Managed Server Hosting: Build It or Buy It? Factors to Consider

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1 Managed Server Hosting: Build It or Buy It?

2 Executive Summary The question still reigns for most growing companies regarding the decision to build in-house infrastructure or utilize third party providers. Each side of the debate has pros and cons; in this paper, we outline the benefits of buying hosting infrastructure through a service provider, including scalability, cost, performance, security and service. Some of the key points covered: Purchased hosting service can be up to 58% cheaper than in-house in most circumstances due to savings on capital expenditures, staff and training. Performance capabilities that many in-house solutions overlook include hardware refresh, uptime guarantees, redundancy and scalability. Upgrades with a service provider average hours to days compared to potential weeks for in-house environments helping SMBs scale faster. Security issues are better handled by experts, as slow response to breaches can cause in excess of a 50% breach cost increase. Total costs to maintain the appropriate staff in-house exceed $150,000 in annual salaries spread across multiple technical specialists, not including the cost to continue training on new technology or employee benefits. Introduction Long gone are the days when most businesses were brick-and-mortar stores that didn t sell beyond their own zip code. Today s businesses are tech-savvy: selling worldwide, using , calendaring, phone systems, payroll software, and communicating with employees and customers from the office, home, and even the car. All of that technology has to reside somewhere on servers, in a data center. You re probably reading this white paper because your business is considering building your infrastructure in-house instead of purchasing from a service provider. Here, we are going to discuss the benefits of using a service provider in terms of cost-efficiency, performance, scalability, security and service. We will show how choosing the correct service provider can save you money while improving your position: Get more security and accessibility, become better prepared for disaster contingencies, and facilitate scalability and adaptability in your product. Cost-Efficiency In any economic climate, cost-efficiency is a priority for every business. Finding places to save money without sacrificing quality is a goal of any corporate decision-maker. Thrifty choices can make the difference between hitting your budget and needing to make cuts. To that end, it makes sense to examine your options for information technology. The costs associated with managing a server in-house and hiring the staff to maintain it can be prohibitive for small, medium, and large businesses.

3 EXPENSES BUILD IT At first glance, the costs of installing and maintaining on-site server hardware may appear favorable to an off-site hosted solution when thinking about one-time hardware and software costs as opposed to a monthly recurring fee. However, there are numerous additional factors and unexpected costs to consider. In addition to the number of servers your business requires, add the cost of supporting network infrastructure switches, firewalls, rack equipment, and an appropriate facility for housing the systems. When you consider both tangible and intangible costs of building, managing and monitoring your company s servers, the expenses quickly pile up. Below is a chart with examples of the costs you will face. Physical Location Data Center Space Redundant Power Redundant Pipe Cooling UPS Switching Security Fire Suppression Infrastructure Bandwidth Connectivity Racks Routers Replacement Parts Storage Backup Hardware & Software Servers Operating Systems Databases Firewall Control Panels SSLs IDPS Staff & Training 24x7 Technical Staff Employee Training Server Administrators Security Personnel Technology Consultants At the end of this document, you can view a more in-depth cost comparison scenario. For now, here are some general numbers from Jackson Technical 1 : For In-House Infrastructure Typical Web/Database Server Hardware - $5,000 Windows Server software - $1,000 Server software - $5,000 MS SQL Database Server software (Two CPU) - $10,000 Battery Backup (UPS) - $750 T1 Line w/ Cisco Router - $1,200 / month Microsoft Certified Professional (Technician) - $45-65K / year Microsoft Certified System Engineer (MCSE) - $60-85K / year Just with these few costs, it s easy to see how quickly the price tag on an in-house hosting infrastructure can rise. EXPENSES BUY IT While upfront capital costs can be daunting for internal infrastructure, enterprises can introduce predictability into the acquisition, maintenance, and eventual replacement of key infrastructure when working with a service provider, freeing capital for other core strategic initiatives. This can also reduce or eliminate the need to hire and train IT personnel, transforming the costs into a monthly service fee. Depending on the complexity of your environment, service provider hosting costs can save you 12%-17% annually, according to a 2007 Forrester Research report 2. This savings has continued to drastically grow in recent years as increased competition has led to lower service provider pricing. As recently as last year, we ve even seen scenarios where up to 58% savings was realized over a 4 year period. 1 - Jackson Technical Networking Professionals, Web Site Hosting: In-house vs Outsourced, (Jan 25, 2013) 2 - Cooney, Michael, Outsourcing vs. keeping it in-house, Network World, (Jan 25, 2013)

4 As mentioned previously, we will show an in-depth analysis later but let s look at the cost of the line items mentioned above from a service provider s perspective. For Service Provider Infrastructure Typical Web/Database Server Hardware - $6,000 Windows Server software - $500 Server software - Included, pay only per box MS SQL Database Server software (Two CPU) - $8,000 Battery Backup (UPS) - Included T1 Line w/ Cisco Router - Included Microsoft Certified Professional (Technician) - Included Microsoft Certified System Engineer (MCSE) - Included Performance The benefits of purchasing infrastructure from a service provider go far beyond cost-efficiency. Hosting with a service provider that specializes in building hosting environments can offer higher performance and reliability than an enterprise can typically achieve on its own. Benefits you can take advantage of when you buy it: Deployment time and upgrades Reliability and redundancy Customizability and flexibility Scalability DEPLOYMENT TIME AND UPGRADES Designing, procuring and implementing IT equipment and systems takes time and effort for most companies. However, service providers can implement new projects in significantly less time often within hours of the order. This can allow your company to deploy new environments and additional resources in a fraction of the time you could achieve on-premise. And if your company is considering the cloud for part of its infrastructure, deployments can often be provisioned in 30 minutes or less. Additionally, you have to consider the cost, time, and resources to upgrade out-of-date hardware. While today s servers last longer than ever, you will inevitably need to upgrade to maintain performance and reduce the risk of losing your data in a hardware crash. Some experts recommend a 3-4 year hardware refresh cycle. The trick is to balance spending against risk of failure when running on older hardware 3. As better products enter the marketplace, evaluating new solutions becomes crucial. Utilizing a third-party IT specialist, which service providers typically have plenty of, frees up your company from the tedious research of choosing the best new technology, and can allow you to take advantage of solutions that the service provider has already implemented for others. 3 - Archstone Consulting, Optimizing IT Technology Refresh Policies,

5 RELIABILITY AND REDUNDANCY Most commercial data centers offer multiple redundant network providers, extensive security, redundant power and generator backup, fire suppression, automated backup systems, on-site spare parts, and 24/7 monitoring and response. Can your IT department do all that? Small- to medium- sized businesses will often find that replicating such an environment is cost-prohibitive. Even large companies may find it more economical to utilize a third party. Not having the appropriate technology, back-ups and disaster recovery in place can lead to failure. The worst thing that can happen whether you are hosting on-premise or off-premise is to have your servers go down. You risk losing valuable customer data, revenue, and your reputation. If your data is subject to compliance regulations, then you risk facing additional legal fines and penalties. Aside from technology failing, you also need to ensure you have the bandwidth to support the services you are running. What are the individual and aggregate requirements for performance burst rates, committed information rates (CIR), redundant routing, load balancing, service levels, and reporting for performance and bill-back purposes? Service providers will have relationships in place with all of the major carriers to ensure ample amounts of bandwidth for their data centers. And if your site does go down, do you have a disaster recovery plan in place? For mission-critical IT systems, uptime should approach 100 percent, and service providers can offer service level agreements (SLAs) which at least offer compensation in the case an outage does occur, allowing you to make up some of the costs. In addition, they will offer individual servers with redundancy through redundant components, clustering, auxiliary power, appropriate spares, a backup data store, and hot restart facility. Plus you can often replicate your data to physical or virtual environments located in other data centers to ensure you have a backup in the case of a catastrophe. CUSTOMIZABILITY AND FLEXIBILITY Do you have the trained staff to build an optimized IT environment for your business? Do you have all the pieces you need to complete the hosting puzzle? Utilizing a service provider as an extension of your existing IT department can allow you to consult on how to create the most efficient hosting environment for your needs. The service provider will have more experience in configuring solutions, and can offer a wider array of options to customize your servers and add-ons to get you started. Owning your own servers prevents your business from easily reconfiguring for changing business needs. Ownership also requires a significant expenditure on hardware that is rapidly depreciating. Managed server hosting allows your business the flexibility to change configurations and add hardware as needed. Furthermore, today s service providers allow you to connect your managed servers through private connections to cloud environments to handle overflow resource requirements and on-premise infrastructure if needed. SCALABILITY Do you know exactly what your business IT needs will be long-term or how fast you are going to grow? Chances are you don t. You might need temporary space to experiment with new software or handle a seasonal traffic surge. If you own your own equipment, you re very limited in your ability to expand your infrastructure as necessary. Ordering new equipment isn t just expensive; it s time-consuming. By the time your new hardware arrives, which could take up to weeks, the need for it may have passed.

6 Managed server providers maintain additional inventory on hand, allowing them to quickly adjust your services, often within a day or two, altering the amount of resources you re purchasing as you see fit. This will allow you to create environments in a timely manner. On the other side, you can downgrade your services with a provider without being left with costly inventory gathering dust in a closet. In addition, many service providers offer cloud-based hosting solutions and are able to connect the two environments. Cloud offers even greater scalability and savings benefits for the right projects. Hosting with a provider allows you to take advantage of a multiple types of infrastructure hosting. Security Security is integral to hosting of any variety, with the threat of hackers and viruses impossible to ignore. Your systems must be monitored around the clock; off-site backups must be created daily; software must be automatically upgraded and patched whenever possible. Also, you need to implement firewalls, VPNs, intrusion detection and prevention systems, virus and spam filtering, regular vulnerability scanning and any other security precautions specific to your needs. Most service providers offer all of these additional services for a standard monthly fee, allowing you to pick and choose the ones relevant to your company or purchase multiple services bundled together. Security also includes protection from physical threats. To guard against unauthorized intruders, you need to protect the physical location where your data is stored. This could include video monitoring, access card readers, logging, security personnel, and more. You need to conduct thorough interviews and background checks on any personnel working with your data to ensure its security. Statistics from a 2012 Ponemon Institute study 4 show the importance of security: Cost of cyber crimes average $8.9 million/year annually Denial of service, malicious insider and web-based attacks account for 58% of cyber crime costs Average time to resolve a cyber crime was 24 days with an average cost of $591,780 30% of external costs are associated with disruption of business or lost productivity If your business is subject to industry regulations, there may be additional compliance requirements to consider. This typically applies to companies working with credit card holder information, medical and personal records, or financial data. Failure to observe the government mandates could result in hefty fines or legal exposure. Or if your business services customers who have compliance needs, you may risk losing potential customers if you aren t protected. For example, SaaS organizations whose software manages healthcare data are still required to meet HIPAA compliance standards. Service providers are making the move to developing compliance-specific security packages aimed at easing the burden put on your company to maintain compliance with regulations such as PCI and HIPAA. 4 - Ponemon, 2010 Annual Study: U.S. Cost of a Data Breach,

7 Service No matter how outstanding your infrastructure is, the service you re offering is only as strong as the service team you have to keep things running. If you re building your own hosting solution, you ll have to employ enough IT specialists to keep your solution running around the clock, and train them regarding your specific needs. Today s technology solutions are sophisticated and often require a broad cross section of demanding, and sometimes rare, skill sets to ensure success. These include network design and planning, operating system maintenance and troubleshooting, database administration, application support, security management, and hardware troubleshooting and repair. It can be difficult to find one or two individuals who can address all of these areas effectively. Purchasing a hosting solution from a provider takes these concerns off your plate. A hosting company employs technical support personnel trained in various areas of technology so you have experts at your disposal. In addition, it is in the provider s best interest to keep their staff updated on the latest technology, because that is their core business. It s not yours, so you won t have to become an expert at what they do. Additionally, many companies do not realize that a provider s certifications are dependent on maintaining a certain number of on-hand staff trained in core technology. PricewaterhouseCoopers found in their research that many organizations are not only enjoying the freedom and flexibility they have by not worrying about IT, but it also helps them improve the service they provide to their customers. 40% of respondents to a survey said they would outsource to improve customer relationships. And another 37% felt outsourcing could help them focus on developing new products and services 5. The bottom line is that a hosting company can offer you 24/7 specialists to address issues at all hours. They will typically be better trained than your in-house personnel at only a fraction of the price. You should think of the hosting company s support staff as an extension of your own IT department. Whether you have a small IT department of 2-3 people or something much larger, you ve just upped your number by in an instant. Scenarios The following charts compare just a few expenditures associated with building vs. buying across three years. For the purposes of this scenario, we have taken a real-life customer scenario which represents an average managed hosting environment. In this example, the company would save 69% of the cost of installing and maintaining 5 servers by utilizing a hosting provider. Note that the costs in this model are approximate and subject to change. These numbers do not include complete data center costs to match capabilities with a service provider. 5 - Cooney, Michael, Outsourcing vs. keeping it in-house, Network World, (Jan 25, 2013)

8 Build It Year 1 Year 2 Year 3 Year 4* Total 5 Dedicated Servers (R720 Quad 8GB, $30,125 $0 $0 $30,125 $60,250 Single Server, Dual Processor, 146GB SAS 15k 3.5") Windows Server 2008 Standard Edition $4,410 $0 $0 $0 $4,410 MSSQL Server Standard Edition - 3 servers $3,426 $0 $0 $0 $3,426 Firewall (Cisco ASA ) $450 $0 $0 $0 $450 SSLs (GeoTrust QuickSSL Premium) $149 $149 $149 $149 $596 Backup (DAS) $19,936 $0 $0 $0 $19,936 Bandwidth $2,500 $2,500 $2,500 $2,500 $10,000 Power (including backup) $3,990 $4,040 $4,060 $4,060 $16,150 Cooling $3,600 $3,600 $3,600 $3,600 $14,400 Fire Suppression $100 $100 $100 $100 $100 Networking $16,500 $1,500 $1,500 $1,500 $21,000 Install/Config IT Support $60,000 $0 $0 $0 $60,000 Ongoing IT Support $90,000 $90,000 $90,000 $90,000 $360,000 Total $235,186 $101,889 $101,889 $132,034 $570,998 *Hardware refresh every 3-4 years

9 Buy It with Hostway Year 1 Year 2 Year 3 Year 4 Total 5 Dedicated Servers (R720 Quad 8GB, $33,840 $33,840 $33,840 $33,840 $135,360 Single Server, Dual Processor 146GB SAS 15k 3.5") Windows Server 2008 Standard Edition $2,400 $2,400 $2,400 $2,400 $9,600 MSSQL Server Standard Edition - 3 servers $17,640 $17,640 $17,640 $17,640 $70,560 Firewall (Cisco ASA ) $2,388 $2,388 $2,388 $2,388 $9,552 SSLs (GeoTrust QuickSSL Premium) $149 $149 $149 $149 $596 Backup (DAS) $3,840 $3,840 $3,840 $3,840 $15,360 Bandwidth Included Included Included Included Included Power (including backup) Included Included Included Included Included Cooling Included Included Included Included Included Fire Suppression Included Included Included Included Included Networking Included Included Included Included Included Install/Config IT Support Included Included Included Included Included Ongoing IT Support Included Included Included Included Included Total $60,257 $60,257 $60,257 $60,257 $241,028

10 Conclusion Outsourcing IT infrastructure represents a significant opportunity for businesses to reduce costs and capital requirements, enhance performance and scalability, and improve the reliability and compliance of business operations. In order to effectively outsource, the enterprise IT and executive management should perform a thorough assessment of the business objectives, IT implications, and tangible and intangible costs of meeting those objectives through in-house and outsourced strategies. The decision to outsource should be an objective and financially driven initiative that assesses capital requirements, business and operational risks, and the value of maintaining the company s focus on core business activities and competencies. About Hostway Hostway Corporation is a leader in Cloud, Managed, and Hybrid Hosting. Hostway delivers reliable, secure, and scalable Infrastructure-as-a-Service (IaaS) solutions to over 600,000 customers worldwide. Hostway services its clients from more than 250,000 square feet of state-of-the-art data center space, spanning four continents and 12 countries. Hostway has emerged as one of the largest cloud hosting and Infrastructure-as-a-Service providers in the world due to the company s expertise in developing secure, multi-tenant hosting environments, and is committed to providing SMB's and large enterprises with cost-effective business solutions. Hostway s core products include Managed Hosting, Cloud Hosting, and and Applications.

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