market.
Cloud 24® Data Center, Inc. has been able to secure all relevant licenses and permits to operate in the United States. We will ensure that we abide by the rules and regulations guiding the data center and IT industry in the United States of America.
b. Products and Service
- Storing, processing, and disseminating data and applications.
c. Mission Statement
Our mission is to ensure that we build a successful data center business that will not just work for clients in the United States of America and Canada, but all across the world; a company that will boast of having some of the best and most reliable Engineers and Technicians in the United States of America.
Our vision is to become one of the preferred choices when it comes to storing, processing, and disseminating data and applications in the United States of America.
d. Goals and Objectives
The goals and objectives of a data center business are to engage in storing, processing, and disseminating data and applications for its clients.
e. Organizational Structure
- Chief Operating Officer (President)
- Data Center Operations Manager
- Admin and HR Manager
- IT Specialists
- Network/Computer System Engineers
- Marketing and Sales Executive (Business Developer)
- Help Desk Officer
A. swot analysis.
- Excellent operational history
- Attention to detail.
- Experience and trained professionals.
- Large manufacturing facility.
- Excellent customer testimonials.
- Safe, reliable, and efficient storing, processing, and disseminating data and applications process.
- Not enough existing clientele to run at full capacity immediately
- The owner is new to large scale marketing
- We will need a loan to build our facility and to purchase hardware and software
- Lack of economies of scale.
- Growing acceptance of data centers in the United States.
- Build upon existing clientele
- Online market, new services, new technology, and of course the opening of new markets.
- Increase in technological activities on a global scale.
- With the rapid advancement of technology, data centers may likely become obsolete in the nearest future.
- Loans diminish profitability until they are paid off
- The first year will be financially tight while we gain customers and pay off loans
- Competition in the area could increase
- Management of employees requires time, money, and efforts
- The regulatory authority could change its regulatory status and decide to enforce strict regulations that can strangulate new businesses.
b. How Do Data Centers Make Money?
Data centers make money by;
- Storing, processing, and disseminating data and applications process.
c. Payment Options
- Payment via bank transfer
- Payment with cash
- Payment via credit cards
- Payment via online bank transfer
- Payment via check
- Payment via mobile money transfer
d. Sales & Advertising Strategies
- Introduce your data center business by sending introductory letters alongside your brochure to businesses, corporate organizations, schools, and key stakeholders within your market space
- Print out fliers and business cards and strategically drop them in offices, libraries, public facilities, train stations et al.
- Use friends and family to spread the word about your business
- Post information about your company on bulletin boards in places like schools, libraries, and local coffee shops et al
- Place a small or classified advertisement in the newspaper, or local publication about your company
- Leverage on referral networks
- Advertise our business in relevant magazines, newspapers, TV and radio stations.
- Attend relevant expos, seminars, and business fairs et al to market our firearms
- Engage in a direct marketing approach
- Encourage the use of word-of-mouth marketing from loyal and satisfied clients
A. how much should you charge for your service.
A data center will either charge you a flat rate for your consumption or will meter your usage. If you use more than 300kW, then you probably would be better paying the metered rate. On average, you will find data centers renting Us of rack space out for $100 to $300 per U per month. Generally, this monthly fee will include a pre-set allotment of bandwidth and IP addresses.
b. How Much Profit Do Data Center Business Owners Make a Year?
On average, a data center business owner is expected to make $9.9 million per annum.
c. What Factors Determine the Amount of Profit to Be Made?
- The capacity of the data center business
- The location of the data center business
- The management style of the data center business
- The business approach of the data center business
- The advertising and marketing strategies adopted by the data center business.
- The number of years the data center is in business
d. What is the Profit Margin of a Data Center Business?
The profit margin of a data center business is not fixed. It could range from 22.5 percent to 45.85 percent.
e. What is the Sales Forecast?
Below is the sales forecast for a data center business it is based on the location of the business and other factors as it relates to such startups in the United States;
- First Fiscal Year (FY1): $11 million
- Second Fiscal Year (FY2): $30 million
- Third Fiscal Year (FFY3): $45 million
6. Set Up your Office
A. how do you choose a perfect location for your data center business.
- The demography of the location especially as it relates to ICT activities
- The demand for the services of data centers in the location
- The purchasing power of businesses in the location
- Accessibility of the location
- The local laws and regulations in the community/state
- Traffic, parking and security et al
b. What State and City are Best to Open a Data Center Business?
- Los Angeles, California
- New York City, New York
- Fort Smith, Arkansas
- Atlanta, Georgia
- Tucson, Arizona
- Orlando, Florida
- Fort Wayne, Indiana
- Columbus, Ohio
- Jefferson City, Missouri
- Baton Rouge, Louisiana
c. What Equipment is Needed to Operate a Data Center Business?
- Environmental Control Equipment.
- Server Racks.
- Redundant Power Sources.
- Cable Management Supplies.
- Computer & Network Equipment).
When it comes to hiring employees for a standard data center business, you should make plans to hire a competent chief executive officer (you can occupy this position), data center operations manager, admin, and HR manager, IT specialist, network/computer system engineers, marketing and sales executive (business developer), accountant, help desk officer and security guards.
Launch the Business Proper
In recent times, no data center business opens its door for business without first organizing an opening party to officially launch the business. You can choose to do a soft opening party if you are operating on a low budget or you can go for a grand opening party.
The bottom line is that with a proper launching of the data center business, you will officially inform people in your city that your data center is open for business.
a. What Makes a Data Center Business Successful?
- Choose a good location and facility to launch the business
- Secure reliable and efficient software and hardware
- Come up with a unique concept for the business
- Partner with key stakeholders
- Hire only competent, hardworking, and trustworthy staff
- Be deliberate with your marketing sales approach
- Encourage the use of word of mouth to promote your data center business
- Leverage all available online and offline platforms to promote your data center business
b. What Happens During a Typical Day at a Data Center Business?
- The business is open for the day’s work
- Customer’s requests are taken and they are scheduled or attended to
- Schedule and ongoing maintenance of infrastructure are carried out (equipment and systems monitoring, formalized staff training, thorough procedures, and regular maintenance, disaster recovery, and networking)
- Marketing/website upkeep
- Administrative duties
- The business is closed for the day.
c. What Skills and Experience Do You Need to Build a Data Center Business?
- Excellent ICT skills
- Ability to pay attention to details
- Customer services skills
- Interpersonal skill
- Business management skills
- Work experience in the data center and management industry
- Experience in managing people
- Experience in business administration
- Experience in handling different types of hardware and software.
More on Technology
FIND THE PERFECT MODEL THAT BEST SUITS YOUR NEEDS BY GOING THROUGH OUR CUSTOM MODEL BUILDER
Overview of model, finding the right data center development model can be tricky but we got you covered. we often have our clients ask us to do these two things: provide additional detail on our data center development models and highlight features of our data center development model and compare them to other competitors., this guide will exclusively cover the data center development model. if you would like to know more about real estate investing or excel, please check out our blog . if you want to learn how to underwrite an investment, please check out our real estate finance certification courses at top shelf® academy ., product features.
Video Walkthrough of Our Data Center Development Financial Model in Excel
Note about models, the data center models have been used to underwrite $65 million in transactions..
Models downloaded from Top Shelf Models are continuously being updated and improved.
Version Notes: v1.1
For the past 18 months, we have thoroughly tested and vetted these models internally., additional conditional formatting, extra functionalities added to:, assumptions tab, construction budget tab.
The data center development model must be accurate. If you are investing millions of dollars into a data center development project, the model needs to be precise and exacting with zero formulaic errors. Without an accurate model, the capital requirements or expected returns could be misstated. Our data center development model is a 100% unlocked Excel file with fully transparent formulas. While the model is fully customizable, we are confident that it will contain everything you need.
+ EFFICIENT AND INTUITIVE
All tabs need to have a purpose, and all inputs should be organized in a logical way that is easy to follow. Anyone should be able to open the model and understand your assumptions. At TSM, this is important to us because we know that you will be sharing the results of your customized model with your investors, lenders, and partners. Each data center development model includes an easy to use, step-by-step instruction manual. This manual guides you tab by tab, and cell by cell, in order to help you underwrite your very own data center development project.
The problem with most generic data center development model templates is that they are standard and not able to be customized. You will either be required to add additional calculations or remove the sections you do not need. At Top Shelf Models, we have a proprietary Custom Model Builder where you are able to pick and choose the features you need. Some of these features include the ability to refinance, addition of mezzanine debt, as well as an option to choose how many tiers of waterfall calculations. The result is a model with exactly what you need, nothing more and nothing less.
A good-looking data center development model gives the audience confidence that the project is organized and thoughtful. We have included a pre-formatted investor summary tab that can be printed and used for internal and external reports. We also have a model output tab that summarizes the project in a single location so you or your marketing/investor relations team can copy the formatted reports and paste them directly into your OMs or PPMs. We have included several drop-down boxes, elevator buttons and consistent colors/formats using our trademarked formatting style.
WHY TOP SHELF MODELS?
+ CUSTOM MODEL BUILDER
This guides you through a series of questions , allowing you to achieve the exact model you need. Our competitors usually have a cookie cutter data center development model template for data center development, whereas we have several complex functionalities in our data center development model to cater to your individual needs. We also provide a 1-hour complimentary service
Competitor data center development models are too simple. They might only have 2-3 tabs in total which sounds great, but that means you are inputting assumptions directly into the cashflows which is not a good practice. It could also mean that the data center development model is missing some much needed complexities that institutional investors look for. The TSM data center development model has dedicated inputs found on the Assumptions and Unit Mix tabs. Also, most competitor models don’t use iterative calculations . Without iterative calculations, the sizing of the debt is incorrect. Our models use iterative calculations to calculate the construction interest so there is no need for manual plugs that you could forget to update.
Our data center development models are precise and easy to use. Look at the version history of other competitor data center models and you will see the number of mistakes and miscalculations that have been supposedly fixed. It is almost as though the competition is using their customers to vet their own products! We have tested all the calculations and functions in our models BEFORE we offer them to our customers.
We generally have more functionality and control over the assumptions. There are countless examples, but our data center development models have annual control over the revenue and expense inflations. For the exit value calculation, you can select if the cap rate is applied to a forward 12 NOI or a trailing 3-month NOI. For Debt, we have the ability to have fixed/floating loans, SOFR caps/floors, and can size the debt based on an LTV calculation. Again, there are too many examples to list out, but you get the idea.
We are experts at financial modeling properties of any size. We have had extensive experience with financially modeling data center properties and incoprporating our waterfall calculations. Our founder regularly teaches on private equity waterfall calculations at Harvard Business School. Our waterfalls in our data center development models can be either driven off promote or as a percentage of cashflows.
We have made the underwriting process as easy as possible. We have included instruction manuals inside each data center development model and all models include 1-hour of free consultation with one of our financial analysts to answer any questions you have on the model or underwriting a specific investment. We are based in Dallas, Texas and can always be reached by email or phone to support you.
+CRADLE TO GRAVE
We have designed our data center development models to be used cradle to grave. Our competitor’s models have been designed to simply underwrite deals. Our data center development models have been built out to be updated during the operations of the project and include reforecasts of budgets within the monthly cashflows .
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Custom formatting is a feature in Excel that allows you to create and add custom number formats to your data. This allows you to display data with additional descriptors without hardcoding and jeopardizing the integrity of your model. With custom formatting, Excel will still be able to read numbers for function calculations but display them in the chosen format.
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Unit mix is defined as a mix of different number of bedroom apartments in a development or apartment complex. Normally, the number of bedrooms ranges from one to five, and any given apartment complex will have a mix of bedroom options and different floor plans for each type. Every development is trying to achieve the perfect “mix” of each type of apartment for their property, to maximize profit and keep the property occupied year round.
Data Center Infrastructure
Data Center: learn all about this crucial structure for business
The Data Center has been an essential part of the business infrastructure. After all, it is the heart of the corporate network, as it hosts business-critical applications, as well as stores sensitive data and keeps it secure across physical and virtual barriers.
Despite not being new to the market, this installation is constantly evolving, following trends and new demands. As an example, today Data Processing Centers are already used in conjunction with other elements, such as cloud computing environments, in the composition of a hybrid architecture of Information Technology (IT).
But to best use this critical component in corporate strategy, you must know it well. In this sense, understanding the basis of the Data Center, what it needs to operate and what types exist can help in this mission.
For this, in this article, we will show an overview of this installation and its benefits to organizations from the most different sectors.
Want to know more? Keep reading!
Understanding the Data Center
In the age of data, an ever-increasing volume of information is being generated and shared worldwide. And as a basis, it uses the connection between Data Centers, edge computing and the public and private cloud.
But after all, what is this central structure made of?
In general, the Data Center is a physical facility that supports business operations, accommodating applications, services and data on demand. There is a network of computing and storage resources in it, in addition to several other components such as routers, switches, firewalls and servers.
Another feature common to this structure is that, as it supports mission-critical systems, which cannot run the risk of stopping, they need a controlled environment with:
- Robust ventilation and cooling systems capable of preventing damage to appliances;
- Abundant and reliable power supply with backup;
- Connections to external networks;
- Physical and virtual protective measures.
Although all generally contain such characteristics as a basis, there can be many differences from one Data Center to another. For example, they can vary in size – whether occupying the equivalent of a closet, a room or even an entire building.
In addition, the levels of security, latency and resiliency are also different, following the specific needs of the business and industry.
It is also worth mentioning that hospitals and health laboratories, which need real-time access to patient histories and control systems for medical equipment, such as scanners, tomographs, ultrasound devices and Doppler readers, among others. And therefore, its Data Centers assume mission-critical characteristics, requiring low latency and high availability to avoid downtime incidents.
How do Data Centers work?
Within the Data Center, in addition to the components themselves, such as computers and routers, the operation of technology can be divided into three main pillars:
- First, it is necessary to mention the computational resources, which are responsible not only for processing but also for memory and local storage. This is the engine of technology and one of the reasons why the service is sought after;
- There is still the network infrastructure, which is responsible for the connection between physical and virtual servers and the Data Center services themselves. Furthermore, it is in charge of external connectivity, providing access to the location of end users;
- Finally, we can mention the storage infrastructure, responsible for storing large volumes of data, whether sensitive or not.
It is worth remembering that today, the General Law for the Protection of Personal Data (LGPD) is already in force in Brazil. Evidently, the Data Center needs to be aligned with the guidelines established by the legislation, guaranteeing care and transparency from the collection to the treatment of this information.
READ HERE: Understand why Data Centers need renewable energy
An overview of the evolution of this technology
Initially, the idea was born in the United States in 1965. That year, the National Data Center Proposal was published, which supported the creation and storage of detailed files of Americans by the country’s government.
The information in this single Data Center would be comprehensive, such as fingerprints, criminal background data and even tax records. Precisely because of the concern for citizens’ privacy, the plan ended up not materializing. However, the concept gave way to the creation of the Data Center as we know it today.
Of course, there were several stages of evolution before reaching the current level. At first, this infrastructure was permanently established locally (a model also known as ‘on-premise’), and managed by the company’s own IT department. Then came the concept of virtualizing the infrastructure, improving resource usage and mobility of workloads.
Today, the scenario is marked by an increase in the use of the cloud, even as a native environment for applications. For companies looking for a resilient ecosystem, the combination of Data Center and Cloud structures stands out the most.
READ HERE: Why regional Data Center network capillarity matters for your IT
What are the types of Data Center?
Since a wide range of organizations from all sectors uses Data Center services, there are also different types of this technology to meet the demand.
First, it is essential to emphasize that the installation can be classified differently. Computing and storage technologies, energy efficiency, or even the fact that the facility belongs to one or more companies can make a difference in segmentation.
At the same time, Data Center models can be differentiated by the services they support. To illustrate, we have selected four of the main types:
Corporate, On-premise or Enterprise
Generally, these facilities are built by the companies themselves and maintained by a specialized team, sporadically resorting to third-party providers’ assistance. This model is also known as on-premise, as it is located on the organization’s premises. Among the benefits, one can highlight the proximity of the structure to the users, which benefits the use of the internet network.
Internet Data Center
It is a standard based on cloud computing structure, consolidating itself as a digital model of Data Center. In other words, data and applications live in the cloud instead of being stored in a physical environment. Thus, they are accessed via the Internet.
This model foresees using a third-party infrastructure, such as a service provider, but with characteristics similar to those of the corporate Data Center. The big difference, however, is that here, the IT structure is the responsibility of the contracted provider. Including this is a prevalent model in the corporate market.
In this model, the company hires, as a service, the physical space (from a rack to an entire building) of a Data Center built and maintained by a specialized provider and installs its equipment. Thus, in colocation – a modality in which ODATA specializes – what you acquire, in practice, is the ideal fraction to allocate your computing environment, including internet services with ultra-connectivity, cleaning, cooling systems and security.
READ HERE: Wholesale Data Center: understand the model and the benefits for your business
Why is the Data Center essential for all types of companies?
Identifying the Data Center’s role in everyday corporate life can often be challenging since the structure supports countless business activities.
Just to mention a few examples, there are productivity applications, business management systems (ERP) and customer relationship management (CRM), among many others. In fact, even the simple act of sending emails and sharing files depends on using computational resources.
Due to this overall performance, the benefits of this infrastructure in the corporate strategy are also vast. Among them are:
Cybernetic protection: security protocols and other tools are used to constantly check for vulnerabilities and reduce the chances of data leakage or loss;
Data privacy: performance complies with LGPD guidelines;
Scalability: i t can add to the company’s structure, responding to the need to expand a server.
Additionally, having the Data Center in the business structure, regardless of the model, is also a way to prepare for the future.
The arrival of 5G and, along with the new generation of mobile connections, new opportunities will emerge, especially for technologies such as the Internet of Things (IoT) and Big Data. As a result, the volume of data generated will increase exponentially in a short period.
Anyway, this movement will require not only scalability but a powerful processing capacity for all this information to be recorded and analyzed. And it is in this sense that the Data Center stands out as a crucial solution for maintaining business operations.
READ TOO: Why colocation is critical to the future of hybrid cloud
Hybrid architecture is trending
After the wave of digital transformation acceleration of 2020, a long-term strategy has become very popular when it comes to IT architecture.
Ecosystems that combine on-premise, cloud and colocation structures have emerged in response to social distancing and the consequent increase in the remote work model. During this period, organizations with a mostly physical structure needed to adapt and migrate workloads to the cloud.
However, the hybrid architecture was already a trend for the future of IT, as only a system of this magnitude will be able to support the increase in the volume of data to come.
After all, according to Social Good Brasil’s analysis , 35 trillion gigabytes of information were generated by the end of 2021. And, with 5G increasing the potential use of IoT, as well as Artificial Intelligence and Big Data solutions, this number is expected to grow even more.
The structure can also incorporate several operational models. Some elements also standing out are Multicloud, which brings together cloud services from different providers, and the Hybrid Cloud, which combines public and private cloud. Indeed, the latter is already used by 80% of companies on the global stage, according to a survey by Flexera .
ALSO REED: Understand why Data Center outsourcing can improve your company’s sustainability rates
The Data Center is an integral part of the corporate strategy in the most different markets – whether in the on-premise model, in the cloud, or in colocation. Most importantly, it became clear that adopting it as a hybrid IT architecture element is crucial for companies to prepare for future challenges.
For this very reason, the Data Center market is expected to grow by US$ 519.34 billion by 2025. The estimate, brought by the Data Center Market report , also points to the adoption of multicloud and network updates to support connectivity in the 5G standard as the main drivers.
Keeping up with market trends and needs, ODATA stands out as one of the most qualified Data Center services providers to support the creation of this robust and resilient structure.
Our team works from the construction and operation of Data Centers dedicated to a client, in the built-to-suit model, to colocation alternatives, with redundancy throughout the infrastructure and availability of 99.98%.
Do you want to know how to maximize the results of your technological infrastructure? Contact one of our specialists and understand what we can do for you.
to help you learn more about the world of colocation.
Data Center infrastructure modernization: Crucial to support increased data traffic
There have been endless conversations about the increasing need to modernize Data Center infrastructure so that the technology park can support business growth. The agendas range from expanding to the perimeter to diversifying server allocation models, such as Colocation, for the constitution of a hybrid architecture, to the latent demand […]
Data Center redundancy: more security and stability for your company
Data Center redundancy is one of the main requirements for any organization’s corporate network structure to operate with tranquillity, security and efficiency. This is because the unavailability of services can directly impact the financial health of the company, as well as the productivity of the team and the protection of […]
Cloud Computing: everything you need to know
Undoubtedly, technology is one of the leading business drivers in the digital age. So it is unsurprising that professionals in all industries want to understand it – especially Cloud Computing, whose use has been popularized since the beginning of the Covid-19 pandemic. In this scenario, what would be the relationship […]
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Expert Predicts Data Centers Will Play with AI in 2024
Global data center market revenue is expected to reach $342.10 billion by 2023, up from $321.37 billion in 2022, according to Statista. The data center market was valued at $316.30 billion in 2021, up 6% from $298.30 billion in 2020.
The most significant investments in the market are expected to come from colocation service providers and hyperscale data centers.
The continued explosion in AI and ML has not surprisingly placed new strain on data center power and processing resources.
Looking ahead to 2024, data center operators are in the midst of an exciting time that presents both challenges and opportunities.
Corning Optical Communications, a leader in the fiber optic cable industry, identified 3 predictions for data center operators in 2024.
Michael Crook, market development manager - data centers, sees the following on the horizon:
- Long-awaited edge computing: As AI applications are developed, companies will look for processing power closer to where the application is being utilized. That means data centers will focus on keeping the heavy compute closer to where the data is actually being used.
- The rise of multi-tenant data center spaces: Hyperscale operators design and build the largest data center campuses. But with the increasing power and land requirements necessary to support AI, ML, and other emerging applications, hyperscalers, and others may need to look at alternative methods to build facilities even if it’s just for a single purpose, like an AI network.
- The advancements in optical transceivers: More data can be placed onto optical wavelengths. In return, we’ll see a higher rate optical transceivers that operate with fewer fiber connections, benefiting our data center customers by reducing cable congestion within a rack and improving air flow.
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Data Center Business Model
The data center business model is a framework for understanding how data center operators make money. It is based on the idea that data center operators can generate revenue by selling hardware, services, and data storage.
Table of Contents
The data center business model
A data center is a facility in which computers and telecommunications equipment are housed. The business model for a data center is to lease space and provide infrastructure and services to businesses and governments. A data center can be a physical building or a virtual infrastructure.
The data center business model is simple. A data center leases space to businesses and governments. The data center offers infrastructure and services to the businesses and governments. The businesses and governments pay the data center for the space, the infrastructure, and the services. The data center makes money by charging the businesses and governments for the space, the infrastructure, and the services.
The rise of the data center
The data center is a business model that has seen explosive growth in recent years. Generally, a data center is a facility used to house computers and telecommunications equipment. Data centers are essential for organizations that rely on electronic communication, such as businesses, government agencies, and schools.
The data center has become an increasingly important part of the modern business world. The rise of cloud computing has made data centers even more important, as businesses have turned to the Internet to store their data and access it from anywhere. Data centers also play an important role in the development of artificial intelligence and machine learning.
The data center is a complex and expensive business model. However, the payoff is enormous. By using data centers, businesses can improve their speed and efficiency, as well as increase their security. In addition, data centers can help organizations become more competitive.
The future of the data center
As data center professionals, we’re always looking for ways to optimize our businesses and make them more efficient.
Recently, I’ve been thinking about how the data center could be revolutionized.
As data center professionals, we know that the future of the data center is in virtualization and cloud computing.
Virtualization and cloud computing allow businesses to save money by using fewer computers and servers.
They also allow businesses to access data from anywhere in the world.
In addition, virtualization and cloud computing allow businesses to manage their computing resources more efficiently.
Overall, these technologies are revolutionizing the way businesses operate.
I believe that the data center will continue to be revolutionized in the future.
This is why I’m advocating for businesses to adopt virtualization and cloud computing.
Thank you for listening.
The changing landscape of the data center
In the past few years, the data center has seen a significant transformation. The large, centralized facilities that were once the norm are now becoming less and less common as companies adopt more distributed solutions.
The reasons for this shift are many, but two main factors are the rise of cloud computing and the growth of mobility. With cloud computing, businesses can offload much of the heavy lifting of their IT operations to third-party providers, who handle everything from data storage to server maintenance. This saves organizations a lot of time and money, which is why it’s becoming increasingly popular.
Meanwhile, mobile technology is changing the way people use and access information. More and more people are working from portable devices, which means they need access to reliable and secure data wherever they are. This is where the data center comes in. By providing secure, reliable infrastructure, data centers can help businesses meet the needs of their customers wherever they are.
The challenges of the data center
- Data centers have to be built in a very quiet and isolated location, because they need to handle huge amounts of data that needs to be processed quickly.
- The air conditioning has to be very efficient in order to keep the data centers cool, as the servers can get very hot.
- The data centers also need to be well-protected from the weather, as they can get very wet and windy.
- The data centers need to be constantly monitored to ensure that they are running smoothly.
- The data centers also need to be regularly cleaned in order to remove any debris or dust that may have built up.
- The data centers need to be fitted with specialised equipment in order to handle the data that is being processed.
- The data centers also need to be well-maintained in order to keep them running smoothly.
The data center business model is a critical part of any organization’s success. Without a sustainable business model, data centers will not be able to survive and will have to be shut down. It is important to have a data center business model that is both profitable and sustainable.
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Talent Management in the Age of AI
- Ryan Roslansky
Three shifts leaders need to make.
The world of work is changing fast and the most important thing to do is realize that the old playbooks, especially around talent management, will not work — now, it’s time to adapt. Leaders should focus on three big shifts that will set their businesses up for new levels of success in the age of AI. They should: 1) redefine jobs as a collection of a skills and tasks, not titles, 2) bring skills and workforce learning to the center of talent management, and 3) embrace AI to focus teams on human-to-human collaboration.
Business leaders have navigated an immense amount of change in recent years: varying hiring trends across industries, evolving remote and hybrid work strategies, swings in the number — and type — of people switching jobs, and changing generational preferences. But none of that compares to the seismic shift AI represents as it starts to fundamentally redefine the way we work across sectors and societies.
- Ryan Roslansky is the CEO of LinkedIn, the world’s largest and most powerful network of professionals. Ryan joined the company in May 2009 and has since held leadership roles in every part of LinkedIn’s business. He led the evolution of LinkedIn’s products into a single, holistic, global ecosystem of 756 million members, 57 million companies, 120 thousand schools, and 38 thousand skills. Under his leadership, LinkedIn has also seen record levels of engagement on the platform and accelerated growth across the company.