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

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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 email, 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.



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

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 Technical1:

For In-House Infrastructure

Typical Web/Database Server Hardware - $5,000

Windows Server software - $1,000

Email Server software - $5,000

MS SQL Database Server software (Two CPU) - $10,000

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 report2. 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, www.jacksontechnical.com/hosting�inhouse�vs�outsourced.htm (Jan 25, 2013)

2 - Cooney, Michael, Outsourcing vs. keeping it in-house, Network World, www.networkworld.com/news/2007/102607-arguments-outsourcing-inhouse.html (Jan 25, 2013)

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

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



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

Email 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 24-72 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 hardware3. 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,

http://www.archstoneconsulting.com/services/it-effectiveness/white-papers/optimizing-it-technology.jsp



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.

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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 study4 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, www.symantec.com/content/en/us/about/media/pdfs/symantec�ponemon�data�breach�costs�report.pdf


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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 services5.

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 10-12 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, www.networkworld.com/news/2007/102607-arguments-outsourcing-inhouse.html

(Jan 25, 2013)

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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 5505 + ) $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



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 5505 +) $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


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 Email and Applications.


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