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 Co-lo/rack/yrServer Mgmt.VM Berkeley$3800 going to $5800 Yes ChicagoBased on faceplate KW No$600-1500 Michigan$3000 + elecNoYes MinnesotaYes Yes (“free”) MIT$4750$6000-12,000$2000-3500 NYUYes Princeton$2000$3500$2250 UT AustinSoon Wisconsin$3200$1000-2800 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.