Data Center Consolidation Delivers Economies

January, 2014

While some IT organizations are building ever larger and more efficient data centers, others are shedding capacity and turning to hosting companies and cloud services to meet their needs for backup, redundancy, and additional capacity. In both cases, the end goal is often the same: to reduce costs through consolidation.

Does consolidation save money? To test the thesis that operating fewer data centers is less expensive, we compared data center spending by organizations with just one data center against the IT spending of like-organizations with multiple data centers. Our two samples of 130 organizations each are composed of similar-size companies in the same sectors.

In Figure 11 from our study, Data Center Spending Benchmarks and the Case for Consolidation, we see that in organizations with multiple data centers, data center spending accounts for 22% of all IT expenses at the median. For organizations in the similar group with a single data center, only 20% of the IT spending is on data center operations and technology. Put another way, companies with a single data center spend 10% less on data center operations than those with multiple data centers.

Data Center Fig 11 - Data Center Consolidation Delivers Economies

Ironically, this major pre-recession cost-cutting trend lost steam amid the downturn as more pressing, and perhaps less disruptive and less expensive, initiatives took precedent. Our annual Technology Trends study shows the percentage of organizations allocating funds for data center consolidation projects dropped from 39% in 2008 to 24% in 2010. Now that IT operational budgets are on the mend, however, IT organizations are once again assessing their data center strategies.

In the full study, we start with an assessment of data center spending and provide benchmarks that enable IT organizations to answer the question: Is our data center spending in line with our peers? The benchmarks include data center spending as a percentage of total IT spending and data center spending per physical server. The study next provides benchmarks on virtualization rates and operating system mix. We then proceed to demonstrate cost-savings from consolidating data centers and savings from consolidating Windows, Unix, and Linux servers and mainframes to help IT executives make the case for consolidation.

The interest in data center consolidation is primarily cost-driven. Many organizations have multiple data centers, even though a smaller number of data centers would be sufficient. This situation may be the result of one or more corporate acquisitions that brought new data centers into the network. Because those data centers support the acquired company’s business processes, it is often easier to leave them in place. As a result, over a period of years or decades, some organizations find themselves with three, four, or even more data centers when they may need only one or two.

Some duplication of data center assets is advisable to provide the basis for disaster recovery and business continuity. Yet many organizations have multiple data centers that exist simply because no efforts have been taken to rationalize them. For those organizations, data center consolidation should be under consideration.

This Research Byte is a brief overview of our management advisory on this subject, Data Center Spending Benchmarks and the Case for Consolidation. The full report is available at no charge for Computer Economics clients, or it may be purchased by non-clients directly from our website (click for pricing).