Analyst Cal Braunstein and a New Lease on Your Business Life
Illustration by Peter and Maria Hoey
Q. What can a business do to gain a competitive advantage?
A. First, they can innovate—to drive new revenues, cut costs or just change the way they do things. But taking advantage of the latest technologies will also help.
“Over a 10-year period, storage density will increase by more than a thousandfold. What now sits on 1,250 racks of storage will fit on one rack. The power needed to drive that 1,250 is more than 16,000 kilowatts, but when it gets shrunk to the one rack, it’s 6 kilowatts. That’s an exponential scale gain. And what RFG uncovered was that 70 percent of those gains, because they’re exponential, occur within the first five years.”
I know we’re talking about servers, but IBM just did some research on the storage side that’s also true on the server side. Over a 10-year period, storage density will increase by more than a thousandfold. What now sits on 1,250 racks of storage will fit on one rack. The power needed to drive that 1,250 is more than 16,000 kilowatts, but when it gets shrunk to the one rack, it’s 6 kilowatts. That’s an exponential scale gain. And what RFG uncovered was that 70 percent of those gains, because they’re exponential, occur within the first five years.
When you’re sitting with equipment that’s five years old and you think you’re really doing well, think about that—16,000 watts down to 6 and 1,250 racks down to 1. The rate of change in technology continues to advance at a phenomenal rate. That’s how you can manage to keep cutting 10 percent out every year because there’s a percentage of your data center that you’re upgrading or should be upgrading on a continual basis to cut your costs. This is going to continue and there’s no upper limit yet in sight to say it’s going to stop.
Q. So it’s a “spend money to save money” proposition?
A. Right. What I find is a lot of people really don’t understand that. They don’t understand the rate of change and the impact to them, and they don’t understand that leasing can be less expensive than purchasing. A three-year lease is far better than a five-year purchase and hold. People don’t believe that because they haven’t done the analysis.
Q. Why is the three-year lease better than the five-year own?
A. If you’re doing a three-year lease, you can probably stay within the same footprint you have today or shrink that footprint, whereas the own approach is definitely a scale-out. You’re constantly growing and it’s costing you more in people, in power, in square footage, in software licenses. It’s just totally more expensive across the board.
Q. So you’re talking about growing vertically versus growing horizontally?
A. That’s exactly where this is true, because if I’m on a lease when three years are up, I’m going to replace the old equipment with the new equipment. If there’s a 30 percent price differential occurring every year, after three years you can shrink your footprint because it’s more dense—and it will reduce the power costs. When you have more on a server, you need fewer servers, fewer people, fewer licenses, less power costs and floor space. It’s far more economical, and you just keep upgrading.
When I do the TCO models, you see the growth differential. If you do a purchase, you might see 20 boxes grow to 40 boxes over five years; whereas if you lease, you might see 20 boxes grow to 24 boxes—minor growth. It’s going to depend on what type of equipment we’re talking about, but the growth is going to be far less if you’re scaling vertically than if you are growing horizontally, and the costs are going to be much less when you do that than if you just continue to purchase.
Q. What’s the best way to manage growth requirements?
A. Growth is a constant. We’re seeing in most companies server growth tends to be in the 20 percent range. Storage growth tends to be greater than that, in the 30 percent and sometimes 40 percent range. Now that people are getting into other areas like big data and analytics, it just increases the demands.
The best thing you can do to manage the growth is to take advantage of the latest technology and upgrade at the earliest possible time. We believe that the 36- to 40-month range is the best time to turn over your hardware. That way you get optimal use out of it in production and then rotate it out and get better equipment in.
If you do that, you can get a 10 to 30 percent savings over your systems as you go across time. Not only will you get the savings, it will also improve availability, reliability, flexibility and scalability, as well as all of the gains in productivity, lower risk and improved utilization. There are a lot of advantages as to why you would want to do it, but it does take an understanding of financials and an ability to do asset management.