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Ask an MSP ExpertQ: I’m recently opened my own MSP business and am trying to find ways to reduce costs. Is it beneficial to host my own data center? Or would it be cheaper for me to leverage a third-party cloud provider to host my customers’ data?

This is a good question to ask because there are a number of factors that go into hosting and managing your own data center. These are not always obvious and managed service providers need to consider them before making this decision. While there appear to be benefits to a direct hands-on approach, research from MSPmentor finds that most IT service providers have opted out of running their own data centers.

data centersOther MSPs we speak with are also curious about the cost-benefit analysis of taking on their own data center. So, when we got your question, we talked with Andrew Brearton, one of the account executives at Intronis MSP Solutions. In his conversations with MSPs, Andrew regularly discusses the positives and negatives associated with managing your own data center. Here are the three factors, listed in order of highest importance, that Andrew recommends keeping in mind when considering managing your own data center.

In Andrew’s words:

1. Time

Based on my conversations with MSPs, I’ve come to understand the value of time in their business operations. You’re already busy managing your staff and customers’ IT infrastructure, putting out fires, and working to win new business. There isn’t much time left to run your own data center.

When thinking about opening your own data center, you need to take into account the amount of time you’ll need to spend managing and maintaining the facility—and the data stored there. As the business owner, you wouldn’t be managing the day-to-day operations at the data center, so you’d need to hire more help or assign one of your technicians to the project. This person would need to oversee the hardware and ensure that all machines are running properly.

This will add up in terms of paying for that person’s salary or in lost hours where your technician could be performing billable activities for your customers, averaging about $75-$100/hour. In either instance, you will not be generating any revenue for your time, and I know that’s an important consideration.

2. Cost

Cost runs a close second to time when deciding whether or not to run your own data center. I often hear MSPs say “It will just be less expensive to manage it myself,” but they often haven’t factored in all the costs associated with running the facility.

While the initial server costs are well understood, there are a number of other components that will add up, such as bandwidth, electricity, racks etc.  Once your facility is running, and sooner than you might think, you will need to buy more hardware to meet your growing storage needs. You will need to project for data growth as part of your budget and financial planning process.

Over time you will have purchased more servers to service your growing customer base. At some point you will need to refresh that all of that hardware. For example, if you have bought 10 servers over a period of a 18 months, but then have to refresh all 10 at once, this can become a major capital expense reaching 10s of thousands of dollars. You’ll also need to account for the depreciation of those assets, or the reduction in the value of each asset over time as part of your long-term budget plans.

Next, think about the cost of additional backups for your customers’ data. How much is it going to cost you if you need to increase capacity for additional backup sets? Say you have a handful of customers with one to 10 terabytes of data each. Are you prepared to support this amount of data? Not to mention, is all the data mirrored to additional facilities for redundancy?

Keep in mind the other procedures you’ll need to implement to operate the data center. TechTarget lists the top ten data center handling procedures, which include needing to have an injury prevention program, staff to secure access to the facility, crisis management, engineering standards, and more.

MSPs might also consider taking advantage of the co-location market and moving their customer data to a shared facility to reduce their start-up costs. While this might seem like a viable option, you’ll still need to purchase your own equipment and maintain it yourself. Also, there might not be a data center close by, and in that case, you’ll need to account for the distance and time required to oversee the data center operations.

Lastly, given the issues with co-location services and the cost of hardware, MSPs might consider using a public cloud. I’ve heard an MSP say, “It’s no problem—I will just put my data in Amazon Web Services.” The problem with moving to AWS to store your customer data is that there’s a large monthly payment to use their cloud—one that will grow as you add more clients. While this will lower the upfront capital costs of setting up your data center, your monthly operating costs will scale over time and could create a significant drag on your operating cash flow.

For these reasons, many MSPs find it more cost effective to use a third-party cloud vendor to host their customers’ data. Even if you’re storing a small amount of data, it will still be less expensive to use a third-party cloud provider, who doesn’t charge for the cost of maintaining the data center.

3. Compliance

Another important factor to consider is the requirements of different compliance regulations. You’ll need to think about how much time and money you’ll need to spend to ensure that the stored data meets compliance standards. This includes hiring someone who’s an expert in compliance standards and the cost of going through an outsourced audit for compliance.

Be sure to factor in that many compliance regulations require that data is stored in a particular way and is secured using specific procedures. For example, HIPAA requires data to be encrypted at rest and in transit to the cloud. It also requires that SSL (Secure Socket Layer) procedures are used to grant web-access to the data. These requirements will vary by regulation.

Using a third-party cloud provider who is already compliant will eliminate the time, cost, and stress associated with meeting data storage compliance requirements. Using a cloud provider that is already compliant and satisfies the strict data storage compliance standards will make it far simpler to manage compliance overall.

We thank Andrew for his insights, hopefully his insights help you to make a decision regarding where to store your customer data. Ultimately, you’ll want to choose the scenario that meets the needs of your MSP business. As you evaluate the different options available to you, consider the time it will take your business to maintain the storage, the cost to your business, and the compliance requirements of your customers.

Ask an MSP Expert is a weekly advice column answering common questions from MSPs and IT service providers. It covers topics ranging from pricing and selling to marketing and communications—and everything in between.

Photo Credit: Arthur Caranata on Flickr. Used under CC 2.0 license. 


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Courtney Steinkrauss

Posted by Courtney Steinkrauss

Courtney is an Editorial Associate at Intronis. In her role, she assists in creating and publishing content that helps IT service providers grow their businesses.

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