Gartner for IT Leaders G00215808

Toolkit: New Factors Change Data Center IT Outsourcing Services Pricing Ranges in 2011
Published: 22 September 2011 Analyst(s): William Maurer, David Edward Ackerman, Frank Ridder

We define price ranges for data center outsourcing services for clients to validate acceptable pricing models and ranges or service providers wanting to win business. Market changes impact all parties due to new pricing models, solutions and solutions bundling, so understanding prices is vital.

About This Toolkit

This Toolkit is related to: Sourcing & Vendor Relationships When to Use: As part of the Outsourcing Pricing series, which includes pricing insight for LAN/ WAN, data center, help desk, desktop and voice premises, this document addresses the market approach to pricing data center outsourcing services. This document focuses on data center solutions and prices, and helps answer the questions: "What is included in a data center service outsourcing contract?" and "How much should we pay for each element of a data center service outsourcing contract?" The answers remain complex because many factors drive the price of an outsourced deal (other related research in this area includes "Outsourcing Advisory: Pricing Trends in Infrastructure Services," "Common Pricing Models and Best-Use Cases for IT Services and Outsourcing Contracts," "Pricing Model Definitions, Benefits and Risks for IT Services and Outsourcing Contracts" and "Nine Factors That Drive IT Services and Outsourcing Contract Pricing"). Typically the data center service offering is addressed as a stand-alone offering or in conjunction with remote infrastructure monitoring and management or larger outsourced deals, which include an array of infrastructure outsourced service offerings. In this toolkit, we have taken information from sourcing consulting engagements, anecdotal information from analysts, and information from our research contracts database and public records, and synthesized that data into a single set of pricing data that is designed to provide organizations with a range of prices based on nine key factors and Gartner's consensus model by IT service tower. The evolution of data center service deals, while mature, remains complex. Providers are continually developing enhanced and expanded solutions, including the virtual server environment, which will

use the per instance, per image, per logical partition (LPAR) pricing approach. This is by far the most used pricing model in today's deals and is considered the standard in today's best practice data centers, investments in architecture, software and other tools, as well as new and improved processes. Users continue to standardize on hardware and software sets as well as taking advantage of new technology. As such, this research continues to be updated consistent with benchmarking best practice recommendations of completing a benchmark every 18 months. Why did the low-end range reduce in 2011 from 2009? The low-end ranges in 2011 reduced across the board including a fall to $4,893 per millions of instructions per second (MIPS) per year, representing a reduction of 9.1% from 2009. Per server per month (PSPM) pricing and virtual server pricing (VSP) had similar percentage reductions, with VSP methodology gaining significant market share, taking it from the PSPM pricing methodology. Unlike previous years where we completed a price analysis every 12 months, this time it was an 18 month time frame. This is consistent with best practices as to how often you should complete a benchmarking analysis. The change was due to many forces, including the dramatic increase in virtual server solutions, continued changes in solutions (including an increased share of the data center outsourcing market being full data center outsourcing deals, with Web hosting deals losing market share and low-cost IT models for storage and other data center related solutions) and the continued expansion of general competition in the market. As was the case previously, we continued to look at deals that were as new as possible, with the goal of deals less than 18 months old. We also saw deal standardization as one of the founding pieces in deal pricing. CIOs continue to state that pricing is not the No. 1 reason for outsourcing or changing outsourcing providers, but pricing far outpaces any other factor as the single most important factor to signing or re-signing a deal. In addition, a recognizable increase in continuous improvement processes being jointly implemented by the client and its provider is having an impact on cost reduction. In summary, a higher use of virtual servers, continued service improvement, marketplace competition, and movement toward more low-cost IT models with standardized solutions are the key factors for the reduction in data center outsourcing services pricing. Why did the high-end range decrease in 2009? Similar to the low-end range, the high-end range in 2011 saw a fall to $15,384 PMPY, representing a reduction of 12.3% from 2009. As stated above, prices continues to drop primarily due to low-cost IT models and virtual server environments. It should be noted that the continual reduction of prices is being challenged by more sophisticated solutions that, while helping reduce prices, also have relatively higher development costs and take longer to implement. The net result is that data center price reduction has continued, and is expected to continue, although by what amount is uncertain. One key consideration is that the lowend of the PSPM pricing model is being reached and therefore those organizations that do not virtualize their server environment will begin to experience a slowing of reductions and soon see pricing stabilizing, while the virtual environment will continue to reduce albeit at a slowed paced throughout 2012. At this point, low-cost IT models will begin to gain market share at a faster pace, resulting in an overall continued decrease in data center outsourcing pricing because of new delivery and pricing model domination. Tables 1 through 4 show the ranges by the many varied categories of data center outsourcing services.

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Table 1. Mainframe Pricing Range Matrix per Year (per MIPS), 2011 Mainframe Operations and Support Services Technical Support Services Business Recovery Services Information Security Management Ownership Other Total
MIPS = millions of instructions per second Source: Gartner (September 2011)

Low Range $534 $645 $334 $116 $3,225 $40 $4,893

High Range $1,610 $1,901 $1,073 $380 $10,285 $134 $15,384

Table 2. Midrange Unix Pricing per Month (per Server), 2011 Data Center Services Midrange Unix Number of CPUs Size of Server Service Mgmt. System Mgmt. Maintenance Tools Ownership Total Low Price High Price Low Price High Price Low Price High Price Low Price High Price

One to Four CPUs

Five to Eight CPUs

Nine to 16 CPUs

More Than 16 CPUs Unix Enterprise $530 $1,150 $855 $590 $735 $3,860 $800 $1,720 $1,225 $885 $1,290 $5,920

Unix Small $110 $245 $177 $120 $815 $1,460 $175 $395 $280 $195 $1,435 $2,480

Unix Medium $185 $390 $275 $190 $715 $1,755 $335 $770 $550 $390 $1,065 $3,130

Unix Large $325 $675 $510 $360 $690 $2,560 $485 $1,020 $750 $525 $1,115 $3,895

Source: Gartner (September 2011)

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Table 3. Midrange Wintel Pricing per Month (per Server), 2011 Data Center Services Midrange Wintel Number of CPUs Size of Server Service Mgmt. System Mgmt. Maintenance Tools Hardware Ownership Total
Source: Gartner (September 2011)

Low Price

High Price

Low Price

High Price

Low Price

High Price

One to Four CPUs Wintel Small $45 $113 $90 $63 $338 $650 $90 $226 $158 $113 $678 $1,265

Five to Eight CPUs Wintel Medium $68 $159 $113 $86 $453 $879 $120 $281 $201 $138 $803 $1,543

Nine to 16 CPUs Wintel Large $180 $350 $305 $193 $718 $1,746 $232 $535 $388 $245 $1,074 $2,473

Table 4. Storage Pricing per Month (per GB), 2011 Description Centralized Storage Backup Storage
Source: Gartner (September 2011)

Low Range $0.74 $0.06

High Range $1.71 per allocated GB per month $0.30 per transferred GB per month

Additional Pricing Model In 2009, Gartner introduced pricing ranges on a per-instance basis ("per instance" is defined as "an instance of a server operating system provided for customer use"). This is now the choice of delivery and pricing of best practice solutions. Table 5 and Table 6 reflect the per-instance pricing methodology results.

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Table 5. Midrange Unix Pricing per Month (per Instance/per Image/per LPAR), 2011 Data Center Services Midrange Unix Number of CPUs Size of Server Service Mgmt. System Mgmt. Maintenance Tools Ownership Total
LPAR = logical partition Source: Gartner (September 2011)

Low Price

High Price

Low Price

High Price

Low Price

High Price

Low Price

High Price

One to Four CPUs

Five to Eight CPUs

Nine to 16 CPUs

More Than 16 CPUs

Unix Small $99 $221 $39 $108 $262 $729 $165 $360 $64 $178 $454 $1,216

Unix Medium $170 $358 $63 $175 $285 $1,051 $319 $692 $124 $351 $485 $1,971

Unix Large $294 $610 $116 $326 $387 $1,732 $434 $913 $168 $470 $578 $2,564

Unix Enterprise $482 $1,047 $195 $537 $546 $2,807 $718 $1,544 $275 $794 $855 $4,187

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Table 6. Midrange Wintel Pricing per Month (per Instance/per Image/per LPAR), 2011 Data Center Services Midrange Wintel Number of CPUs Size of Server Service Mgmt. System Mgmt. Maintenance Tools Hardware Ownership Total
LPAR = logical partition Source: Gartner (September 2011)

Low Price

High Price

Low Price

High Price

Low Price

High Price

One to four CPUs Wintel Small $43 $111 $21 $62 $99 $336 $87 $226 $40 $109 $197 $659

Five to Eight CPUs Wintel Medium $66 $158 $26 $85 $132 $467 $120 $281 $50 $138 $223 $813

Nine to 16 CPUs Wintel Large $180 $350 $76 $193 $180 $979 $232 $535 $97 $245 $268 $1,377

Did the definition of the help desk change between 2009 and 2011? No. Gartner has maintained the same definition for data center services from that in our 2009 analysis. Your Use of the Toolkit Document As a Gartner client, you can populate the attached toolkit with information to reflect your data center environment. The toolkit allows you to:
1.

Collect, in an organized way, your data center data for any potential request for proposal (RFP) statement of work (SOW) information. Provide the information needed to have pricing discussions with a Gartner research analyst, in order to gain insight in the marketability of your documented information. The data required includes the items found in the toolkit's "data center" tab. Analyze and provide answers to the questions in the "nine complexity factors" tab.

2.

3.

Once the document is complete, your next step is to set up a standard inquiry with a Gartner infrastructure outsourcing research analyst to discuss any further insight that could be derived about your environment from the document contents. The toolkit document that you submit will be sent to the infrastructure outsourcing analyst for their review, prior to your call.

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Year-Over-Year Consistent Information Defining the Data Center Consensus Model Gartner has a formal benchmark model (referred to as a consensus model) to provide a method of organizing data to allow comparison to peers by IT tower. The benchmark consensus models defines the Gartner benchmark database structure. The benchmark elements (listed below) align with Gartner's nine deal complexities that impact network pricing. The nine deal complexities impact the delivery cost, risk transfer and value of the service. The nine factors are: scope of the services, the support environment, the scale, workload volume, labor markets used in delivery, geographic distribution of the service, the technical environment, service levels, and the contract terms and conditions. (The nine elements can be further explored in "Nine Factors That Drive IT Services and Outsourcing Contract Pricing.") The benchmark elements per category are as follows. Gartner has a formal consensus model for each IT service tower. With regard to the data center, we have divided this service tower into three distinct categories: mainframe services, midrange services and storage services. Mainframe
1.

Operations and support services schedule, setup, release and run; void production and batch processing jobs; production control consultation and walk-through support; problem management and resolution; root cause and problem correction analysis for critical or recurring problems; initial program load (IPL) scheduling and management; system maintenance, including the management and administration of third-party contracts as required; production job queue management, monitoring, abend (abnormal end) reporting and job reruns; primary storage monitoring and operations management; backup monitoring and handling; microfilm processing; and print service and preparation for distribution. Technical support services capacity planning for all systems, to be performed in conjunction with client management; hardware and software change and configuration management; off-hour, on-site support for the implementation of changes presenting potential risk or business impact; technology management, including the evaluation of new products and technologies relevant to the environment; system software management and administration, including upgrade and new system planning, scheduling and implementation; system and database software maintenance, including the management and administration of third-party contracts as required; primary storage planning and optimization; and third-level help desk support function for calls transferred to the data center for problem resolution. Business recovery services maintenance of a remote hot site, either under vendor or thirdparty management; verify the functionality of equipment at the remote operations center; offsite storage of critical data, either under vendor or third-party management; coordination and implementation of data communications with recovery locations; recovery training and orientation for client and vendor departments and teams; business recovery planning, including required consulting with business and IT management as required to define applications and systems included in the business recovery plan; business recovery periodic testing, to include the provision of all required staff and resources to conduct a valid and meaningful test; number of system tests annually; periodic plan maintenance and updates to reflect changing business

2.

3.

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requirements; and the identification and recommendation of new processes, technologies or third-party services that may enhance business recovery services and/or reduce related costs.
4.

Information security management services system security monitoring; processing and implementation of daily security requests for user IDs, dataset access, Customer Information Control System (CICS) transaction access and database access; system security oversight and review, including processes and tools used for operational security administration; security systems and process problem troubleshooting and resolution; and security management and system consulting, to include the development of suggestions and recommendations for improvement in the security environment and posture for client, as well as security policy development and implementation support. Ownership services hardware for the mainframe processing unit; disk and backup devices, as well as hardware supplies; software, including operating and data management systems; the facilities, including raised floor and office space; and facilities management.

5.

Midrange/Server Service Management

1.

Enterprise management participation in the architecture and planning, and test implementation and integration, of solutions; data management policy and practices; application change management policies; software license management policies; service-level requirements definition; and product evaluation and usability testing. Procurement defining processes and procedures, and assisting in purchase consumables (such as tapes). Asset management hardware inventory management; software inventory management; software configuration management; and financial management of leases or depreciation. Security services security policy development, incident tracking, intrusion detection, compliance management and antivirus management. Service management reports and metrics (none, low, medium and high), chargeback (none, low, medium and high), and network charges to customer sites. Disaster/recovery (DR) planning planning and testing support. (Note: Although defined as part of the Gartner Consensus Model, full DR services, including cold or hot sites, are usually not part of midrange server outsourcing deals and, therefore, are not included in the below pricing models.)

2.

3.

4.

5.

6.

System Management
1.

System administration services ID management; resource permissions; problem determination and root cause analysis; help desk support Level 3 (excludes application support); and preventive software maintenance.

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2.

System management performance management and tuning, capacity management, storage management, change management, performance management analysis, and capacity trending analysis. Operations services 24/7 monitoring; data backups and backup storage management (system); and off-site, backup storage. Installations, moves, adds, changes (IMAC) electronic software distribution to servers, physical IMAC activity and logical IMAC activity.

3.

4.

Tool Hardware and Software

1.

Includes tools for servers and other software tools.

Maintenance
1.

Operating system maintenance and hardware maintenance, including in- and out-of-warranty repairs.

Ownership
1. 2. 3.

Facilities the physical floor space. Hardware ownership application servers and/or infrastructure servers. Production support application batch monitoring support; application batch scheduling; production control; and application support, including hardware and software tools, and tools for servers. Other reports and metrics, chargeback mechanism and reporting, and network charges to customer sites.

4.

Centralized Storage (Storage Area Network and Network-Attached Storage)

1.

Enterprise management vendor participation in architecture and planning; test implementation and integration of solutions; security policy and practices; data management policy and practices; and product evaluation and usability testing. Procurement the definition of processes and procedures, as well as the purchasing of consumables (such as tapes). Asset management hardware inventory management and the financial management of leases or depreciation. System administration services problem determination and root cause analysis. System management performance management and tuning, capacity management, storage management, change management, performance management analysis and capacity trending analysis.

2.

3.

4. 5.

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6. 7.

Maintenance hardware maintenance. Facilities facilities management (such as physical floor space) and percent of storage area network (SAN) at vendor site. Tool hardware and software tools for servers and other software tools. Ownership equipment ownership. Backup technology traditional backup or other backup media (redundant array of independent disks [RAID] technology employed) and backup frequency. Other reports and metrics, chargeback mechanisms and reporting, and network charges to customer sites.

8. 9. 10.

11.

Best-Use Pricing Model Gartner recommends using various pricing models based on the part of the data center that is being outsourced. See Mainframe, Midrange and Centralized Storage below for the relevant best-use pricing model. Also see "Common Pricing Models and Best-Use Cases for IT Services and Outsourcing Contracts," which identifies the best uses for this type of pricing mechanism, when organizations must:

Control costs and obtain predictable prices. Have a well-defined, fixed scope of work and stable requirements. Define measurable service levels and success criteria. Conduct chargebacks because they enable an easy, unambiguous pricing methodology.

Mainframe Gartner recommends using a fixed-price fee per mainframe resource unit for two functions: processing (which includes CPU) and storage (which includes primary storage commonly [also known as DASD] and backup storage [also known as tape]). For mainframes, Gartner recommends using a price per MIPS per year; for storage, we recommend using a price per gigabyte (GB) per month. Processing pricing is typically per MIPS for dedicated mainframe environments, and per hour for shared mainframe environments. Historically, there have been some variations in the pricing in perhour processing to account for prime hours and off-prime hours, but this pricing structure is going away in favor of a single processing price. The recommended storage pricing for primary storage is per-allocated GB per month. (Note: If an entire array is directly attached, then the customer is usually billed on the total raw storage on the array, not the amount allocated. If it's on the SAN, then the allocated storage is the most common model.) Primary storage is pricing variations based on tiers (which may include backup as a tier) of mainframe storage according to the service level required (for example, input/output [I/O] speeds, availability, incident resolution times and disaster recovery) for the specific data. The recommended
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pricing for backup is per GB transferred or stored (but not both). Historically, backup was charged on a "per tape amount" basis, but this pricing structure is also going away in favor of pricing based on the amount of backup used. Midrange Gartner recommends using a "fixed price" fee per midrange resource unit for two functions: processing (which includes CPU) and storage (which includes primary storage and backup). It should be noted that, occasionally, we see midrange deals where storage is included. However, due to the volatility of storage pricing, this is not a recommended way of pricing midrange deals. For midrange, Gartner recommends using a price per server per month; for storage, we recommend using a price per GB per month. Processing pricing should be a fixed monthly fee based on a "per image or virtual server" for midrange environments. Historically, the pricing has been on a "per physical server" basis, but this pricing structure is going away in favor of "per image" pricing to account for the increasing virtualization of the midrange environment. Like mainframe, the recommended storage pricing for primary storage is per allocated GB per month. The pricing trend for primary storage is pricing variations based on tiers (which may include backup as a tier) of midrange storage according to the service level required (for example, I/O speeds, availability, incident resolution times and disaster recovery) for the specific data. The recommended pricing for backup is per GB transferred or stored (but not both). Historically, backup was charged by a "per mount" basis, but this pricing structure is going away in favor of pricing based on the amount of backup used. Centralized Storage (Storage Area Network and Network-Attached Storage) Gartner recommends using a tiered "fixed price" fee per centralized, primary storage and backup resources based on the service level required (for example, I/O speeds, availability, incident resolution times and disaster recovery) for the specific data. For storage, Gartner recommends using a price per GB per month. Typically, external service providers offer up to four tiers of service:

Standard availability storage. High-availability storage. Disk-to-disk, near-line storage. Disk-to-backup offline storage.

The organization must understand that it's trading off some flexibility in market-based pricing shifts to ensure predictability and usability of a more fixed type of model. To agree on a contract that includes per user per month (PUPM) pricing, a service provider locks in a price for services based on the assumption that it can accurately scope the level of work effort. Unstable environments, or those without reliable performance metrics, are difficult for service providers to designate as deal

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pricing. In addition, the PUPM method is a low-risk approach for organizations and a medium- to high-risk approach for service providers. Bottom Line To get a fair and reasonable price, organizations must know and understand the key deal factors as presented in the attached toolkit document, and be able to define each key factor in their deals, clearly state those factors to potential bidders and use the correct type of pricing model for the type of deal they're pursuing. When all this has been determined, organizations should obtain prices from potential service providers during a bid process or compare them to a benchmark peer group in a deal renewal or cost evaluation. This toolkit will help lay the ground work for the price comparison process.

Toolkit Details
The ZIP file download contains the following documents: 215808_data_template_data_center.xls It is extremely important to know the baseline support environment of your data center support requirements, so Gartner has created this tool that clients can use to gather data for use in determining if the price is within reason when compared to Gartner's price ranges in this pricing note. Used correctly, the data will confirm your price range is accurate. Gartner recommends using this tool to ensure consistency with the Gartner consensus model, along with the nine key complexity factors to achieve a best practices price range projection which will put you within 15% to 20% of the actual price when bid on the open market. Clients can reuse the template as changes occur. toolkit_new_factors_change_d_215808.pdf This is the PDF version of this file. Directions for Use Download the Toolkit ZIP file by selecting the link under the "Download Toolkit Resource" header at the top-right of this page. To unzip and save the files to your computer, select "Extract All" from the File drop-down menu. A PDF copy of this content is included as part of the ZIP. Evidence Gartner contract database. This database is of contracts that are gathered by Gartner on a continuing basis through various channels. Public deals. This is a set of contract data that Gartner gathers from public deals, usually government and/or not-for-profit contracts in various infrastructure categories or a multiple set of categories.
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Contracts gathered by Gartner analysts who receive data from various clients for review and action as part of regular day-to-day interactions. The data gathered and used from these contracts are the services included and the price for those services. No client and/or provider names are gathered or kept to protect all Gartner clients and vendors. Note: For this year's data center pricing data we have used over 80 contracts as the basis for the pricing. Each contract selected was from a deal considered to be successful from the client viewpoint. A few, less than five, deals with prices either well below the low end or well above the high end price point were excluded due to deal challenges or our inability to confirm if the deals were successful.

Disclaimer
Unless otherwise marked for external use, the items in this Gartner Toolkit are for internal noncommercial use by the licensed Gartner client. The materials contained in this Toolkit may not be repackaged or resold. Gartner makes no representations or warranties as to the suitability of this Toolkit for any particular purpose, and disclaims all liabilities for any damages, whether direct, consequential, incidental or special, arising out of the use of or inability to use this material or the information provided herein.

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