The data center environment for most companies as it stands in 2018 is in an interesting state of flux: the need for new equipment is on the rise (especially in the optical networking space) due to the impact of data growth. Pair that with the need for assessing the impact of digital transformation as a whole and data centers are now the epicenter for change within the corporate environment.
However, conversely, companies must also mitigate risk as it relates to too much spending—a very real scenario as the balance between new equipment and maintaining realistic budgets is ever present. Add to that dilemma the paradigm that has been created by OEMs: it is sometimes “cheaper” to buy new than it is to maintain hardware, so the proverbial plot thickens even more. For instance, many OEM maintenance programs are exorbitant to say the least as their main goal is to continually push new gear out of the door with their main focus on revenue.
And with that OEM paradigm comes an indispensable adjacent industry based solely on maintenance and support, and grey market equipment—all designed to offset OEM contractual maintenance costs as a cost savings measure while maintaining business norms.
Key Takeaways
- Data centers in 2018 face competing pressures: rising demand for new equipment driven by data growth and digital transformation, while simultaneously needing to control spending and avoid the OEM-driven push toward premature hardware replacement.
- OEM maintenance programs are often priced deliberately high, making replacement appear cheaper than maintenance, which has fueled the growth of an entire third-party maintenance and support industry designed to offset those inflated costs.
- The “network effect” means that individual pieces of hardware, like a server, are worth far more than their standalone cost once connected to a broader network of virtualized systems, workstations, and devices.
- Taking any single network component offline for replacement disrupts a disproportionate share of value, since roughly 85% of a device’s value comes from its role in the network rather than the hardware itself, which represents only about 15%.
- As hardware costs continue to decrease, keeping servers online and available becomes increasingly critical relative to their now-smaller share of total value, making a qualified IT maintenance partner essential to minimizing costly downtime.
However, with all of that in place—budgets and financial calculations rarely address other areas of data center equipment—calculating the network effect and how equipment relates to the value of its own operational status is where IT maintenance and support become even far more valuable. It’s a sum greater than its parts, literally.
In reality, it’s easy for the right IT maintenance provider to save you as much as 50 percent on your maintenance costs. Of course, you could argue that because the hardware and software costs of a server are negligible, why spend more money on an IT maintenance plan? It seems counterproductive, because how can you save as much as 50 percent on your maintenance costs when you are paying a provider to maintain hardware that is inexpensive and easily replaced? In this case, the math behind the equation becomes the most important factor.
This is where the network effect becomes a key driving factor. You see, in both economics and business, a network effect, which is also called network externality or demand-side economies of scale, is the effect that one user of a product or service has on the value of those products and services to other people. For instance, when a network effect is present, the value of a product or service is dependent on the number of people using it—the very essence of the data center and its equipment.
For example, in typical situations servers are considered “stand alone” as they are in fact connected to many other servers, workstations, and mobile devices. Therefore, any individual server that uses any kind of virtualization technology is its own network and, by definition, no longer one server. Make sense?
Therefore, when you take any individual part of a network offline for replacement, this has a disproportionate effect on your network. Although the hardware is only around 15 percent of the value of the device, the other 85 percent of its value disappears while it is being swapped out.
The argument that the hardware costs little so why not just go ahead and replace it, gets completely inverted when you look at the whole environment. The low cost of powerful hardware is now the driving factor that increases the value of the server and its place in the environment. As hardware costs decrease, the relative ratio of hardware cost to total value continues to shrink, making it increasingly important to keep servers online and available, which you can do with the right IT maintenance provider.
The lesson in all of this is to factor in far more than simple line-item costs when setting budgets. Downtime and how it impacts the value of a product or service can be far greater than anticipated. Having a plan in place and a partner in place to mitigate that risk is the key to ongoing success.
FAQs
Why do OEM maintenance programs often cost more than third-party alternatives?
OEM maintenance programs are frequently priced high because manufacturers are primarily incentivized to drive new equipment sales rather than support existing hardware long-term. This pricing structure makes replacing equipment appear more cost-effective than maintaining it, even when the existing hardware is still fully functional. Third-party maintenance providers operate with a different business model built specifically around service rather than hardware sales, which is why they can often offer significant savings while supporting mixed, multi-vendor environments under a single flexible agreement.
How much can third party maintenance save compared to OEM?
The right third-party maintenance provider can often save businesses as much as 50 percent compared to OEM post-warranty support costs. This is possible because OEMs price their maintenance programs with the underlying goal of pushing new equipment sales, while third-party providers build their business model entirely around service, allowing them to offer flexible, multi-vendor coverage at a fraction of the cost. The savings become even more significant when businesses factor in the network effect. Keeping hardware online and properly maintained protects the full value of its connected role in the network, not just the hardware’s standalone cost.
How often do data centers replace hardware?
There’s no universal timeline, and the right answer depends more on actual performance and network value than a fixed replacement schedule. OEMs often push replacement cycles that align with their own revenue goals rather than genuine hardware necessity, which is part of why the third-party maintenance industry exists. Since roughly 85 percent of a server’s value comes from its role within the broader connected network rather than the hardware itself, the smarter approach is keeping functional equipment online and maintained for as long as it performs reliably, rather than replacing it on an arbitrary OEM-recommended schedule.
What is a network effect and why is it valuable?
A network effect is the phenomenon where a product or service’s value increases based on how many other users, systems, or devices it’s connected to, rather than its standalone worth. In a data center, this means a single server using virtualization technology functions as its own network, tied to countless other servers, workstations, and devices. This connectivity is what makes network effect valuable to understand for IT budgeting, since a server’s hardware cost might only represent about 15 percent of its total worth, while the remaining 85 percent comes from its active role within the network, value that disappears the moment that server goes offline.
Why do OEMs push customers toward buying new equipment?
OEMs are financially incentivized to prioritize new equipment sales because inventory turnover requires minimal ongoing infrastructure investment, unlike maintenance, which demands parts logistics, regional technicians, call center support, and long-term service management. To make replacement look like the more attractive option, many OEMs intentionally price extended maintenance and warranty programs high enough that buying new hardware seems cheaper by comparison, even when the existing equipment is still fully functional and valuable within its network.
