Howdy folks!
HalfEatenPie here with another article! This time the comparison and things to consider between renting and owning your server hardware! We’re going to cover the common features, the costs, and at the very end discuss the taxes. This article was mostly geared towards individuals who have little to no knowledge on this subject. Let's jump in.
Table of Contents
When you're deciding between renting and owning your hardware, there's a ton of things to consider. As a rule of thumb, renting will generally save you headaches and time but will end up costing you more. Co-locating will save you more money long-term, but you'll be without some safety nets and services that makes your life easier. But first, let’s discuss the definition of "renting" and "owning".
Renting is universally understood as payments to a provider for the use of their hardware and network. Simply for the purpose of this article, owning is described as the purchase of the hardware and payments to a provider for co-location of the hardware, electricity to power the hardware, and network access.
Features
When renting, you’re frequently offered additional services for free such as speedy hardware replacements and OS Reinstalls (to a limit). When owning, you’ll have to consider availability of spare hardware, cost of remote technician services (commonly referred to as remote hand), and cost of electricity.
When co-locating, most providers will not keep spare hardware available on-site for you to purchase and use at any time. Therefore it’s best to keep at least some spare parts with your provider in case you need a quick hardware replacement to avoid extended downtime.
In addition, if you’re not available physically to troubleshoot your hardware problems then you’ll have to pay for remote hand to fix your server. However, this can be very costly as they commonly charge in increments. For example, a datacenter I am in charges 30 dollars every 15 minutes interval. As a side note, 30 dollars for every 15 minutes is considered incredibly cheap for remote hand costs. Know how much they’ll charge you for remote hand head of time in order to avoid unforeseen costs.
Since the provider can’t manage electricity usage on co-located hardware, you’re charged monthly per expected usage. These are commonly expressed in the form of Ampere. Depending on the voltage of electricity available at the datacenter, your ampere usage will vary. Recall from basic Electrical Engineering class P=IV, or power (unit in watts) is equal to current (ampere) times voltage (volts). Therefore 4 amps at 120 volts is 480 watts supplied to your server. The actual usage of electricity will fluctuate depending on your server usage, however for co-locations you’re commonly charged at expected usage.
Pricing
When we structure everything into numbers and costs, we can see a numerical difference between renting and owning hardware. Again, as a rule of thumb, owned hardware is much cheaper long-term. To make it easier to show the difference, we’ll investigate a simple case-study scenario.
Note: You can find cheaper pricing than those shown here, however these numbers are real market priced quote I received from a provider that is used simply for demonstration purposes.
Say we’re in the market for a new dedicated server with the following specs.
Rental quote I received stated a monthly fee of 200 dollars with a 300 dollar setup charge.
The co-location quote I received from the same provider stated a monthly fee of 50 dollars a month (Promotion Price, normally around 90 dollars).
For purchasing the server hardware, I went onto a site of a popular server building and financing company and estimated the costs of a server of a similar specs.
The server hardware itself costs around 1,080 dollars new and built. But wait! Remember you also have to pay for shipping.
Assuming the cheapest shipping was selected, the estimated total for server purchase and shipping comes down to 1,115.43 dollars.
Now I’m no finance or business major, but many of the engineering projects I've worked on utilize a cash flow diagram to easily show financial information. Below is a semi-complete cash flow diagram (semi-complete because everything doesn’t equal to zero… and the lines aren't exactly to scale) for a simulation period of three years and assumes all monthly server payments are made at the end of the year.
The cash flow diagram is pretty basic, but the idea it convey is there. Over an extended period of time, you pay less by owning your hardware. The following image summarizes pricing:
Now you may say “But wait, what about remote hand costs and spare hardware costs?” The warranty provided by the hardware provider comes with a 3 years warranty. Therefore, this scenario assumes there will be no hardware failures which will require a hardware replacement nor remote hand time to fix this issue. However, in the case it does, remote hand is priced at 75 dollars every 30 minutes during business hours (250 dollars every 1 hour during holidays and non-business hours). Even by adding the cost of the hardware itself, the total will be nowhere near as bad as one for the rented hardware.
Taxes
Please note I am not a lawyer or a tax auditor.
Certain counties or states in the United States have adopted taxation of co-located hardware, sometimes referred to as Personal Property Tax. Rented servers are taxed by the hosting provider, however for co-located servers only the cost for the colocation is taxed. Therefore, these Personal Property Taxes are sometimes used to tax the use of co-located server hardware from businesses and individuals. The purpose of mentioning taxes is simply as a word of caution and to research where you co-locate your hardware.
In Dallas County, Texas, the tax rate for equipment is 2.999% (Last numbers I could find, from 2006) of the total valuation of the hardware, new or not, for a five year depreciation schedule with 5% for the life past initial deprecation. For Dallas County, even used hardware (that have been newly co-located) are taxed. To determine the market value of these used hardware, Dallas County requests a value known as a “Good Faith Estimate of Market Value”. This is defined as:
So recall from the server example above, the cost of the hardware brand new was 1,080 dollars. At a 2.999% tax, the yearly tax on the server becomes 32.38 dollars. Still cheaper than going rented.
Summary
However you go about it, over a period of three years use you can save more than 60% of the total cost by going with owned hardware. But if you value a simple and easy way to just “get a server working and not have to deal with the paperwork/hardware/etc.”, then rented is the way to go.
Sources
Texas Property Tax
- Munzy
- http://www.window.state.tx.us/taxinfo/taxpubs/tx96_259.pdf
- http://www.window.state.tx.us/taxinfo/taxforms/50-144.pdf
- http://www.webhostingtalk.com/showthread.php?t=513111
HalfEatenPie here with another article! This time the comparison and things to consider between renting and owning your server hardware! We’re going to cover the common features, the costs, and at the very end discuss the taxes. This article was mostly geared towards individuals who have little to no knowledge on this subject. Let's jump in.
Table of Contents
- Definitions
- Features
- Pricing
- Taxes
- Summary
When you're deciding between renting and owning your hardware, there's a ton of things to consider. As a rule of thumb, renting will generally save you headaches and time but will end up costing you more. Co-locating will save you more money long-term, but you'll be without some safety nets and services that makes your life easier. But first, let’s discuss the definition of "renting" and "owning".
Renting is universally understood as payments to a provider for the use of their hardware and network. Simply for the purpose of this article, owning is described as the purchase of the hardware and payments to a provider for co-location of the hardware, electricity to power the hardware, and network access.
Features
When renting, you’re frequently offered additional services for free such as speedy hardware replacements and OS Reinstalls (to a limit). When owning, you’ll have to consider availability of spare hardware, cost of remote technician services (commonly referred to as remote hand), and cost of electricity.
When co-locating, most providers will not keep spare hardware available on-site for you to purchase and use at any time. Therefore it’s best to keep at least some spare parts with your provider in case you need a quick hardware replacement to avoid extended downtime.
In addition, if you’re not available physically to troubleshoot your hardware problems then you’ll have to pay for remote hand to fix your server. However, this can be very costly as they commonly charge in increments. For example, a datacenter I am in charges 30 dollars every 15 minutes interval. As a side note, 30 dollars for every 15 minutes is considered incredibly cheap for remote hand costs. Know how much they’ll charge you for remote hand head of time in order to avoid unforeseen costs.
Since the provider can’t manage electricity usage on co-located hardware, you’re charged monthly per expected usage. These are commonly expressed in the form of Ampere. Depending on the voltage of electricity available at the datacenter, your ampere usage will vary. Recall from basic Electrical Engineering class P=IV, or power (unit in watts) is equal to current (ampere) times voltage (volts). Therefore 4 amps at 120 volts is 480 watts supplied to your server. The actual usage of electricity will fluctuate depending on your server usage, however for co-locations you’re commonly charged at expected usage.
Pricing
When we structure everything into numbers and costs, we can see a numerical difference between renting and owning hardware. Again, as a rule of thumb, owned hardware is much cheaper long-term. To make it easier to show the difference, we’ll investigate a simple case-study scenario.
Note: You can find cheaper pricing than those shown here, however these numbers are real market priced quote I received from a provider that is used simply for demonstration purposes.
Say we’re in the market for a new dedicated server with the following specs.
The co-location quote I received from the same provider stated a monthly fee of 50 dollars a month (Promotion Price, normally around 90 dollars).
For purchasing the server hardware, I went onto a site of a popular server building and financing company and estimated the costs of a server of a similar specs.
Now I’m no finance or business major, but many of the engineering projects I've worked on utilize a cash flow diagram to easily show financial information. Below is a semi-complete cash flow diagram (semi-complete because everything doesn’t equal to zero… and the lines aren't exactly to scale) for a simulation period of three years and assumes all monthly server payments are made at the end of the year.
Taxes
Please note I am not a lawyer or a tax auditor.
Certain counties or states in the United States have adopted taxation of co-located hardware, sometimes referred to as Personal Property Tax. Rented servers are taxed by the hosting provider, however for co-located servers only the cost for the colocation is taxed. Therefore, these Personal Property Taxes are sometimes used to tax the use of co-located server hardware from businesses and individuals. The purpose of mentioning taxes is simply as a word of caution and to research where you co-locate your hardware.
In Dallas County, Texas, the tax rate for equipment is 2.999% (Last numbers I could find, from 2006) of the total valuation of the hardware, new or not, for a five year depreciation schedule with 5% for the life past initial deprecation. For Dallas County, even used hardware (that have been newly co-located) are taxed. To determine the market value of these used hardware, Dallas County requests a value known as a “Good Faith Estimate of Market Value”. This is defined as:
Summary
However you go about it, over a period of three years use you can save more than 60% of the total cost by going with owned hardware. But if you value a simple and easy way to just “get a server working and not have to deal with the paperwork/hardware/etc.”, then rented is the way to go.
Sources
Texas Property Tax
- Munzy
- http://www.window.state.tx.us/taxinfo/taxpubs/tx96_259.pdf
- http://www.window.state.tx.us/taxinfo/taxforms/50-144.pdf
- http://www.webhostingtalk.com/showthread.php?t=513111
Last edited by a moderator:
I've only recently colocated my first couple servers and it's definitely a learning experience. I think there's a sweet spot you need to calculate for rented vs owned and it depends a lot on the server specs, location, etc.
