Colocation Pricing Series Part 2: How Do Data Centers Price Colocation?
5 min read
In the first part of our Colocation Pricing series, we explained the main components of a quote and what each one means. In this article, we explain the different pricing models of colocation and how they can affect your total cost of ownership.
In Part One in our 3 part series demystifying data center colocation costs, we explained the some of the common elements of a colocation price quote. Your costs will be, in some way, determined by space, power, connectivity, plus any services broken out into an upfront fee and variable monthly fee. In Part Three, we will discuss common pricing pitfalls and cost surprises to arm you with the information you need to do proper diligence. In this post, we will explain the different rent models that determine what services are and are not included in your $/kw base price. That includes how to calculate your kilowatt needs, which is not as simple as it seems at first glance. We’ll have to briefly translate some jargon to explain how this all affects your total cost of ownership.
First, a little translation
What can be somewhat tricky in calculating your kilowatt usage is knowing whether we’re talking about “Critical Load,” “Essential Load,” or “Aggregate Load.” Critical Load is the amount of power directly used by your equipment when you plug in. But, as we all know, IT infrastructure can get really hot, and needs to be cooled to run optimally. The energy required to cool your equipment is called the “Essential Load.” And the Aggregate Load is the combined total of both.
CRITICAL LOAD + ESSENTIAL LOAD = AGGREGATE LOAD
PLUGGING IN + COOLING OFF = TOTAL POWER NEEDS
A real-life example:
In most modern data centers, you’ll need to tack on an additional ~ 50% of your Critical Load to account for the heat produced by your IT equipment (sometimes also referred to as a “Cooling Factor”).
If your equipment is rated to use 50kw for its Critical Load, that would be an additional 25kW (Critical Load of 50kW*50% = 25kW). Add it all up, and you get to an Aggregate Load of :
75kW (50kW [Critical] + 25kW [Essential] = 75kW [Aggregate])
75kW is the all-in power required to both plug in your equipment and cool it. This is just one example, but we wanted to make it clear that cooling might play a large part in your Total Cost of Operations (TCO).
Back to Pricing (Lease) Models
The pricing models used in colocation borrow some terminology and concepts from the real estate world. The models are called “Triple Net” (or NNN), “Gross”, and “Modified Gross.” The simplest way to think about it is your Critical Load multiplied by your $/kw is your base rent. Your pricing model will determine if includes utilities (power and cooling) and/or building maintenance (operating expenses) are included.
TRIPLE NET PRICING (NNN)
A Triple Net (NNN) pricing model starts with a base price (often quoted in $/kW) and breaks up your bill into three additional categories.
- First, it includes your proportional share of mutual operating expenses for the building – things like security, maintenance, common electric power and even the cost of mopping up the place. This is usually based off of either your slice of the data center’s total square footage or on your slice of the data center’s overall Critical Load.
- Second, the data center will “sub-meter” your monthly personalized Critical Load consumption and pass this expense on to you.
- Third, the data center will include the Cooling Factor, which is where your Essential Load finally comes into play. We used 50% as a rough estimate above, but this can really vary from vendor to vendor based on how efficient they are at managing their cooling systems. This ratio is also referred to as the data center’s Power Usage Effectiveness (PUE) (50% = a 1.50 PUE). The lower the PUE, the better, as you will be paying for the power used, and a lower Cooling Factor decreases your overall cost. Sometimes the Cooling Factor is a fixed percentage, but vendors can also use a variable pass-through where you don’t know the exact amount you’ll pay from month-to-month.
MODIFIED GROSS PRICING
Modified Gross Pricing is very similar to Triple Net, with one important distinction: the base rent includes the pro rata operating expenses (opex). You still have a sub-metered power consumption, making utility rate measurement critical, and you still have a Cooling Factor applied, underscoring the importance of a data center’s PUE.
The actual pro rata opex is a variable expense that may end up being higher or lower than expected. But in Triple Net pricing, the risk lies with the consumer, whereas in Modified Gross, the risk lies with the vendor. Because you’re locking in a fixed amount for the operating expense line item, vendors typically add a risk premium for Modified Gross leases versus Triple Net leases.
If you’re a smaller customer looking to procure colocation services, you’ll most likely be quoted using a Gross Pricing model. This is an all-in monthly price that does not include any additional line items for power consumption or operating expenses. It makes things a lot easier to digest because you know what your bill is going to be each month. But because everything is lumped in and the vendor is taking on the risk that variable costs like utility rates and taxes might increase at any given time, you’re usually paying based on the vendor’s own, worst-case assumptions for PUE and operating expenses.
In Part 3, we will go into detail with some of the common pitfalls and unexpected charges so you can ask the questions necessary to avoid them.