The horror of on-premise data centres

Written By

Duncan Clubb
Head of Digital Infrastructure Advisory



Duncan Clubb, head of digital infrastructure advisory at CBRE asks are you paying 800 per cent over market and killing your sustainability objectives?

The cost of maintaining their own data centres can be a scary revelation for most companies. Most organisations have a hybrid cloud strategy, using a mix of cloud services and normal data centres to host and deliver their systems.  For those systems that need to remain in traditional data centres, it is still the case that the majority are hosted ‘on-prem’ – in facilities owned and managed by the organisation itself, often in mixed-use HQ buildings. 

However, for all but a few exceptional circumstances, on-prem data centres usually offer terrifyingly bad financial and operational performance compared to colocation data centres.  Data centres or computer rooms inside HQ buildings are the worst offenders, but purpose-built enterprise data centres can also be surprisingly inefficient.  The recent lockdowns have highlighted the issues and strengthened the case for moving out of on-prem data centres.

There are three key areas that on-prem data centres have challenges– financial efficiency, security and resilience, and operations.

Financial Efficiency

  • High operating costs
  • Regular capital injections required
  • Poor energy efficiency
  • Very poor overall financial performance

Security & Resilience

  • Often in mixed-use buildings with high footfall
  • Often reliant on shared cooling and electrical plant
  • Can be in dense urban areas


  • Require dedicated staff for daily operations and regular maintenance
  • Shared infrastructure means complex PPM schedules

Even the most efficient on-prem data centres struggle to compete with well-run colocation facilities.  They cannot get the economies of scale and must maintain operating costs that could have been spread among many customers in a colocation site.  They are frequently in older buildings that were not purpose-built as data centres and cannot be operated efficiently, often wasting significant amounts of power through old mechanical systems – this is being exacerbated by the move of some systems to cloud services, reducing the IT loads, and making the electrical and cooling systems even more inefficient. 

We often see the Total Cost of Ownership (TCO) being anything from 50 per cent to 800 per cent more expensive than an equivalent colocation data centre.  This is not a good story for most companies’ green agendas, and it can be nigh on impossible to reverse the sustainability issues. Data centres in HQ buildings also often have compromised resilience due to sharing infrastructure with the rest of the building services.  Any measures taken to provide increased resilience for the data centres has a direct negative impact on sustainability.

Additionally, many companies are trapped in buildings they cannot vacate until critical systems are moved out.  This can severely disrupt property strategies and add significant costs that IT departments are not always incentivised to address.   Many HQ buildings are in city centres and the data centres within them occupy space at city centre rental rates – again a key contributor to their poor financial performance.

As we have seen during the pandemic, lockdowns can introduce unforeseen issues, particularly with access to HQ buildings, leading to increased difficulty maintaining coverage of operational staff.  This affects resilience and can lead to staff being unable to access certain systems at all during lockdown.

Building a business case for change

The right mix of colocation and cloud services can improve significantly on all these factors and the transformation programmes required to make the transition can often be partially or wholly funded by the savings that accrue once completed.  The financial models behind transformation programmes can be complex and it is common to see costs over-inflated or savings underestimated.  There are several tried and tested techniques for managing transformation budgets which can help reduce ‘sticker shock’ and ensure that financial benefits are seen at the P&L level.  The same goes for managing risk, one of the other key factors that acts as a blocker for many companies.  Fundamentally, enterprise real estate strategy should not be held hostage by IT systems and the justification for change can be built on solid financials.

The recent lockdowns have demonstrated that colocation sites, which are usually classified as an essential service, are much more accessible and manageable than on-prem data centres.  It is also significantly easier and faster to add extra comms bandwidth to cater for increased or changed demands from enterprise users.  With workforces becoming more distributed, IT workloads are going to move towards the edge, becoming more distributed themselves and again reinforcing the case for working with colocation providers who can provide capacity in multiple locations.  This type of flexibility cannot be replicated in on-prem data centres, but is likely to become highly important in tomorrow’s enterprise.

Case study – large enterprise client

Despite being less than ten years old, an enterprise data centre, considered a flagship facility, was costing eight times as much to operate than a colocation data centre. The data centre was designed to be energy efficient but could not operate as designed as it was significantly bigger than required and was built to old standards that are not efficient for modern IT.   Also, the organisation’s cloud strategy was gradually removing load from the data centre and making it even more inefficient.

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