It's twilight for small in-house data centers

More workloads are shifting to service providers, with concern about skills playing a key role

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All firms are trying to limit the IT deployed in small data centers, said IDC's Villars. Smaller firms may be shifting more work to service providers, while larger firms are consolidating and building bigger data centers as they centralize assets, he said.

In many cases, virtualization has substantially reduced the need for in-house data centers for smaller IT operations, "and they don't seem to have any plans to expand them at all." They are either moving future work to co-location facilities or to service providers.

Vince Kellen, the senior vice provost and CIO at the University of Kentucky, also wants to shrink his data centers, which total about 15,000 square feet.

Kellen said they went through an exercise to determine what it would cost to transfer most of their services to Amazon Web Services, and he said the cost was obscenely high. The ROI didn't work, even factoring in the cost of paying for a new campus data center, he said. One building they are using for a data center dates from 1929.

But the cost of cloud environments is not discouraging to Kellen. He believes that just about every service can be run via the cloud environment, but the pricing has yet to mature and needs to drop. It's different for SaaS services, where software licensing costs and hardware are combined in a way that can be advantageous, he said.

For now, Kellen sees a gradual migration to SaaS providers, via platforms such as ServiceNow or though VMware clusters.

In about three to five years service provider pricing models "will be very attractive to us and allow us to take most of our computing off of our data center," Kellen predicts. He'd like to reduce his data center footprint, by half to two thirds.

Broader trends aside, there are many data centers that will maintain operations and employees.

Michael Kohlman, the IT managers of Cook Group Inc., a life sciences firm, uses SaaS for some applications, which accounts for about 20% of his infrastructure. But they will keep their core operations in-house. Protecting intellectual property, particularly in a highly regulated industry, "is strongly desired," he said.

But Kohlman was quick to adapt to data center technology trends. He jumped on blade servers in the mid-2000s and was a Dell beta tester, and built 1,500 square-foot data center with high density systems in mind. He has compared the cost of his operation with service providers, and sees little difference.

Kohlman has also built a staff with the skills he needs to run his environment, with each IT worker having an average 10 years of experience. "To try to run a modern, highly virtualized data center requires deep skill sets," he said. Being part of a larger firm, at just about $2 billion, and with just over 10,000 employees, helps to maintain staff.

Broadly, Kohlman sees a mixed outcome for the future of in-house data centers, and points to the decision by some firms, notably General Motors, to in-source their IT. While he can see the trend by IT shops, especially at smaller firms, to service providers, some of it is being generated by the excitement of the times. "IT does get fascinated with bright shiny objects," he said.

Survey data reports shows rapid and strong interest in cloud services, something Jerry Luftman, executive director of the Global Institute for IT Management, has seen in the Society of Information Management survey data surveys.

Outsourcing is growing generally, said Luftman. "The bigger question will be is it outsourced domestically or is it outsourced offshore," he said.

Peter ffoulkes, an industry analyst with 451 Research, said many things will hold data centers back from service providers, namely security and regulation. He sees data centers sizing themselves for average workload environments and using cloud providers to meet peak demand. "Most organizations realize it's more cost effective to run it themselves, as long as they are a large enough company," he said.

Patrick Thibodeau covers cloud computing and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at  @DCgov or subscribe to Patrick's RSS feed . His e-mail address is

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Copyright © 2013 IDG Communications, Inc.

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