Posts Tagged 'Outsourcing'

October 27, 2010

Oh No CoLo, Go Go Godzilla (Apologies to Blue Oyster Cult)

A traditional Co-location has certain advantages and for some customers it makes a great deal of sense. At least it does at first blush. Take a look:

  • Colo is cheaper than doing it yourself as physical infrastructure costs are shared across a number of customers.
  • The hardware is yours, not the co-location company’s. This means you can scale in the manner you please versus what suits the business model of the co-location company. The potential downside is that this assumes you were smart enough to pre-buy the space to grow into…
  • The software is yours, too. You are not limited to the management suite provided by the co-location company. Use what you wish.
  • Colo centers are usually more robust than a typical business environment. They deploy more physical security in an environment that is designed to properly manage power (multiple generators on-site for example) and the risks associated with fire and other natural disasters.
  • Upgrade paths are determined by you versus the hosting provider.

But what about the cost side of the equation? What does that look like? It goes without saying that it is (usually) cheaper to use a provider like SoftLayer to host your gear, but by how much? We have built a relatively simple model to get at some of these answers.

Assumptions:

  • A mix of 75 small servers (Xeon 5503, 2 GB RAM, 250 GB SATA) and 75 large servers (Xeon 5520, 3 GB RAM, 250 GB SATA)
  • Colo pricing was based on $100 per U per month, or $2,500 per 40U rack per month cost. Colo capex assumed the same base configuration but at current market prices.
  • We assumed a $199 price point for SoftLayer’s small servers and $359 for large servers
  • Bandwidth consumption of 2500 GB per server per month (this is about 50% of what we see in house). A price of $50 per Mbps was used.
  • A refresh schedule of 50% at 36 months, 25% at 48 months and 25% at 60 months

So what do the numbers tell us? Well, I think it paints a pretty compelling picture for SoftLayer. The 60 month Total Cash Outlay (TCO) for Colocation is 131% of the SoftLayer cost.

Total Cash Outlay

  Collocation Softlayer
Initial Capital Expenditure (Cash Outlay) $341,700 $0
Monthly Recurring Charges $64,778 $60,450
60 Month TCO $4,740,917 $3,627,000

In addition to the total cash outlay, we can add in a bunch of additional “hassle costs” – the hassle of driving to the DC in the middle of the night for an emergency, the hassle of doing your own software patching, setting up your own monitoring, waiting on hardware delivery (and you are not going to be first in line given your volumes are likely to be low compared to SoftLayer), the hassle of booking assets to the balance sheet, depreciation entries, salvage accounting entries, actual equipment disposal, downtime while you perform upgrades – ugh, the list is almost endless.

The argument for a SoftLayer solution is pretty strong based on the numbers alone. And I think that they ought to be persuasive enough for most to rethink a colocation decision. That said colocation decisions are not made from a cost perspective alone.

For example:

  • Issues around data integrity and security often drive companies to adopt a corporate philosophy that dictates co-location (or an on premise solution) over an outsourced solution. There is a deemed corporate need to have data / applications running over their own iron. Indeed, for many, colocation represents a significant and progressive decision.
  • Many companies have infrastructure in place and a decision will not be made to veer from the current solution until a technology refresh is in order. Never mind that fact that a transition to an outsourced solution (and this is the case when lots of things are outsourced, not just infrastructure) can generate significant internal anxiety.

Many outsourcing adoption models seem to show a similar trend. To a degree much of this becomes a market evolution consideration.

  1. Adoption is very slow to start. Companies do not understand the new model and as a result do not trust vendor promises of cost savings and service delivery. To be fair to customers, service delivery for many solutions is poor at the beginning and cost savings often disappear as a result.
  2. The vendor population responds to initial concerns regarding service delivery and perceptions around cost savings. Innovation drives significant improvements from a product and service delivery perspective. The solution now seems more viable and adoption picks up.
  3. For some services (payroll is a good example), the cost savings of outsourcing the solution are realized across the marketplace with excellent service delivery and support being commonplace. We are close to mass market adoption, but some companies will opt to keep things in house regardless.

So where are we on the evolutionary curve? That is a difficult question to answer as there are numerous things to consider dependent upon where you want to look.

For most SMBs, outsourcing functions like HR/Payroll or their IT infrastructure is a no brainer – capital is not as readily available and existing staff is likely overburdened making sure everything else works. At the end of the day, the desire is to focus on running their business, not the technology that enables it. The decision is relatively easy to make.

As we go further up the food chain, the decision matrix gets infinitely more complex driven by an increase in geographic reach (local – national – international), an increase in the complexity of requirements, an increase in the number (and complexity) of systems being used and typically large IT organization that can be a terrific driving (or drowning?) force in the organization. The end result is that decisions to outsource anything are not easy to reach. Outsourcing occurs in pockets and SoftLayer certainly sees some of this where enterprise customers use us for a few things versus everything.

At the end of the day, the hosting market will continue to be multifaceted. All businesses are not alike and different needs (real or otherwise) will drive different business decisions. While I believe colocation will remain a viable solution, I believe that it will be less important in the future. The advantages presented by companies like SoftLayer only get more powerful over time, and we are going to be ready.

-Mike

September 8, 2008

Meat SoftLayer

It has been a bit since I last “bloghogged” so I figured it was time to see what I could come up with. There is just so much going on in the world that I am not sure I can control myself and keep my blog on topic. You have all seen it in the past where I go from topic to topic and then finally wrap it all up with nonsense in the end. I can only assume this one will be the same.

My choices are the Olympics and how they turned out, politics, servers, outsourcing of course, customer service, 4-year old flag football, or meat. It is a tough choice but I think this one just has to be about meat.

The SoftLayer corporate offices are really close, I dare say too close, to a little place called Rafain. Warning, if you click the link you will get hungry. In case you haven’t ever been to a Brazilian Steakhouse (Churrascaria) then you might want to consider finding one close to you and giving it a shot. It is servers, the human ones, walking around with 7 to 15 types of grilled meat on long metal skewers holding big sharp knives. They slice the meat of your choice off and it lands on your plate. It’s the point and click of steakhouses. Instant steakification! You can of course choose to eat fillers along the way starting with salad, or great little cheese rolls and you are also offered mashed potatoes and fried bananas. Some people eat that stuff but I go straight for the money meat. Beef! Lots of beef. There is Spicy Beef, Garlic Beef, Top Sirloin, Flank, and the house special. They are always hot and fresh off the grill. They have other meats like chicken, pork, leg of lamb, and sausage but you can get those anywhere. As our CEO would say, “If a meat is low fat by design, there is no point in eating it!”

How is the service you ask? Amazing. You have a small card that is red on one side and green on the other. If you have it on the green side they will keep offering you meat until you explode or you get smart and turn the card to red. Red means, “I am taking a small break in the action but far from done!” The real fun is when they bring you a clean plate and you suddenly forget that you are about to fall out of your chair and need assistance to get back in it and start all over and eat more.

Here is where the stretch begins. How am I going to tie this into SoftLayer and outsourcing and why we are the best at what we do? Well, I’m not. This blog is simply about Meat.

Ok, last funny story. A few of the crew here at SoftLayer worked together back in the early 90’s, general ISP technical support stuff. We worked long shifts and usually ate at our desks. We would occasionally sneak out and go to a local Chinese Buffet but we were on a serious time crunch. We could eat 4 or 5 plates of food in 10 minutes easily. We came up with a term we still use today, CPM (Calories Per Minute). We had fun little sayings like, “The CPM’s were very high that day my friend” (thanks Seinfeld!) and many others like it. I can only assume that the Chinese buffet, as far as calories are concerned, would still beat out “instant steakification” on the CPM scale, but I can assure you we would need a couple of SoftLayer servers and some serious Excel equations to figure out the numbers.

Eat less Chicken!

-Skinman

Categories: 
June 10, 2008

Have to Be Technical to Outsource? Nah!

I know what you're thinking; here I go again talking about why you HAVE to outsource your datacenter and infrastructure. Not this time. In previous blogs I have talked about doctors and baseball players, etc and the ways they outsource. It hit me that everyone most likely does some sort of outsourcing every day and it is just part of our evolving society.

Think about how fast things changed from Y2K until now. So much technology; the way we listen to music, HDTV, BluRay, Hydrogen, Electric, and Hybrid automobiles, the green movement. Change is everywhere. If you look back to 1900 or even the 1950's changes were much slower and they weren't nearly as life-changing. A change to someone's daily routine back then wasn't a life changing stressful event like it can be now.

So how do we cope with all these fast changes today? Some form of outsourcing. Think about it, even going out to eat is outsourcing. Some of my single friends have never even used the kitchen equipment in their homes. They outsource their kitchens! Most use the fridge to keep the adult beverages cold but that is to drink with the Papa John's pizza they have delivered.

Ok, so now for the real reason this blog fell out of my head. I was talking to my mom yesterday and she was talking about quilting. She is a quilting nut. My whole house is buried in quilts. My wife loves them. I am pretty sure my brother's house has quite a few as well. We have a wedding quilt with pics of the wedding and signatures and quotes from people that were at the wedding. We have a "charm" quilt with 1020 or so different fabrics in it including fabric from my favorite shirt (at that time). We have too many quilts to name and I don't know what about half of them are called really. They all have "quilty" names.

So for those of you who don't know a whole lot about quilting (and I don't either) there are machine quilted quilts and there are hand quilted quilts. Machine quilted quilts are faster to finish but aren't worth as much money and can stand the test of time better. Hand quilted quilts take much longer to finish and can't stand up to as much punishment but are worth more money in the long run.

So, I have always wondered how my mom can bust out all these quilts so fast. The ones that are machine quilted always made sense. She can make them faster and they are tougher. But she gives us several that are handmade and I could never figure out where she got all this free time. I mean she is retired and sleeps till like 11am! Anyway, to make a good quilt you have to go search for all the right fabric, sew the top all together, then the bottom, and then quilt it all up nice and pretty - like toilet paper really. Batting on the inside makes it fluffy.

It takes time to do all those things and she just keeps on making them at blazing speed. So I finally figured it out yesterday when on the phone with her she mentioned she dropped 3 quilts off to be quilted. It didn't even faze me at first and then it hit me, she is cheating! I said, "You did what with the quilts?" So I learned yesterday that some of my quilts I thought my mom hand quilted, were finished by people I don't even know! I guess outsourcing is even to the point where grannies can do it to trick their grandkids! Where will it all stop!

In this fast moving age, it probably won't so don't miss the outsourcing train; it can save you some time - time you can spend with your family making quilts if you choose.

-Skinman

P.S. I wonder if I set the record for using the letter "Q" the most times in a single blog?

Categories: 
May 2, 2008

Outsource IT – The Numbers Back it Up

With Skinman blogging about outsourcing (here, here, and here) along with Michael Miller blogging about the ease of leasing vs. buying, I had to jump in to say that the numbers show that their thinking is right on track.

Using database driving financial modeling software, I modeled a small internet-based business doing their IT infrastructure in-house versus using SoftLayer to handle the infrastructure for them. The benefits of using SoftLayer are eye-popping.

Here are the basic assumptions of the mythical company. There are 8 employees, 2 of which are founders who took out second mortgages on their houses to launch the business. First year sales are about $1.5 million. Business needs require 12 servers in two different geographic locations, housed in climate controlled rooms. Pricing out the servers and networking gear on Dell and eBay worked out to $71,509. This gear was financed with part of the proceeds from the second mortgages, booked to the balance sheet and depreciated. After three years, it was disposed of and upgraded with new gear costing $125,000.

Using SoftLayer changes several of these assumptions. By letting SoftLayer handle infrastructure, one less employee was required. There was no capital outlay for the needed 12 servers and networking gear. SoftLayer got the servers running in a couple of hours with no setup fees for a manageable monthly charge. This allowed less debt to start the business, and there were no long term contracts with SoftLayer if the business idea didn’t work out. There was no need to book the assets to the balance sheet, depreciate them, and upgrading them after three years involved a simple phone call so SoftLayer. No disposing of old gear or balance sheet write offs were necessary.

Consequently, this improved all the most important financial statement measures besides revenue, which remained the same in each scenario. Gross profit, EBITDA, EBIT, and Net Income all improved dramatically from using SoftLayer. Balance sheet credit worthiness, measured by things like equity and the Current Ratio among other things, dramatically improve. Finally, cash balances and cash flow almost double by using SoftLayer. Just compare the highlighted fields in this spreadsheet.

As they say, “your mileage may vary.” But odds are that you can significantly improve your financial performance by using SoftLayer to eliminate operating costs, depreciation, debt financing, and upgrade logistics related to your IT infrastructure needs.

-Gary

February 8, 2008

Outsource It: Part II

Wow, I like all of this feedback guys! Really! I had been chewing on that blog for a while. I was basically trying to decide how to write it and apparently the format worked and got some juices flowing on our forums. I was going to post this on the Forums but I think it is a bit too long and isn't using the forums standards. So here is my follow up to TheRabbit in Blog format.

A bit about me; I am an old guy (shh don't tell the guys I play Racquetball with) and I have been in LOTS of different companies of various sizes and types of business. Back when the internet was young and dial-up was the name of the game, I played in that field. In fact, I see a lot of familiar faces here every day. They all stayed in that field and honed their skills and are the guts behind SoftLayer today.

I went out into the world to see what it was all about. I decided I wanted to be technical and since I was a Windows guy it would have to be Microsoft. So I took the tests and got my MCSE and then worked for Alliance Data Systems, a Cargo Airline, A college in Dallas, Cement Company, and a small Outsourced IT company, then I met back up with these guys and here I sit.

So I used some of my experiences with all of those places to write the last blog. Here are a few of those experiences so you can see where it came from.

Alliance Data Systems had great DC's and lots of cash, they didn't need to outsource because they spent the money to do things correctly and had their own raised floor DC's and connectivity, etc. It was a cool place to work and I learned quite a bit. They did things right.

Cargo Airline - Well they tried. We built out a new office building at the airport and we had an office with no carpet, and extra cooling for our server "room". We had some old boat anchor HP equipment and a single IBM server for the JD Edwards accounting box and boy was it slow. We were using Windows 2000 with AD and DHCP to hand out IP's. Funny story, we merged with a really "smart" software company and part of the merger was that the powers from that company got the reigns and could run our IS department. Maybe they are reading this... (evil grin) - So the first thing they did was pulled DHCP out of the mix and went all static IP's because they were easier to track. "You can just enter them in a spreadsheet!" I was told. "Then you know that a 10.x.1.x is accounting, and a 10.x.2.x is sales, etc, etc." I still laugh about that decision today. Ok, back to the real subject. This company didn't spend the kind of money needed to have a good core of systems, and network and therefore the applications suffered. Most of the apps they wrote or used were Web apps and could have been housed in an outsourced facility.

College in Dallas - Believe it or not, the college had some pretty cool DC's on the Campus. They were secure and if I forgot my jacket I froze my butt off. They used Compaq 1u's like sliced bread. Server after server for student access, student records and it was all Citrix apps that students and faculty could connect to. To me it SCREAMED outsource. Think of the electric bills they paid to freeze my butt off, think of the purchasing department that had to buy all those machines. Think of how much they paid me to un-box those servers and rack them, and cable them, and install the OS from CD, and install Citrix and the apps. Then the accounting department had to track them and make sure they were paid for and depreciate them. Granted, even if they outsourced them the purchasing group still has to order them online and the accounting department has to give us a Visa but that is the extent of it. We have Truck days of joy and do all the manual labor for you and we automate the OS install. Then it is just down to the Tech installing Citrix and the apps from the comfort of his desk remotely.

Cement Company, one of my favorite places to work. I was in charge of the Citrix farm, Exchange and RightFax. Oh what fun. They had over 40 home built apps that ran on Citrix. We had 3 DC's, Dallas, Midlothian, and Virginia. They were Top of the line! If you were a rat and liked chewing through cables and you are into Liebert cooling systems from the early 60's! Ok, it might not have been the 60's but they were old. The DC in Midlothian was the best. We finally boarded up the windows facing west because we figured a lot of the extra heat was due to the Texas sun baking them. Ok, funny story #2. While un-boxing and racking a few Dell 1U servers (again they paid me a pretty good salary for my Citrix and Exchange skills, and here I am un-boxing and racking again) my helper decided that it was time to drop test a Dell. I was behind the rack and there was really nothing I could do except watch this brand new Dell server go crashing to the floor from above his head. After reseeding all the cards, CPU, and memory, we crossed our fingers and it fired up. It was a bit warped and bent but we strategically jammed it in between 2 straight servers and it took some of the flex out of the bent box and it worked great, might even still be working today. As you can tell some outsourcing by them would be good as well; Even if it is just the Development and test systems. We lined up like ants at a sugar sack begging for servers for Dev and Test but they were NEVER in the budget. Another great point I think, Capital Expense vs Monthly Expense. For a huge company it is MUCH easier to get them to sign off on a monthly expense.

Outsourced IT - Here is the one that wins it all. My job was to go around Dallas to small and medium sized businesses and be their IT guy. My main focus of course was Citrix and Exchange but you just never knew what you were going to walk in on. One plumbing company had their servers in a barn. An auto parts supplier had theirs in the back of a storage building behind the restroom. Use your imagination. But the ones that got me the most were Doctors offices. Broom Closets, Office Managers offices, just in the hall out in the open, you name it and I saw servers there. Most of the offices already had a T1 in place so connectivity wasn't the real issue. An interesting point is that I always had to sign a Hipaa form to be legal to work on the systems. It amazed me that these systems were so accessible to anyone that might have had access to the office. I wonder if the maid service had to sign Hipaa forms since the servers were right in the open. Sometimes right behind the trash cans. 90% of the medical software I came in contact with was WEB software which is easily outsourceable. And the number 1 complaint I heard from office managers and Doctors was, "I want to connect from home. Can you help me?" So of course we would setup remote access. But it never failed. During Storms they would lose power or connectivity. Or the building power would drop for construction, or a car would hit a pole. There were always issues. I swayed a few high tech Docs to finally consider and try outsourcing and they loved it. A few even use thin clients in the office now and everything happens in a DC. They love it.

I still say that no matter what size business you have OUTSOURCE IT! Maybe not all of it, but for DEV and Test, a hot site AD controller, Web App Servers, Giant DB Servers that live behind those web app servers, Web Farms...etc be the ball and give it a try. We won't argue!

-Skinman

February 1, 2008

I Outsourced It

Have you ever wanted to tell your CIO that? His response might be, "you outsourced what?? You respond, "it!" With a perplexed look he asks again, "You outsourced what, it?" Again you respond with, "All of it." His reaction at that point could go either way. In most CIO type heads today, they can't grasp the savings associated with outsourcing and even the ones that DO understand would then have to go to the CEOs office and inform him or her that all of the company's valuable data will now be housed in a safe and secure facility off-site on dedicated servers... or "Hosted IT" even. Stop reading and go tell your CEO that right now. I'll wait...go ahead.

Ok, I see that you are back, are you still employed? We are hiring if you need a new job resumes@softlayer.com

Ok, really, how do you think that conversation would go? I have had that same conversation with ex-bosses and owners of small and medium sized businesses in the past and most of the time they don't go very well. Granted they were a few years ago so hopefully times are changing.

I have been told a few times, "no, I don't want to pay $300 per month for a server we don't own and put my data on it! That is ridiculous, just go buy me a new $3,500 server and we will put it in our local Datacenter, Server Room, Broom Closet, Bathroom, Office Managers office..." well you get my drift.

"But Sir, with this outsourced server we could easily have off-site backups, more processing power, some cool redundancy and it will not annoy everyone in the office with the loud fans and heat generation. And when we have a power outage in the office and everyone goes home for the day, they will be able to work from home because the server will still be online. Oh yeah, and our company website and email will still be functioning as well."

"Are you insane? Those challenges are so easy to overcome. We will simply add a small air conditioner to the broom closet and buy a big UPS system that will keep the server alive in the event of another power outage, and we can hire a service to come by every morning to pick up tapes and deliver them to an offsite bunker. Instead of a single connection to the internet we can buy two and have redundant connections also."

"Sir, I am no accountant, but by the time you pay someone to keep up with the depreciation of a new server, buy and install a small A/C unit and UPS unit, pay for a 2nd internet connection that will sit idle and pay a service to DRIVE here daily I really think the outsourced server would be cheaper. Not to mention in the event of data loss we could get the data restored to the server much quicker than waiting on a service to physically bring it to us." An interesting note here is, I don't care what kind of offsite data bunker you have, the Monster in Cloverfield IS going to destroy it so think multiple copies of data in multiple cities!

"Well I have made my decision; we will not be outsourcing my very valuable data - Hackers might get it, it is more secure here, so leave my office. Before you go could you please try to get my printer working again, and I am getting this annoying pop-up about spyware and it seems that my ITunes files have lost their license and I used to have a folder called Docs on my desktop with everyone's salary in it that is missing and my PDA will not sync...(zzzzzzz) -- OUTSOURCE IT!

-Skinman

Subscribe to outsourcing