The pricing for colocation data center services has been on a steady rise for the last couple of years, according to a CBRE report.
The annual surge in the quoted price per kilowatt per month by the end of 2022 hit a 14.5% increase for the wholesale price of 250-500kW, escalating to $137.90 per kW/month.
The CBRE report for the second half of the year further indicates that these prices will likely remain this way for the foreseeable future.
The demand for data center services is fueled by the proliferation of IoT devices, increasing cloud computing applications, and the adoption of data analytics across multiple industries.
As a result, the largest data centers and colocation facilities continue to experience high service demand, but why are their prices consistently rising?
This article investigates the reasons behind price increases by large data centers.
Why Large Colocation Data Centers Increase Their Pricing
Rising Operation Costs
One of the primary reasons the largest data centers are adjusting their pricing structure is the steady increase in operational expenses driven by electricity, cooling systems, and hardware costs.
Electricity comprises a substantial fraction of these expenses. According to the U.S. Department of Energy, data centers accounted for 2% of electricity usage across the United States in 2020.
The rising electricity prices in the United States directly impact the operational costs of data centers. The U.S. Energy Information Administration reported that the average retail price of electricity increased from 10.54 cents per kilowatt-hour in 2010 to 13.04 cents per kilowatt-hour in 2021.
Besides electricity, cooling systems constitute a significant portion of the operational costs. A study published in “Energy and Buildings” states that cooling systems can account for up to 40% of a data center’s total energy consumption, necessitating considerable capital outlay and ongoing maintenance costs.
In addition, server hardware requires regular upgrades to keep up with technological advancements. A report by Gartner noted a 20% increase in server prices in 2020 due to the rise in component costs, contributing to the ongoing upward trend in operational expenses.
Security measures is another essential aspect of data center operations. With Cybersecurity Ventures predicting global cybercrime costs to reach $10.5 trillion annually by 2025, large data centers must invest in top-tier cybersecurity measures, further escalating operational costs.
Rising Real Estate Prices
Large data centers require substantial physical spaces for hosting servers and other infrastructure. As real estate prices climb, especially in tech-centric regions, these increased costs directly influence the price of data center services.
This issue is further compounded in areas with limited availability of suitable land for data center construction, forcing data centers and colocation facilities to pay premium prices for the right location.
Supply Chain Disruptions
The supply chain, a critical lifeline for various industries, including data centers, has faced significant disruptions in recent years.
Geopolitical tensions, trade restrictions, and global health crises like the COVID-19 pandemic have put immense pressure on the supply chain, upsetting its delicate balance.
For instance, a MacroFab report says the global electronics industry was hit by a whopping 16,700 disruptions in 2020 alone, revealing the severity of the supply chain issues.
The strain has impacted the data center industry, most noticeably in the cost and availability of crucial equipment. Key infrastructure like servers and cooling systems have become pricier and harder to source.
As a result, running large data centers has become more expensive, forcing these facilities to adjust their pricing structure to enable them to provide reliable services while remaining profitable.
The Need for Redundancy and Resilience
Serious businesses cannot afford downtime. As a result, they demand high levels of reliability and redundancy from their data center partners.
Achieving 99.999%. uptime requires significant investment from large data centers.
These investments include:
- Redundant power to ensure constant operation
- Multiple network providers to guarantee seamless connectivity
- Advanced security measures to ward off cyber threats.
These costs, in turn, are inevitably passed onto the customer, contributing to the escalating prices for data center services.
Skilled Labor Shortage
Managing and maintaining data center operations require highly skilled professionals.
The surge in demand for such specialists has outpaced supply, leading to an increase in labor costs.
The expertise required for these roles encompasses several areas, from systems and network administration to cybersecurity. The high cost of hiring these skills translates into an added operational expense for data centers and, by extension, an increase in service pricing.
Volico Data Centers Strives to Offer Completive Pricing While Remaining Reliable
While Volico Data Centers runs multiple data centers, we understand the importance of offering competitive pricing without compromising on the reliability and quality of its services.
Amidst the rising operational costs, we leverage various strategies to balance affordability and dependability.
First, Volico focuses on optimizing operational efficiency within our data centers.
We aim to reduce power consumption and minimize associated costs by implementing energy-efficient infrastructure and adopting sustainable practices. The commitment to energy efficiency allows Volico to pass on the benefits to its customers through competitive pricing.
Secondly, Volico leverages its extensive network partnerships to secure cost-effective connectivity solutions.
By collaborating with multiple network providers, we ensure reliable and robust connectivity at competitive rates. The approach not only enhances service reliability but also enables Volico to offer cost-efficient solutions to our customers.
Further, we have adopted a proactive approach to infrastructure management and maintenance.
By regularly upgrading and modernizing our hardware and software systems, Volico can deliver high-performance services while mitigating the risk of costly downtime.
Our services include:
Whether you’re in for colocation services or want to learn how Volico can help ensure business continuity even during unplanned outages, feel free to call us at (305) 735-8098 or chat with one of our data experts to discuss your needs.
The expert will evaluate your unique business requirement and craft a quote that allows you to experience Volico’s reliable data center services.