From Colocation to Cloud: What You Need to Know

Over the course of the past few years I have had an increasing number of discussions with customers and prospects, who already have hosting infrastructure but are considering moving to a real IaaS solution based on a monthly subscription fee. In most cases these customers, who are often in the SaaS industry or offer professional IT services, are interested in moving from on premise or colocation to cloud (virtualized cloud solutions), usually a private cloud due to legal, security, or performance restrictions. The intention of this change is to reduce costs and free up time to focus on their core business.

Customers looking to make the move to the cloud usually either still have racks in the basement of their office, or infrastructure hosted in a data center where the customer rents one or more colocation racks. In both cases, it is possible to make a solid business case for the shift, even it means that the infrastructure needs to be moved from the office to a data center, or from one data center to another that offers hosted services.

To make a strategic move from colocation to cloud, it’s important to have a solid business case. What always surprises me is that the first version of the business case, often only accounts for the CAPEX of the hardware, the cost for rack space, and the cost for internet traffic. As I have learned from working with hundreds of companies, this isn’t enough. To draw up a fully developed business case you need to consider the following points:

• Cost of buying the equipment.
• Missed interest due to spending this money at the beginning of the 3 year period (unless your company is heavy on cash).
• Support costs from the hardware vendors.
• Cost of having spare equipment available (at least 1 of each piece of equipment, spares for all network equipment, as well as HDD, RAM and CPU’s, or an expensive support contract with your vendor for fast replacement).
• Cost of licenses (some software vendors offer different license schedules on owned hardware than on cloud offerings).
• Cost of IT staff who can monitor and maintain the equipment.
• 24/7 support costs for your IT staff, meaning that if you maintain the platform yourself, you need to have staff which can monitor the platform 24/7 and jump in once an emergency occurs. This translates into needing at least 3 employees in this pool which, if you don’t currently have, is a risk that you should monetize in the business case.
• Cost of training your IT staff on hosting technologies (e.g. VMware, Windows, or Cisco trainings).

To make these costs comparable to a monthly fee, they should be calculated back into a monthly cost. Normally I advise SaaS companies to make these calculations using a 3 year write off period. If you consider a longer write off period, it’s important to be honest with yourself, and think about whether hosting your current infrastructure on hardware that is older than 3 years will really offer the reliability, security, and performance you need. If the answer is yes, you can extend the write off period to 4 or maybe even 5 years.

The above costs can then be compared with a monthly fee that includes all of these costs and some additional onetime fees should be added as well:

• Costs that are customer specific, such as changing an ERP system to work with the private cloud or costs for new monitoring tools if the old monitoring system could only work within the same network.
• Cost for the migration from the current situation to the private cloud solution

The second of these, migration costs, is a difficult one to tackle, but is important to keep in mind and plan for accordingly as you consider moving from colocation to cloud. If your relocation requires you to move certain services to another data center you can consider two ways.

The first option is that you can virtualize all of your servers and afterwards move them one to one to the private cloud (in most cases an IP change is still needed, something which could create issues). However, there can be a complication. The write off period of your current equipment may not end at the same time. In this case, you either need to extend the support contract on older hardware or write off some of the equipment faster. Or you may end up managing two separated clouds, which is probably not an option.

The second option, which can help get around this complication, is to move all of your current infrastructure from your office or current data center to the new data center. If you choose this path, you should consider a big bang, so that everything can be accomplished in one or two heavy nights of relocating servers. In some data centers, it is possible to connect your current colocation rack(s) to your new private cloud. This method allows you to slowly move from colocation to cloud and, with a bit of luck, you might even be able to keep your current IP.

Any successful infrastructure change takes thought and preparation. These reflections based on my conversations with customers over the past few years are meant to help make the process easier by providing a realistic and comprehensive business case for making the move from colocation to cloud. Do you have your own story of moving from colocation to the cloud? Share it below.