Is It Prime Time For TCO?

The dynamics and rapid growth of the storage industry have changed significantly in the past three years and forced both vendors and users to focus on more than just the product cost or "sticker price". The TCO for an IT organization obviously includes more than just assessing the costs of storage hardware. Processors, communication/networking technology, software, availability, recoverability, performance, personnel, facilities, energy consumption and ROI are elements that contribute to the overall TCO.

This article will focus on TCO as it relates to storage however. Much of the new focus on TCO today is based on the fact that as hardware/technology prices are steadily falling, the cost of most every other component of the IT organization is increasing. Thus the TCO is not just about technology; rather it is about all aspects of the IT infrastructure. Understanding and thus managing the elements of TCO can be the difference between being profitable--or not--for many companies and it can be at the core of the value proposition for many vendors and service providers or the xSPs.

Emphasis is building on determining the TCO (Total Cost of Ownership) for a given storage complex and the increased attention being placed on TCO can't be overlooked. I recently interviewed Larry Hendershot, president of AMG (Associated Management Group) in Broomfield, CO. Hendershot specializes in TCO modeling and analysis, about the factors that are now making TCO a critical part of assessing the effectiveness of an IT organization. Our discussion revealed that the dynamics driving the need for determining an organization's storage TCO are:

1. The price of storage hardware (on a per megabyte purchased basis) is decreasing between 30-40% per year. These trends are expected to continue for the foreseeable future as areal density improvements improve at 60% or better annually and the supply of storage capacity exceeds demand. Technology costs are no longer an endpoint when evaluating storage costs.

2. The cost of finding, training, and retaining people (storage knowledgeable people in particular) is increasing at over 20% per year. The supply of trained IT and storage personnel is not keeping up with demand.

3. The cost of managing storage using storage management software today typically ranges from 3 to 10 times the cost of the hardware depending on the operating platform. This ratio is increasing as hardware costs fall. Therefore hardware prices are no longer the primary basis on which to select a specific storage product and buying strictly on the hardware price now represents uninformed thinking.

4. The energy consumption and therefore the energy costs for storage subsystems, and computing technology, are soaring. See http://www.7x24exchange.com for an excellent presentation about Data Center Airflow.

Let's examine some of the key aspects of TCO as they relate to storage. By 2004, the average storage capacity per administrator will have grown 37%. As presented in the new 2001 Network Demographics report from Strategic Research Corp., (www.sresearch.com) a typical network administrator will be responsible for managing nearly 300 gigabytes of network storage in 2004. The growing gap between capacity and number of administrators means significant improvements that we are not yet experiencing in storage management tools is a necessity. In other words, storage is growing faster than our ability to manage it and management costs are increasing while the hardware costs are decreasing. Recent articles have highlighted the IT worker shortage and estimated the demand for such workers now exceeds the supply in the U.S. by over 700,000 people.

Energy consumption is rapidly becoming a significant component of the TCO. In previous articles, I've noted that estimates indicate that the Internet consumes about 8% of all the electrical output in the U.S. while non-networked computers consume another 5%. This number is expected to approach 50% by the year 2010. As we all realize, energy prices are soaring. New and emerging technologies help lower energy consumption in some cases. What comes after CMOS? We are seeing the de-emphasis of feeds and speeds in some cases such as slowing the spin rate (rpms) of some disk drives to reduce heat consumption. Many PCs run at much lower than advertised MHz when using batteries to preserve battery life.

"This winter, we have seen a frightening rise in energy usage, especially on the West Coast stemming from Data Center power consumption. For instance, in the Seattle area, an astounding 700 additional megawatts of new power are requested for data centers, enough energy to power 700,000 homes. This drain on the energy supplies in California has resulted in the issuance of a statewide Stage Two emergency for seven consecutive days, and an unprecedented Stage Three recently, which resulted in rolling brownouts throughout the Bay Area," Hendershot said.

"A Stage Three emergency is only issued when energy reserves fall below one percent. Where is the power going? Exodus data centers in Silicon Valley alone were expected to consume 25 percent of the area's available power by year end 2000, according to Morgan Stanley Dean Witter. Data centers routinely demand up to 100 watts of power per square foot, about ten times what the average office building requires," Hendershot said.

The energy issue is bound to reach critical stages as data centers and Co-Los proliferate to keep pace with e-business demand. As it relates to storage, this trend will encourage the movement of less-active data to more energy friendly removable storage technologies such as tape and possibly optical based products including DVD. HSM (Hierarchical Storage Management) and related data movement techniques should become more popular as the TCO improves as less-active data is moved to low energy consuming storage repositories. The pressing question has become "When will energy costs exceed the cost of hardware"? We didn't need to focus on energy costs too much in the past; now we do, as those days are clearly history.

A TCO study is quickly becoming the crux of the value proposition for the emerging group of service providers. By the way, we count nearly fifty declared SSPs in North America. As the storage outsourcing movement gains momentum, the SSPs are striving to find ways to differentiate themselves by offering a better TCO than their competitors. Availability, performance, centralized management controls, service levels, and recovery capabilities are some of their primary offerings.

The lowest TCO however is not always the best choice since a clear view of what a given TCO can provide becomes a very revealing exercise. For example, if one SSP could offer an SLA providing 4 9's availability but had a higher TCO than another SSP, who could commit to delivering 3 9's availability, which would be the best choice? What is availability or the loss of availability of the IT function worth to you?

The cost of a given architecture may be expensive but the benefits of the platform must correspond to an improved TCO. An effective TCO study makes these decisions easier to make by identifying the cost factors and their relative values in the organization's TCO. If you are considering outsourcing some of your storage environment to SSPs, specific applications with the ASPs, or even your entire IT function, it is critical that you know the value you are getting from outsourcing both on a near-term and long-term basis.

A TCO study can reveal many surprising components in the cost structure of an IT organization, according to Hendershot, and the traditional areas of focus may not be the ones that are the most significant today. A one-time TCO snapshot won't suffice as costs go up faster in some areas than others and in time, like the mounting energy cost issue today, new hot-spots will appear in a given IT cost model. An annual or semiannual TCO study can mark progress more efficiently and enable implementation of a "best practices" approach for us all to more fully understand the complexities of the distributed computing world we live in. The time for TCO analysis has arrived.