The Outsourcing Continuum, Part III - Co-location Managed

By Mike Scheuerman

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This category of outsourcing adds “ping, power, & pipe” services to the in-house managed model. The service provider offers co location by providing space, power and a link to the Internet for their customers' servers. They do not perform maintenance or troubleshooting. The only provide a rack to house the servers and a repetitive test to make sure the servers are running. The customer will be notified if the server fails. Known as a "ping-power-pipe" arrangement, "ping" means sending a packet to the server to see if it responds, "power" is electricity, and "pipe" is the line to the Internet.

In this model, you own the equipment but the physical environment it sits in is owned and operated by the service provider. You don’t have staff of hardware engineers and you don’t have a computer room to manage or pay for. The advantage is you will be more likely to have a robust physical facility with multiple sources of communication and power. That will help ensure that your systems are available in the event of a disaster. The downside is that you won’t have quick, physical access to the machines.

You’re also paying for the physical plant so it will be more costly that having the machines on-site. However the odds are you won’t have the same level of physical security and reliability on-site so you have to weigh that risk against the cost of a better environment. You’ll still have the cost of owning and maintaining the equipment. You’ll also have to pay, as in the in-house model, for expertise to manage your systems.

What You Should Get

With co-location server you get the security of having your servers sitting in a hardened data center in the event of a disaster. In this model you are paying for several items:

Each of these items has numerous options that you’ll have to sort through to get the appropriate configuration.

Racks - Rack space is measured in 1.75 in high Rack Units (RU or U). The height of your equipment determines the amount of rack space you’ll need. A typical rack will hold 40U, so if you have 6 servers each 2U high, then you’ll probably need at least a third of a rack.

Connectivity - Connectivity to your network and to the Internet is what’s needed to make sure that you can communicate with your servers. These connections will come in a variety of bandwidths ranging from the equivalent of DSL speeds up to the highest speeds available. You will have to decide what amount of data you are going to move between your office and the servers to determine how much bandwidth you need to pay for. If you have heavy traffic to a server based application then you’ll want to have more data bandwidth available on that side of the equation. The same is true of the Internet connection: if you have a lot of data coming in from the Internet (such as an ecommerce application), then you’ll want more bandwidth to accommodate that.

If you’re just doing normal office Internet surfing you’ll probably need less Internet bandwidth. You should purchase the amount of bandwidth that you use on an average basis. There will be a surcharge for using more than that, but that can be mitigated by making sure that the surcharge is based on a 95% measurement of sustained usage. If you push a lot of data to your servers occasionally, that won’t cost anything extra.

Power - The power in the data center should be backed up by an uninterruptible power supply (UPS) to ensure that in the event of a power outage, the equipment will continue to run long enough to enable a clean shutdown. Additionally, you’ll want to make sure that the data center has a generator available to provide power in the event of an extended power outage.

You should also check on the fuel resupply contract that the data center operator has for their generator(s). You’ll want a fuel resupply contract that ensures the generator will continue to operate over several days just in case the "ice storm of the century" takes out the power lines.

Communications - Communications between your office and the data center are crucial to a successful outsourcing project. You will want to make sure that the data center has multiple carriers supplying communications. The data center should have very large bandwidth data lines coming in from those carriers, again to make sure that you don’t have a bottleneck communicating with your servers.

You’ll also want to know that those communication lines come into the data center from different directions (just in case a backhoe breaks a line). The data center won’t commit to a response time minimum between your office and the data center since they can’t control all the active elements of the network. However, once the data has reached the data center you should have a committed minimum latency within the data center to ensure that slow response is not the data center’s fault.

Service Level Agreement

The scope of services covered by under the SLA should include the following:

Bandwidth Availability Commitment:

Latency Commitment:

What You Won’t Get

You’ll have to buy the hardware and pay for the installation and maintenance. You have to buy the operating system software and any applications you want to use. You’ll have to make sure that you have someone on staff that has responsibility for managing the relationship with your service provider and making sure that you get what you’re paying for. You will also have to have someone managing and maintaining the systems. This could be your own staff or you could combine this model with the in-house managed model to have a third party manage the servers.

You’ll be responsible for making sure that the backups of your data and systems are done regularly. Somebody will have to put the tapes in the tape drive and rotate them to off-site storage. You will have to develop, maintain and test a Business Continuity Plan.


The costs for this kind of outsourcing are usually based on physical space that you occupy in the data center and the communications bandwidth you need plus any extras you might want. For example, if you have six servers running general applications and moderate bandwidth needs, your costs might look like those in the following table:

This is probably less than the annual cost for a rack, power and the air conditioner and communications costs from a local carrier. You get more value for your dollars because you can be assured that your systems are sitting in an environment that is better protected than in your office.

With co-location outsourcing, there is still the issue of managing the applications. You can have your IT staff do that or you could outsource that, as well. One thing they won’t be doing is maintaining the power plant.

In the next article, we’ll examine more of the details of the fully managed outsourcing model.

Mike Scheuerman is an independent consultant with more than 26 years experience in strategic business planning and implementation. His experience from the computer room to the boardroom provides a broad spectrum view of how technology can be integrated with and contributes significantly to business strategy. Mike can be reached at mike@scheuerman.org.