Chop a line for the data center…

I was listening to Buckcherry this morning on my way to a client site, so while the title isn’t too crafty, it’s based on a damn good song from a solid band.

I was glad to see someone else in the data center world blogging about the movement downmarket by data center companies. I was smiling as I was reading Compass Data Center’s blog post ‘Everybody in the Pool‘ because I know they get it and have for a long time – a deal is a deal.

What really makes me smile is the reasons given for the big wholesalers going down market – a new exchange, or because they want to mop up some stranded power. That’s how it starts, and that’s why good coke dealers will front a customer a little first. The chances are that the user will get hooked and keep coming back for more – or in this case the mopping up stranded power becomes a full fledged addiction to higher margin revenue. 

The issue is that the landlord is now competing for the same deals as tenants, and landlords will ALWAYS have the upper hand on price. So now what?

A deal is a deal – the reality is just settling in for those who don’t watch this stuff as closely as we do. If a deal is a deal then a data center is a data center and landlords with the upper hand on price, just kicked their tenants in the nuts. 

 

The Math of Bitcoin

Withe recent implosion of MtGox –– A Bitcoin Exchange in Japan – the spotlight is back on Bitcoin. The discussions are ranging from who can hurl the most insults and blame who the most, or hand wringing about what the future holds. I will suggest another way to look at bitcoin (BTC) and focus the discussion on math based reality.

I have looked into BTC and even modeled out a hosting offering for it because as you might not expect, a lot of the BTC miners are 20 somethings with a mining rig plugged into their apartment wall socket. I expect the latest implosion of price will wash a few dozen miners out and they will go do something else, or have an axe to grind with BTC and want to get it all back without changing the fundamentals of their efforts. I will share some of the business modeling I have done (no secret sauce here). These are based on the latest and greatest hardware rigs you can buy – the CoinTerra, TeraMiner IV:

• A single terra miner has a 2-terrahash per second hash rate and costs $6,000.
• For $6 million, you could acquire 2-Petahashes with one thousand of these machines.
• $60 million doubles the entire current network hash rate of roughly 20 petahash per second. (This will probably change as miners wash out)
• The monthly quantity of all bitcoins mined is 108,000 BTC. Globally, that’s it, every 30 days

So to turn up some hashing capabilities it’s $6M for the rigs. That’s the easy part. Lets look at where you put them because these are not your average pizza boxes…

The rigs are custom built to hash numbers. They draw 2.2Kw per rig. Ten of the rigs fit inside a single 42 U cabinet that are $3,000 a piece, pegging power draw out at 22Kw per rack. That is a TON of heat to have to deal with, and few data centers can. So 1,000 of these rigs is 100 cabinets at 22Kw/cabinet. That means 2.2MW of power for the rigs. Add another 30% for cooling overhead (minimum) and that’s another 660Kw, bringing the total power footprint to 2.66MW. Every month. 

At 5 cents per kwh, that’s 1,941,800 Kwh or $97,090 in power bills per month. Plus $6M in hardware, plus $300,000 in cabinets, plus rent at a facility that can handle the heat at $125/kw so that’s $332,500/month for at least a 3 year term.

Let’s check the costs so far:

Hardware (CapEx): $6M

Rent & power for 36 months (OpEx): $11,970,000 (rent), $3,495,240 (power) Total= $15,465,240

$21.5M to get in the game

Now, I assume you’ll need people to keep things running smoothly, so for a fully burdened team I would allocate $1.2M/year to keep things running smoothly. That’s $25M to launch a mining company.

The gotchas – The first month you mine will be the month that you make the most BTC. Every month the payouts get smaller and the hashrate difficulty goes up, so you need better hardware. All. The. Time. Better hardware to chase diminishing returns. 

Speaking of returns… The chart below was taken just moments before publishing. It shows revenue falling 50% over a few days time from $4.5M to $2.3M. Ouch. Fortunately that tank is spread across the world, but getting cut in half is getting cut in half. 

So what is the point of all of this?

You can make money at this, and the old adage of ‘it takes money to make money’ rings true, but only if the value of money holds up. Giving someone a dollar today that is worth 50 cents by Friday is not a good business model. 

 

A Top Data Center Consultant’s 2013 – Year in Review

For Blunt Hammer Consulting, 2013 was pretty interesting. 

We started the year continuing work with a group on the West Coast to develop a business plan of deploying modular data centers. We exited the year working with a midwestern municipality that surprised us quite a bit with what they have to offer as a legitimate data center site, and with a cabinet manufacturer that has designed and manufactured some of the highest quality product we’ve seen that is backed by a 99.9998% customer satisfaction rating (measured by returns).  In between, we worked with six other clients consulting about business formation, gaming infrastructure, the financial outlook for the data center industry, and short term ‘state of the industry’ type engagements. It was busy.

On a pure business standpoint, our revenue was up over 100% and our profitability was not only maintained, it grew. It was an awesome year looking back, and 2014 looks even better and here’s why:

1. Clients (and prospective clients) we talk with are less interested in good enough and are genuinely interested in doing better by trying new things. They are speaking with their checkbooks.

2. Our specialization in modular data centers. The business of modular continues to grow in spite of those who are still stuck on defining what it is. All that says to us is that if you still need a definition, you’re not ready for what’s here. If you don’t have a strategy for it, then you aren’t part of doing better, you are legacy. In this industry it means jumping the shark.

3. The value of what we do is increasing exponentially. The number of times we have heard ‘but they add no value’ this year dwarfs the past three years combined. We get calls from people looking to find another way to select data centers besides talking to a real estate broker who wants to talk cap rate instead of adiabatic cooling and its actual effect on PUE. Sorry brokers, step up your game (or call us) , your clients are talking to us.

4. The data center industry is moving towards being the next utility, something we have been saying since 2007. People are less concerned WHERE they get their reliable computing resources from as they are THAT they get the most reliable computing resources. The ideal is now that norm – always on. Period. 

We hope 2014 is a year of continued growth for us and for our clients, that it’s another year of exceeding expectations, and ultimately that we find $40M for a project to cannibalize the complexity of a data center and do better. 

Merry Christmas and a Happy New Year from us at Blunt Hammer!