Build or Buy?

The question at hand!

As some of you already surmised from this old post, what I was really talking about was pretty simple:

Should we get our own data center?

I was planning on getting around to that eventually, but the post was getting pretty long, and boring, so I thought I’d cut it off abruptly and break it into a two-parter. That also gave me the added advantage of being able to cleverly reverse the post title!

So, here’s the thing.. when deciding whether to build or buy forget all that stuff I said back then. That was two weeks ago, man… ancient history! This is the blogosphere, woman!

Build vs. Buy is not about focusing on your core strengths at all! It’s really just the simple question: “If I build it myself, will it be cheaper?”

The Expert on cheaper

But, what is meaning, cheaper?

Cheaper, is meaning, what is your return on investment (that’s ROI for those MBAs in the H.) if you decide to build something instead of buy it?

Sometimes, you should build something even if it costs more than buying it, because maybe by doing it yourself you’re going to do it better, and doing it better results in either lower costs or higher revenues… eventually. It’s all just ROI.

It seems pretty clear that building our own data center would eventually save us money, but the question is when? And more importantly to you, the question is also when will it save YOU money?

The answer to that is of course never. All that saved money is going to escorts and liposuctionFOR ME US!

But anyway, um, who gets the money is irrelevant, right? I think we can all agree that money intrinsically needs to be saved!

Mooooving right along. When you need just one of something, you should definitely buy it if you can. There’s no way you’re going to be able to do it cheaper than the product already on the market in your very first try.

As any fool can plainly see, the solution to the “build vs. buy question” has everything to do with quantity. The more you need, the more you need to build.

Duh.

“Thank you, Captain Obvious.”

Well, yeah. I dunno, there hasn’t been a blog post in like two weeks, okay? And I haven’t done a lot of thinking recently.

But, even though it’s all just about quantity, “build vs. buy” is still an interesting topic! Because it’s really about how much quantity.

Google didn’t build their own data center when they only had indexed two sites.
Walmart didn’t own their own trucks when they only had two stores.
McDonald’s didn’t own their own potato farms when they only had two served.

No pun intended!

The more of something you need, the better the ROI of building it yourself gets!

For example, even though you pay much less for floor space when you build out your own data center, you also generally have to get a lot (several thousand square feet) of floor space upfront, whereas when you colo you can buy floorspace in chunks effectively as small as one square foot!

Buying (or renting) your own data center may be five times cheaper per square foot, but that doesn’t do you a whole lot of good when you’re forced to buy 100 times more than you actually need!

And it’s the same sort of math with everything else you need to build out a data center. When you’re small, you probably don’t need the full capacity of a UPS module, a generator, or a cooling system. Those things are all very expensive, and unfortunately not sold in fractional pieces! You’re also going to need some expertise in nitty-gritty data center stuff.

Stuff like city grid electricity. Air Conditioning. Air flow. Network conduits. Real estate. Installing racks, cages, and ladders and making them seismically safe. Fire supression. Physical security. And uh, I think that’s about it?

People who are good at all that stuff are also very expensive. Fortunately, they are sort of sold in fractional pieces, as consultants… but really it’d be best to have at least one on your full-time staff.

1/14th an Electrical Engineer!

As you get bigger, it’s worth it to do more.

That’s why large large large companies like McDonald’s are “vertically integrated” to the max.. they don’t just own the potato farms; they own the slaughterhouses, the land their restaurants are on, the paper mills that make their napkins, and I assume salt factories and ketchup mines too. They build it ALL.

Starting out though, companies are “horizontally integrated”.. anything they can buy, they do. At places like eMachines, or tiny webhosts, or Westinghouse TVs.. everything but the brand itself is outsourced. When you’re new and small, you’ve got to be nimble and you’ve got to be thrifty. Without the volume, you can’t afford all the capital expense and time investment it takes to make every last tiny sub-component of your business profitable. You especially can’t afford the time.

The movie of the same name as the next line.

But in time, things change.

I’d even say that change is one of the most interesting things about growing a business: the slow, inevitable, and continual move “up the food chain”. It’s also one of the most difficult things about growing a business. Because in order to compete, you’re forced to constantly delve into new fields you never considered critical, interesting, or even knew existed back when you thought New Dream Network was just going to make web pages for campus security for the next ten years.

And each time you take another step up that “vertical integration” ladder, it’s a risky proposition. You’re getting into an entirely new line of business. A business with unforseen expenses, risks, and rewards. A business you probably know nothing about but your vendors (now known as “your competitors”) have been doing for decades. And despite all the research, research, research you do, you’ll never really understand what you’ve gotten into until it’s waaaay too late to back out.

It’s scary stuff!

But please don’t be discouraged! One thing I’ve learned so far… if your vendors can do it, you can too. After all, vendors are all idiots, right?

Your Happy Web Hosting Vendor.

I mean, just look at your web hosting vendor.