You may be very surprised to see that McKinsey believe that Data Center costs are 25% of all IT costs. Many CIOs will find it difficult to reconcile this view with their own budgets. There are a two key reasons why this is a difficult and badly understood process.
- Within many organizations many of the data center cost components are not included within IT budgets, although the behavior of the IT department is the main driver for these costs.
- Unrealistically long depreciation timeframes artificially hide data center costs
Energy costs are often managed by facilities or Corporate Real Estate departments who bundle these up with other facility costs as part of the cost of doing business. Many organizations use property depreciation cycles to evaluate impact data centers on the Balance Sheet. The current data center construction boom is not a one time catch-up investment. For most organizations, server growth will require continuous additional new data center investments and new data center construction every 3-5 years.
Data center spend is growing rapidly due to increased demand and increases of scale to match growing automation and the volumetrics of the Internet. (China and other developing countries are projected to grow even more rapidly than developed nations). Virtualization has caused only a short faltering in the compound annual growth rate of data center demand. Higher power equipment as well as higher densities is driving rates of investment ever upwards.
Many CIOs report that growing data center spend is putting pressure on other IT initiatives or functions (e.g., applications development, end user computing). Many corporates are not reporting on the real cost of computing for the reasons stated above.
Total ownership costs are four to five times the cost of the server alone over the typical five to ten year lifetime of a server. Electricity costs are made up of cooling and redundancy components as well as the boilerplate energy value. McKinsey report that Servers are often housed in a higher Tier Data Center than is actually necessary, further driving facility costs. Facility costs are growing more rapidly at 20% per annum than overall IT spend at 6% per annum.
McKinsey report that the installed base of servers is growing by 16% per annum and projected to grow to 41-43 million servers worldwide by 2010. The energy consumption per server is growing by 9% per annum as growth in performance pushes demand for energy. Energy unit price has increased an average of 4% per annum.
McKinsey report on a client they have served that shows continuing on the same trajectory will reduce profitability of their operation.
Rapid growth in Opex due to:
- 40% transaction volume growth
- 16% database record volume growth
- Trading to continue increasing at CAGR of 15%
- A number of business units plan to offer new products
- High regional demand in Asia
- Large increase in capital spend to increase depreciation expense
- Additional labor to manage growing demand
- Increased facilities costs (e.g., energy)
Rapid growth in Capex due to:
- Urgent need to meet medium term additional demand (available capacity projected to be fully consumed in next 30 months)
- Need to meet regulatory disaster recovery goals
- Smaller data centers are out of space and have obsolete technology
- Inflexible configuration of the main data center does not allow expansion despite low floor density
- Data center electricity consumption is almost half of one percent of world production
- Average data center consumes energy equivalent to 25,000 households
- Worldwide energy consumption of Data Centers doubled between 2000 and 2006
- Incremental US demand for data center energy between now and 2010 is equivalent of 10 new power plants
- 90% of companies running large data centers need to build more power and cooling in the next 30 months
Data Center emissions will quadruple by 2020 matching the volume of air travel. The carbon footprint has begun to attract scrutiny and legislation (e.g., US Public Law 109-431 requires EPA to submit a report on energy consumption of data centers to US congress).
- The US EPA has advocated use of separate energy meters for large data centers and development of procurement standards.
- The European Union is developing a voluntary Code of Conduct for data centers proscribing energy efficiency best practices.
Data center carbon footprint is expected to affect even the industries that are traditionally considered clean (e.g., telecom, media, technology).