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Total Cost of Ownership (TCO) is just the TCA amount plus the annual costs of running your array(s), such as the cost of storage personnel, the annual cost for floor space, software, support and maintenance, electricity, and perhaps even the carbon footprint associated with the electricity your array(s) uses. Since data storage almost always has growth, your annual or operating costs would also include adding capacity, unless this was purchased upfront and then this cost would be part of your TCA.

A Critical Concept

Most companies will renew their storage every four years, and so their TCO time period is four years, which means there is the TCA amount plus four years of operating/annual costs in your TCO number. Whether your company prefers a three, a four, or a five-year TCO analysis, it is still likely that the operational costs in your TCO will outstrip your cost of acquisition or TCA. That's a critical concept to be aware of. Why? Because there is no discount possible on your operational costs such as electricity and so TCO highlights the fact that traditional storage discounts are much less impactful than one may have imagined since any discount is typically only applying to less than half of your TCO.

250TB TCA versus 250TB TCO

For example, if you purchased 250TB of usable Flash capacity, attained a 3.7:1 compression rate, annual storage growth was 25% and you selected 7.68TB drives. Also, assuming you went with DRAID 6 and 8+P+Q parity, a 4 year TCO using list prices of an IBM FlashSystem 7300 would be approximately $622,000, while the Total Cost of Acquisition (TCA) would be $224,930 or 36%, which is a very low ratio.

Now in this example we are making an assumption that the incremental capacity needed is purchased each year. Many companies purchase all of their expected capacity upfront. No doubt some readers may be wondering how this might change the cost of acquisition as well as the more important TCO number. Using the same system design assumptions as the previous example but purchasing all of the capacity upfront would mean a TCA of $465,920 and a TCO of $810,967. This means the TCA as a percentage of TCO increases from 36% to 57% which is quite dramatic, and naturally this has significant implications on the vendor discount proposition.

Upfront or Over Time

There are many reasons a company may decide to purchase all of the required capacity upfront. Only having to go through the corporate purchase process once is certainly a benefit, the risk of not having sufficient capacity particularly for a business that has a high degree of seasonality also may make an upfront purchase very attractive. Some companies argue the resources needed for capacity planning are reduced with an upfront purchase approach. Unquestionably there are merits to buying all of the necessary storage capacity in the beginning but, there are also implicit and explicit costs associated with this approach. Hardware is declining in price and investing in an asset that will be much cheaper in the future has a cost as may the possibility of increased software licensing if license costs are based on capacity.

Why then TCO and not just TCA?

TCA is an important number for some companies since it is the out-of-pocket cash they need to come up with to get their new storage array(s) operational. However, in some cases the TCA can be somewhat modest and it is only once the annual/operating costs are added that the true or total cost of ownership becomes apparent. Given that the TCO is much closer to what your annual storage budget needs to be, TCO is a crucial number to have.

Final Thoughts

In the first example where we purchased our storage over time, the cost of acquisition was $224,730 or 36% of the TCO. In a typical negotiation with a storage vendor, the discount a customer obtains is only going to apply to the cost of acquisition. This means an aggressive discount of 40% or more, while looking great on the surface, only amounts to a 14.4% reduction in the TCO. As a result, a focus on reducing the TCA is not where the cost saving effort in many cases will be best rewarded. Instead, most companies should be focusing their time on reducing their annual or operating costs.

TCA is an important number to have, but storage decisions should be guided by your TCO. Vendor discounts have a visceral appeal, but they have to be evaluated in light of the TCO and not the TCA. Purchasing storage upfront, while a common industry practice, has many pros but also many cons. Finally, TCO is an important financial concept to get your head around, but there are many more financial issues that are becoming increasingly important for data storage professionals to be aware of.