How datacentres might avoid price hikes and keep more customers

Datacentre materials costs remain high

Additionally, services and workloads must be in the right locations, and customers and prospects should understand the approach to driving efficiencies down the line.

“Some workloads do need to sit in certain locations, and this is important when it comes back to what can datacentre operators can do that is better. They do not have to put it all in their traditional locations,” Ward says.

Twenty years ago, datacentres were typically built close to an exchange, in what has now become known in Europe as the FLAD market – Frankfurt, London, Amsterdam, Dublin. Today, however, in any case, London to Iceland latencies are only around 19 milliseconds, he says.

Customers should not, for example, be paying for an ultra-low-latency service they do not really need, Ward adds.

Seamus Dunne, managing director for UK and Ireland at Digital Realty, agrees that improving power usage effectiveness (PUE) scores, cooling and other measures means datacentres can wrest some control over the need to pass on costs to customers down the track.

“The other thing we can do is change our designs to take costs out. Datacentres are not a single asset class, although people talk that way. There is [the] hyperscale, multi-tenant enterprise asset class, and so on, and they all come with different value propositions,” says Dunne.

Digital Realty is also continuing to work in ways that develop economies of scale through the traditional strategies of targeting business growth and expansion. Efficiencies developed that way can also deliver room to absorb rising costs instead of passing them straight through to customers, he points out.

“We have shareholders, employees, partners, customers to please: it’s a virtuous cycle, and we try to please them all equally,” Dunne says.  “So, our view is it is a growth business, and we don’t go backwards. We fully intend to keep growth for the next decade and beyond.”

Digital Realty, meanwhile, remains in a position to “deploy north of $3bn every year” for addition of capacity, he notes. That’s not something every operator can achieve, of course, and he admits that raising capital itself is getting more expensive – yet the principle holds.

The idea is to keep generating enough of a return on investment capital for the business to grow while retaining today’s customers, he says.

“Intrinsically costs have gone up,” he adds. “Supply chain [costs] have gone up, components have gone up, building and construction costs have gone up. So, the first thing we do is think about how we can deploy the new capital at a cost that was roughly the way it was previously.”

Dunne says only a couple of factors can typically be leveraged. While some things cannot be changed – such as central bank interest rates – markets can be potentially influenced and scale and purchasing power can be leveraged. Digital Realty often talks to different suppliers with a view to driving down costs, he says.

This can help counter rising materials costs in the datacentre, including for “very specific” supply-chain components. Although the cost of doing business has risen in multiple areas from taxes to line items and labour, material costs typically count for a higher share than contracting or construction costs, he adds.

In summary, Dunne maintains that minimising price rises to the customer base means that datacentre operators want to spend enough “but not too much” – and that’s the conversation Dunne’s having “pretty much every other day” with customers.

As Giancarlo Giacomello, head of datacentres at Aruba, says, the reality is that significantly reducing costs to the customer is going to be a rare if not impossible feat. Prices everywhere usually only go up, even if they do so slowly.

“But there are things you can try, mainly to mitigate a huge increase,” he says.

Italy-headquartered Aruba has datacentres in four Italian locations and one in Czechia with facilities for other Aruba Group operations including Aruba Cloud at London UK1. Providing an array of different services and offerings can help spread the cost burden, he agrees, adding that Aruba itself is its own biggest colocation customer.

“We’re a big cloud provider in Italy, a certification authority platform, and we offer managed services. We are probably the only one in Italy that could take a customer and support him by selling not just the space but the machines, the management of the cloud software platform, and so on,” Giacomello says.

Thinking about customer needs can mean making different choices about product inclusion in Aruba’s colocation services or in a customer project, Giacomello says.

Customers can naturally be quite resistant to price increases – not least because funding approvals are usually based on the initial fit-ups and cost estimates that can then shift before work concludes.

At Aruba, the past few years of economic turbulence have often forced it to absorb cost increases itself, Giacomello says.

Addressing sustainability and infrastructure revamps today can enable operators to move towards providing better prices over time to customers, Giacomello agrees. However, right now Aruba, despite building a lot over the past two years, is trying to reduce costs wherever possible.

Fresh thinking needed on costs versus price

“If we run now with the same logic that we were using in the past on cost versus price, it will basically be unsellable,” Giacomello warns. “The cost increase in building new datacentres is so high.”

Mitigation measures include developing as many efficiencies as possible, especially around power consumption and sustainability, for long-term customer advantage, combined with “full transparency to the customer”.

Aruba does not apply any margin on the energy, and it makes sure customers know that, says Giacomello.

“We have an agreement with our distributor to buy energy based on the average indexation for the national price that day. Basically, each month we calculate the public price based on the average national index. Our customer is perfectly aware of fluctuations in the market, based upon the reference tables,” he adds.

If energy prices soar to 500 euros (£431) per kilowatt-hour (kWh), customers will pay 500 euros per kilowatt – but when energy prices fall, this is passed straight through to customers. At the time of writing, this was under 170 euros/kWh.

Aruba also separately prices the power and cooling, packaged monthly according to market variations, including all the stabilisation and filtration of infrastructures, uninterruptible power supply (UPS), and the like, he says. Customers know what they’re using and paying for, while helping Aruba understand when pricing needs to rise.

Aruba offers standard or SMB colocation with a relatively “flat” contract and just a few standard cabinets; a high margin must be exceeded before the next price point kicks in, Giacomello says.

The costs of supplying large colocation customers consuming megawatts of load cannot be so easily absorbed. “What we do with them is a point-to-point calculation of average consumption, of how many power-and-cooling units they’ve used in the month,” Giacomello explains.

It’s “extremely fair”, although factoring in added granularity means extra admin. Inflation, on the other hand, is capped based on Italy’s consumer price index (CPI).

“In one way or another, we’re still taking on some of the rises ourselves,” says Giacomello. Some rivals were lucky because they bought futures at the right time several years ago, but, Giacomello adds: “We didn’t.”