Discussion on Financial Models for Shared IT Services

1. Discussion on Financial Models for Shared IT Services CSG 5/14/09 Notes by Jerry Grochow

2. Participating in the discussion… • Berkeley • Chicago • Michigan • Minnesota • MIT • NYU • Princeton • UT-Austin • Wisconsin

3. General considerations • We focused on data center hosting, but many considerations apply to a variety of shared services: • Cost model • Price model • Sustainability model (provided by a university vs. general non-profit vs. “for purpose” non-profit)

4. General financial model: Cost • Full cost • Costs charged to the IT organization • Costs to the university • Treatment of capital expenditures • Marginal (incremental) cost • Different for different volume increments • Different costs over different time frames

5. Components of data center “full cost” • Capital expenditures (depreciation and interest) • Rent • Renovation costs (d+i) • Infrastructure costs (d+i) • Power distribution • Cooling equipment or architecture • Generators and UPS • Utilities (electric, heat, cooling) • Network • To the facility, in the facility • Software licensing • Personnel

6. Factors affecting costs • Size/Volume • Construction costs go down with size • Purchasing power increases with volume • Economy of scale for other costs • Ability to hire talent • But what is the shape of the cost curve (how can we find out?) • Location (electric costs)

7. General financial model: Price • Seller wants to recover (some portion) “cost” (however defined) • Differential pricing based on time commitment • Buyer decision whether to subsidize local users • Issue on institutional decision making • Possibility of bartering as a way to pay • Government A110 issues

8. Price vs. cost issues: do we need to at least break-even? • Factor for both buyer and seller • Is some revenue better than no revenue? • What level of cost savings (if any) is necessary to attract buyers over DIY?

9. Financial model: Issues • How to deal with capital intensive services (services with big start-up costs) • How to sell the idea of shared services when not part of the “mission” • Way to recover some of our costs • Creating a separate entity to handle shared services • Attracting funding

10. Current services and prices • Numbers based on published prices; not “apples to apples” (needs more detailed analysis) • Full cost estimated (by NYU and MIT) at $24,000-30,000+/year

11. Discussion notes • Berkeley – • Sells all types of services • Each type of service is costed as a separate line of business • IT not paying for space, part electricity • Network costs not included • $8/U/month for raw rack (but will go up to $12 to eliminate subsidies • “Recharge committee” (university wide)

12. Discussion notes • Chicago – • New data center will charge Co-lo by “faceplate watt” x .8 as a proxy of intensity of usage = $.06/fpw/yr • But does not include electricity ($.08/KWH) • Doesn’t offer fully managed service • VM service for $600/yr with no management; $1500/yr managed • Not fully loaded costs

13. Discussion notes • Michigan – • 10K sq ft/4MW Tier 3 facility used for co-lo • User brings in rack and pays $3K/yr for using up to 4-6KW (which is charged directly via on-rack metering) and 1Gb network • Charged for space by Facilities Dept. which is included in rates (but doesn’t recover $18M construction cost) • Factors in PUE of facility is taken into account (currently 3 because facility only 30% full) • No server management service • VM service may be free to encourage people to move out of their current locations

14. Discussion notes • Minnesota – • Rack charge is direct cost of buying racks (no charge for facility) • Price list (subsidized) for additional services • No charge for space or power (but would pass through) • VM service is free to users • Total cost of IT allocated out to schools in overhead

15. MIT – • Co-lo service: $4750/yr/rack ($6K with some management) • Server management: “point system” yielding $6K-12K/year • VM service (similar to managed service but without hardware costs): $2-3K/yr

16. Discussion notes • NYU – • Similar to others • New data center will be fully costed • NYSERNet Center in Syracuse • Rack space $2K/month ($24K/yr) to recover cost of construction, including “standard amount” of electricity for 4-6KW rack

17. Discussion notes • Princeton – • $2k/yr/rack (rarely may go up based on ports) for raw racks • $3.5k/yr for server management (department pays network, backup, and hardware as additional charge) • VM “true cost” is $2250/yr bundled (but $1K/yr charged during startup period) • IT not charged for space and electric

18. Discussion notes • UT Austin – • Not yet offering co-lo but will in a year • Won’t charge people moving servers in from local computer rooms to encourage use • Almost all administrative services

19. Discussion notes • Wisconsin – • Managed service $3200/yr for “typical server” (not full rack) (buy your own hardware) • VM Managed $2800/yr (including mirror) • VM Unmanaged $1000/yr • Recharge for all services • Not including space, electricity, nor fringe benefits on staff but do include overhead for CIO office, etc.