Bringing Data Center Operations Pricing to Market Standards in All Contractual Geographies | Sherpas in Blue Shirts

There are several aspects of data center operations management. Various kinds of devices (server, storage, network, security, etc.) are located there and all need to be monitored and managed. One important aspect of the services involved is field services or break-fix services.

There are several pricing models followed including per ticket, per device or even per FTE deployed. When analyzing pricing, companies typically focus on their core geography, i.e., the geography with the highest volume. Service providers tend to take advantage of these situations, doing a cross subsidization wherein they charge lower in the core geography and higher in others. This is not particularly concerning to buyers in most cases, as they are getting favorable pricing for the majority of their volume.

On paper, this pricing contrast is understandable. Companies providing field services typically have strong presence in the core geography, and thus the ability to deploy and manage a large number of their own resources. This allows them to provide really competitive pricing in that geography. In the other geographies, they must rely on their own limited resources, or on sub- contractors, which of course carries much higher prices, regardless of the model used.

However, this often-ignored difference in non-core geography pricing can have serious financial impacts.

For example, recently, I was assessing the data center operations rate card of a global contract. While the majority of the contract volume was focused in North America, there were elements spread across numerous other geographies. Although the non-core geographies combined accounted for ~15 percent of the total spend, the per-unit price in those geographies was ~2x-3x higher than market standards. Bringing those price points to market standards would mean ~8-10 percent savings overall, which could translate to some serious dollar savings in a multi-million dollar deal.

Getting better pricing

The most obvious solution is for buyers and advisors alike to make sure that non-core geography pricing is in line with market standards through proper negotiations. Remember that while it is understandable that the one provider will not be able to offer the best pricing in each region, the difference in proposed and market pricing should not significantly affect the total spend.

Another way to obtain market pricing is to contract with multiple providers, likely local providers in each region. But keep in mind that this will result in increased overhead as the buyer will need to manage multiple contracts or have a service integrator manage each of the contracts.

Everest Group recommends buyers conduct a cost-benefit analysis of both options to determine the best fit strategy for their unique situation.

 

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