Your next data centre: Colocate or build your own?

Purpose-built data centres, such as hyperscale or enterprise data centres, are facilities that are designed and built to meet the needs of one business, such as one providing enterprise colocation services. That same business will usually also own and manage the data centre.

Hyperscale and enterprise data centres represent a significant investment, but they also provide a business with a highly valuable asset that can meet its precise computing requirements.

As such, they are often a good option for IT-focused businesses that anticipate expanding their capabilities into power-intensive workloads such as AI or Web 3 services. Purpose-built data centres may also be a sensible option for businesses that handle highly sensitive and confidential data for specific clients who demand privacy or higher levels of security.

According to the Independent Data Council (IDC), a hyperscale data centre must contain at least 5,000 servers and occupy at least 10,000 square feet of physical space. Most new hyperscalers will plan facilities that can scale up to 100 to 300 megawatts of energy, representing data processing, cloud, AI inference and storage on an enormous scale.

• Capable of meeting more complex and power-intensive computing requirements, such as those of artificial intelligence (AI), cloud-based computing, and software-as-a-service (SaaS).
• Greater control over the design, infrastructure and functionality of the data centre. This makes it easier for the business to specify elements that will allow it to differentiate itself from the competition.
• Supports a business’s sustainability efforts, as it is easier to design new-build data centres to meet the needs of energy efficient cooling methods, such as liquid cooling.
• Greater privacy and data protection, as the business has sole control over who can access the facility and its servers.
• Allows businesses to customise their networks and benefit from economies of scale.

• Significant up-front costs. Constructing a data centre, particularly a hyperscale data centre, can cost upwards of $1bn.
• Complex installation process that frequently requires the company to liaise with local communities, governments, and power suppliers. This can be more complicated where a business chooses to develop a data centre outside of its home jurisdiction.
• Ongoing cost and resource required to maintain, monitor, and operate the data centre. The business must also agree contracts with third parties to support these activities.
• Technology changes in design, cooling and power, such as use of microgrids.

Colocation is when a business rents space – usually cabinets and cages – from a hyperscale data centre.

As a tenant, the business does not have control over the overall management and operation of the data centre. As such, it will not be able to specify elements such as cooling methods or energy sources.

The business, however, will be able to experiment with and customise the deployment and connections of its servers within the leased cabinets and cages. 

Colocation is often the best option for businesses that are outgrowing server rooms and edge data centres, but whose footprint is not large enough to justify investment into a purpose-built data centre.

• A highly flexible option. Leases or licence agreements usually last from one to three years, making it relatively easy to increase or decrease the amount of leased space as a business’s requirements change.
• Requires less resource to manage. The hyperscaler that owns the data centre is responsible for the facility’s overall functionality, including its cooling systems, power connections, maintenance, and disaster recovery. This allows businesses to benefit from the capacity and capability of a data centre, without having to dedicate significant time and resource to manage it.
• Less up-front cost. Colocation will require significantly less up-front cost as the facility is already developed and running. Costs will usually be confined to those stipulated in the lease or licence agreement.

• Not a long-term solution for large businesses with increasingly complex and power-intensive computing requirements.
• Less security. More than 20 different organisations can share the same facility, making it a less ideal solution for businesses or organisations that handle confidential or highly sensitive data.
• Greater reliance on the hyperscaler for the data centre’s functionality. This includes vital elements such as reducing downtime or preventing power outages.

Whether a business chooses to colocate or start the process of developing a data centre facility, it must ensure that it allocates sufficient time, money, and resource to managing the highly complex process of leasing or constructing data centre facilities.

To develop a data centre, for example, a business must ensure that it:

• sources suitable land;
• crafts the correct agreements with landowners and utility providers;
• appoints, and develops robust agreements with, local contractors and consultants; and
• secures the right financing options, such as shareholder loan agreements and equity investments, plus appropriate debt funding.

This list is far from exhaustive, with each element requiring specialist advice to secure the best possible result.

Businesses that choose to colocate will also need to perform extensive due diligence to ensure that they meet their requirements in terms of ongoing costs, flexibility, IT loads, and sustainability. Again, this will require specialist advice to secure the most advantageous contract between hyperscaler and tenant.

Our team provides advice and support on all aspects of a data centre’s lifecycle, meaning there is no need to switch between different legal and professional advisers when starting a colocation or data centre development project.

As IT loads continue to increase, it is important that businesses explore their current and future needs now to ensure that they are as ready as possible when the time comes to take the next step.