Cloud choices and real estate impacts

1. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved.
© 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved.
John Enoch
Principal Technical Business Development Manager, Amazon Web Services
Mark Trevor
Partner, Cushman & Wakefield
Cloud Choices: Quantifying the Cost
and Risk Implications of Cloud
Part 2 – The Data Centre Real Estate
Impacts

2. © 2018, Amazon Web Services, Inc. or its Affiliates. All rights reserved.
The context
The migration to Cloud often will not occur at:
• the optimum stage of an IT refresh cycle nor
• either the point that the investment in the dedicated facility has been fully written
down or the contract on the colo is reaching the end.
The key IT objectives behind most decisions are usually to:
 reduce opex;
 eliminate capex; and
 provide a better IT service and experience for both internal &
external customers.
A lack of analysis and measurable impact assessment typically
creates decision inertia.

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The negative consequential impact of Cloud migration
32%
68%
An increasingly
common picture…...
Utilised
Non-utilised
(the ‘Problem’)
In-house
data centre
utilisation
0.0
1.2
2.4
3.6
£50
£100
£150
£200
£250
90% 70% 50% 30%
Cost per IT kW & PUE
vs utilisation
IT Load PUE

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The prospect of data centre under utilisation is common as a
result of Cloud migration
IT Strategy
A partial migration to Cloud (or just a general
reduction in IT load needs)
Impact
Significant under utilisation of available IT
capacity with no linear reduction in annual
opex and continued capex investment.
Blockers
Migration cost & migration risk and (often
forgotten) recovery of Net Book Value of data
centre investment leading to potential write off
from balance sheet (RICS Red Book
Valuation).
Solution
Migrate non Cloud applications to 3rd party
operated colocation facilities.
COMMON SITUATION
An organisation owns (or
leases) and operates its own
dedicated data centre.

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What is the solution and a way out
32%
68%
IN-HOUSE DATA CENTRE
COLOCATION DATA CENTRE


Legacy
Don’t exit the in-house data centre
Sell the data centre to a colocation operator and retain, as
the anchor customer, the required capacity under a MSA.
The unutilised capacity creates the basis for additional
revenues for that operator.
 It eliminates:
 The cost of migration and;
 The migration risk
 The cost per kW/ cabinet is fixed and transparent;
 As the operator is successful in securing new
customers the PUE will reduce and thus the cost per
kWh reduces;
 No further capex spend and;
 The potential for a capital receipt on the sale that could
potentially cover the current NBV
An Opportunity,
not a Problem
£

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Create the business case
How to realise the true value of a data centre asset
1
STEP 1
Integrate your IT, business, financial and real estate
objectives for the project
How much capacity are you looking to retain and
for how long?
Example Objectives Targets
1 Reduction in annual operational costs of the data centre(s) >=20%
2 Further capital expenditure on the data centres =£0
3 Recovery on current investment >=NBV
4 A more on-demand, agile, and cost efficient infrastructure PAYG
5 Elimination of migration risk =0
2
STEP 2
Establish current Total Cost of Ownership as key
benchmark
1.10 2.59 4.52 6.34 7.99 9.27 10.73 12.994.11 8.70 13.82 18.94 23.97 28.74 33.80 36.68
2.29 4.67 7.24 9.72 11.87 13.99 16.10 17.63
5.30
10.78
16.55
22.31
27.86
33.47
39.17 41.31
0.00
20.00
40.00
60.00
FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026
GBPm
Cumulative Cashflow and Profit & Loss (GBP)
CF - Inc Customer Revenues CF - Ex Customer Revenues
P&L - Inc Customer Revenues P&L - Ex Customer Revenues

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Create the business case
How to realise the true value of a data centre asset
3
STEP 3
Set scenarios and TCO analysis of those that could
meet one or more of key objectives e.g.:
1. Sale and leaseback investment
2. Colocation provider model
3. Sale and ‘leaseback’ required capacity

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Create the business case
How to realise the true value of a data centre asset
4
STEP 4
Establish (the Critical part) the potential value of the data centre asset from a business
generation perspective, modelling the success of an operator (including retained capacity):
• Conservative
• Possible
• Optimistic
Set IRR range to establish ‘surplus’ or potential asset value. Likely level 15%.
RICS Red Book relies of comparable property transaction evidence, whilst not exact, IRR
‘valuation’ does not. Some example outcome comparables:
Capacity Tenure Red Book Value IRR Value
3 MW Leasehold -£1,500,000 £5,000,000
7 MW Freehold £9,500,000 £25,000,000

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Create the business case
How to realise the true value of a data centre asset
5
STEP 5
Through RAG analysis of each scenario establish
optimum scenario that meets key objectives.
In reality Scenario 3 is the only option that will
create a capital receipt to off-set NBV write off.

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When do you implement this?
How to realise the true value of a data centre asset
Once Cloud is being considered as part of the IT strategy or utilisation has reduced beyond the
tipping point. The tipping point can be established based off the benchmark ‘as is’ TCO

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“Unless there is overriding reasons to exit, remaining in the in-
house data eliminates migration risk and cost and establishes a
platform to create value from the data centre, whether leased or
owned, beyond that that can be established by formal asset
valuation - that could recover existing Net Book Value”