Making the Right Choice: Data Center Colocation vs. Building Your Own Data Center

In today's data-driven business landscape, the decision to house IT infrastructure in a colocation facility or build a dedicated datacenter is crucial. Each option comes with its own set of benefits, challenges, and cost implications. This comprehensive article aims to assist you in selecting the best approach based on your organization's specific needs and goals.

Choosing the right option for datacenter services in India is crucial for businesses looking to establish a strong presence in the country. There are two main options to consider:

colocation and building your own datacenter.

Colocation can be ideal choice for startups, mid-sized businesses, or enterprises looking for a quick and cost-effective solution. It is particularly suitable for businesses focusing on Tier 1 cities, where proximity to users and global connectivity are essential.

On the other hand, building your own datacenter is best suited for large enterprises with predictable workloads, significant resources, and long-term plans to operate in India. This option is feasible in Tier 2/3 cities, where real estate and power costs are lower, and incentives are available.

When comparing Tier 1 and Tier 2 cities for datacenter colocation and building in India, several factors need to be taken into consideration. These include costs, connectivity, scalability, and government support.

In Tier 1 cities such as Mumbai, Bangalore, Chennai, Delhi NCR, and Hyderabad, colocation comes with higher leasing costs due to expensive real estate and operational expenses. Building your own datacenter in these cities also involves significantly higher land prices, labor costs, and utility expenses.

On the other hand, Tier 2 cities like Pune, Jaipur, Ahmedabad, Lucknow, Coimbatore, and Bhubaneswar offer cheaper options for colocation and building your own datacenter. While costs are lower in these cities, there may be fewer providers and facilities available, and investments in power and connectivity infrastructure may be necessary. in these cities, one of the major issues one can see is also availability of a Technical Support team (Hardware replacement) and also warehouse from OEM.

When weighing the options between datacenter colocation and constructing your own datacenter, there are several key factors to consider. Below is a detailed comparison:

1. Cost

Colocation in India: - CapEx: Lower upfront costs due to competitive pricing in the Indian market. - OpEx: Affordable colocation rates with flexible plans for power, racks, and bandwidth. Costs may vary between Tier 1 cities (Mumbai, Delhi) and Tier 2/3 cities. - Hidden Costs: Additional expenses for cross-connects and bandwidth.

Building Your Own in India: - CapEx: High costs for land acquisition, infrastructure development, and compliance requirements. Real estate prices in cities like Mumbai and Bangalore can be prohibitive. - OpEx: High power costs in India may necessitate investment in backup systems like diesel generators and UPS. Some states offer subsidies for green energy or data center investments.

2. Scalability

Colocation: - Rapid scalability is achievable as colocation providers expand aggressively in India (e.g., Mumbai, Hyderabad, Chennai). - Availability challenges may arise in Tier 1 markets due to high demand from cloud service providers.

Build Your Own: - Requires significant planning and capital for scaling, especially in areas with limited infrastructure. - Scalability is more straightforward in Tier 2/3 cities due to lower real estate costs and land availability.

3. Time to Market

When considering the time to market for your business in India, there are two main options to consider: colocation and building your infrastructure.

Colocation offers faster deployment as major providers such as ST Telemedia, Nxtra, CtrlS, and Yotta already have the necessary infrastructure. This makes it an ideal choice for businesses looking to enter the Indian market quickly.

On the other hand, building your own infrastructure can lead to significant delays due to regulatory approvals, land acquisition, and construction processes which are more complex in India. Additionally, infrastructure development such as power and fiber connectivity may take longer in Tier 2/3 areas.

4. Control

When it comes to control over your equipment and infrastructure in India, both colocation and building your own have their own advantages.

Colocation provides full control over equipment but less control over physical space and building-level security. However, providers in India are increasingly offering high levels of flexibility to cater to client-specific needs.

Building your own infrastructure gives you full control over your infrastructure, enabling customization for compliance with regulations such as GDPR and India’s Personal Data Protection Bill. However, maintenance and staffing become entirely your responsibility.

5. Reliability

Reliability is crucial when it comes to datacenters in India. Colocation providers offer robust Tier III or Tier IV datacenters with high redundancy in major markets such as Mumbai, Chennai, and Bangalore. This results in higher power reliability due to investments in backup systems.

On the other hand, ensuring high reliability when building your infrastructure requires significant investment in redundant systems due to power outages and unstable grid reliability in many regions of India.

6. Security

When it comes to security, colocation providers offer top-notch physical and network security features such as 24/7 monitoring, biometrics, and multi-layered access control. Indian providers are increasingly aligning with international standards like ISO 27001 and SOC2 to ensure the highest level of security for their clients.

Building your own security measures is an option, but it requires a significant investment and expertise to match the standards set by colocation providers.

7. Location

In terms of location, major hubs such as Mumbai, Chennai, Bangalore, and Hyderabad are preferred due to their connectivity, power availability, and submarine cable landing stations. Secondary cities like Pune and Noida are also experiencing growth in the datacenter industry.

Building in Tier 1 cities may come with high real estate costs, but it offers better network connectivity. On the other hand, Tier 2 and 3 cities provide cheaper land options but may require additional investment in fiber and power infrastructure.

8. Expertise

Colocation providers offer fully managed services and technical expertise, which is crucial given the shortage of experienced talent in India's datacenter industry.

On the other hand, hiring and retaining skilled staff for operations and maintenance can be challenging, especially outside Tier 1 cities.

9. Customization

When it comes to customization, colocation providers offer some flexibility within a shared infrastructure. They are willing to adapt to specific customer requirements, particularly for large enterprises.

Building your datacenter allows for full customization to meet compliance, performance, and energy efficiency needs.

10. Environmental Considerations

When considering colocation options, it is important to take into account environmental factors. Providers are increasingly focusing on energy-efficient cooling and renewable energy sources, often in partnership with state governments. By utilizing shared facilities, the carbon footprint per client can be reduced significantly.

If you choose to build your own datacenter, achieving energy efficiency will require a substantial upfront investment in technologies such as green cooling systems and solar power.

Why Choose India?

There are several reasons why India is a favourable location for datacenter operations:

• Regulatory Environment:-

India's Data Localization Laws require companies to store data within the country, leading to a higher demand for datacenter space. Some colocation providers offer services that help companies comply with these regulations.

• Government Incentives:

States like Uttar Pradesh, Telangana, and Maharashtra provide tax benefits and incentives for companies that build datacenters in their regions.

• Demand Growth:-

The rapid expansion of financial institutions, cloud computing, OTT platforms, and AI-driven applications has led to a significant increase in the demand for colocation services in India.

While building your own datacenter may align with long-term demand projections, it is crucial to carefully plan and consider all factors involved.

• ?Connectivity

In terms of connectivity, Tier 1 cities boast excellent fiber connectivity with multiple service providers. Cities like Mumbai and Chennai, with subsea cable landings, are ideal for businesses requiring low-latency international connectivity. Datacenter hubs in Tier 1 cities, with providers like NTT, Yotta, CtrlS, STT, Colt, Sify, and Nxtra, offer top-notch services and operations.

Tier 2 cities, in comparison to Tier 1 cities, have limited connectivity with fewer fiber providers and rely on backhaul connections to Tier 1 cities. They are suitable for domestic operations or as secondary datacenters for redundancy and disaster recovery purposes.

• Scalability

When it comes to scalability, Tier 1 cities offer abundant colocation options and large-scale facilities, making it easier to scale operations. However, some Tier 1 markets, such as Mumbai, face land and power constraints that can limit future expansion. On the other hand, Tier 2 cities have more land availability and lower costs, making scalability easier. These emerging markets are seeing increasing investments by providers like Sify and CtrlS.

• Time to Market

In terms of time to market, Tier 1 cities have ready-to-use infrastructure provided by colocation providers, ensuring quick deployment. Building a new datacenter in these cities can be time-intensive due to regulatory approvals and land acquisition complexities. In contrast, Tier 2 cities may have limited colocation options, causing delays if a suitable facility is not readily available. However, building in these cities is faster due to easier land acquisition and fewer bureaucratic hurdles in some regions.

• Reliability

When it comes to reliability, Tier 1 cities boast established power redundancy and better grid reliability, with a high density of Tier III and Tier IV-certified datacenters. In Tier 2 cities, power grid reliability can be an issue, necessitating investment in backup systems such as diesel generators and UPS. While there are fewer Tier III/IV facilities currently available in Tier 2 cities, this is improving with new investments.

• Security

In terms of security, Tier 1 cities offer colocation facilities with advanced physical and network security that align with global standards such as ISO 27001 and SOC2. There is a high demand for strong security in these cities due to regulatory requirements and client expectations. On the other hand, colocation providers in Tier 2 cities may not yet offer the same level of advanced security measures. Building your own data center in Tier

• Environmental Considerations:

In Tier 1 cities, there is a higher carbon footprint due to denser urban environments and increased cooling requirements. However, colocation providers in these cities are now adopting green cooling technologies and renewable energy sources to mitigate these environmental impacts.

On the other hand, Tier 2 cities have lower cooling costs due to favourable weather conditions in some regions. Due to cheaper land availability, there is also a greater scope for solar or wind power integration in these cities.

• Talent Availability:

In Tier 1 cities, it is easier to find skilled IT, network, and datacenter operations staff. However, higher salary expectations are common due to the high demand and competition for these professionals.

In Tier 2 cities, there is limited availability of highly skilled professionals, which may require training and recruitment efforts. Despite lower labor costs, there may be potential challenges in finding experienced talent. One needs to factor in the hardware replacement by OEM as the nearest warehouse would be crucial. Also availability of Technical resources from OEM.

Total Cost of Ownership (TCO) Analysis: Colocation vs. Building a DataCenter (Approx Cost)

Colocation Cost Estimate

When considering the costs associated with building a datacenter, there are two main factors to take into account: Capital Expenditure (CAPEX) and Operational Expenditure (OPEX).

Colocation Costs: - Rack Space Rental: ?30,000–?60,000 per rack per month. - Power Costs: To be determined based on usage. - Additional Fees (e.g., bandwidth, cross-connects, remote hands): ?2,000,000–?5,000,000 annually.

In comparing the Total Cost of Ownership between colocation and building a datacenter for 50 racks with 500 kVA power, it is essential to consider all associated expenses over a 5-year period. Colocation offers the convenience of rack space rental and additional services while building a datacenter involves upfront capital expenditure and ongoing operational costs.

Advantages of Colocation:

1. Lower upfront costs make colocation an attractive option for businesses looking to minimize initial expenses.

2. Faster deployment means companies can get up and running quickly without the delays associated with building out their own infrastructure.

3. Managed infrastructure, including cooling, security, and redundancy, provides peace of mind and ensures that critical systems are always up and running.

4. Colocation is ideal for organizations with short-term needs or uncertain scalability, allowing for flexibility as business requirements evolve.

Advantages of Building:

1. Long-term cost efficiency can be achieved when operating at full capacity, making building out your own infrastructure a smart investment in the long run.

2. Complete control over infrastructure, security, and compliance gives businesses the autonomy to tailor their setup to meet specific needs and requirements.

3. Building is suitable for organizations with predictable workloads and large-scale needs, providing the scalability and customization necessary for growth.

Break-Even Analysis: - Colocation is more cost-effective for a period of 5 years or less, making it a financially sound choice for businesses looking to minimize expenses in the short term. - Building out your own infrastructure starts to make financial sense in a 7-10 year horizon, assuming high utilization rates and long-term planning.

Tier 1 cities are best suited for enterprises requiring international connectivity, primary datacenters for critical workloads, and businesses needing low latency for end-users.

On the other hand, Tier 2 cities are ideal for disaster recovery (DR) and backup datacenters, domestic businesses focusing on cost savings, and emerging enterprises and startups serving local markets.

Note:- "The pricing provided is based on my current knowledge/expirence and understanding of the market. However, actual costs may vary depending on the specific service provider, their offerings, and the scope of services required."