Cisco Capital EMEA: data centre leasing – beyond capex vs opex

With data centres an essential part of modern business operations, it pays to invest carefully in the most cost-effective set up. Carlos Brazão, senior director Cisco Capital EMEA, weighs up the options.

There is little dispute over the importance of data centres to business. Migration to the cloud, enterprise mobility and the need to support more demanding applications are driving big spending in the relevant equipment and enterprise software.

Gartner* estimates that $143 billion will be spent worldwide on systems in 2015, the Cisco Global Cloud Index predicts that annual IP traffic will reach 8.6 zettabytes by the end of 2018. Growth of workloads in cloud data centres is also expected to be five times the growth in traditional workloads between 2012 and 2017. The jury remains out on the best route to acquire computing capacity, however. Decisions, such as whether to buy or lease, and whether to maintain centres on-site, or in the cloud, are still open for discussion.

Some organisations may find it most cost-effective to source their computing and storage from a cloud provider, while most others may look at a cloud/private hybrid setup. Such decisions rest on various factors, including regulations, security concerns and the volume of memory required. In addition, the need for hardware refreshes and the pace at which technology advances are also important factors when deciding how to invest in a data centre.

This is what makes financing for privately-hosted data centres an interesting subject. While the decision to lease data centre equipment is in terms of capex vs opex, the consequences are significantly more far-reaching. One of the key - but often underrated - benefits of leasing is superior lifecycle management.

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The issues of efficiency and obsolescence are more important than ever. Generally, technology life-cycle management tends to follow a pattern of acquire/deploy/maintain/upgrade/refresh/dispose. Hardware refreshes at regular intervals (about three years) are recommended, due to the cascading effect on energy consumption, as well as cooling costs. On average, for every watt of IT power, an additional 0.8 is consumed to cool and distribute power to the equipment. With technology evolving at a blistering pace, investment decisions must be made not in the context of where things stand today, but rather, where we expect technology to head in the future.

Financing technology is now discussed much earlier in the decision-making cycle for data centres, as well as other enterprise technologies. External research indicates that customers are considering payment options while they are still evaluating the technology itself. This makes sense, because the mode of payment determines the long-term cost-effectiveness of the technology.

Upfront investments are constrained by fixed IT budgets and resources, most of which are consumed by maintenance, so financing may help realise the benefits of technology. For example, an organisation using vendor/captive financing will be able to afford the latest technologies, enabling it to benefit from future productivity, or revenue advantages, straight away.

This is also true for larger, multivendor projects. Financing from captive sources allows entire projects to be consolidated into regular, periodic expenses, which might include technology, as well as support, enablement, and third-party and partner-provided products and services. The entire project investment, therefore, can be consolidated into a single transaction, and converted into a regular expense, rather than an upfront payment. Banks may not offer the same benefits, since - unlike vendors - they tend not to 'get' technology.

While managing an existing data centre infrastructure today may be convenient, the real question is how it will be dealt with five or ten years further down the line. To be truly effective, investments in data centre technology must be thought through in a holistic fashion, considering relevance, longevity and financing. One of the questions that organisations must consider when building a new cloud solution is understanding its potential return on investment.

Whether our customers operate within a growth market or a burst/utility environment, Cisco Capital has experience in creating flexible consumption models that allow them to share their investment risk.

*Source: Gartner Press Release: 'Gartner Says Worldwide IT Spending on Pace to Grow 2.4 Percent in 2015, January 12, 2015'.

Carlos Brazão, senior director Cisco Capital EMEA.