Frank Muscarello, founder and CEO, MarkITx, an exchange for used enterprise IT equipment.
As consumers in a short-attention span world, the constant onslaught of new technology has led all of us to mindlessly collect countless computers, phones, TVs, routers, cables, stereos and video consoles which we later stow away to gather dust in our basements, attics and garages. If we feel particularly industrious, we may go so far as to sell old technology for a few bucks at a garage sale or on Craigslist, or, if we don’t want to haggle with strangers, we can drop our gear at the curb or to take it to a recycling center.
We know it’s wasteful, but it’s our money, so no one is harmed.
But what about when it’s an enterprise taking this same consumerist approach? Then, rather than an individual being impacted, the waste hits shareholders with reduced returns, employees with smaller bonus pools and customers with higher prices.
But what if we adopted a different mindset–one that was less like that of a consumer and more like an investor? What if we managed our data center equipment the way an investor would manage a stock portfolio?
An investor would never buy a stock and then sell it for less than its worth when it came time to reallocate. But that’s basically what data center operators have done for years. They invest huge amounts in equipment, and then, when it’s time to refresh, they sell it for pennies on the dollar to middlemen, pay a recycler to haul it away, or simply store it away in a dusty backroom.
This investor mindset question isn’t rhetorical – the stakes are too high, with data center costs rising 20 percent per year, and doubling in just the last 5 years alone.
Thankfully, thinking like an investor when it comes to enterprise IT – for more informed buy, sell and hold decisions – can start with just a few steps:
1. Track Your Portfolio’s Value
Investors regularly monitor the value of their holdings, and make allocation decisions as those holdings change in value. For IT equipment, value is based instead on fixed depreciation schedules, so it’s of little surprise that most of us are happy to get anything in return when selling aged gear.
Certainly, it hasn’t always been as easy to track the price of old infrastructure as it has been to track the price of an exchange-traded stock, but with the commoditization of enterprise IT and a deep $300+ billion used equipment marketplace, it can be done. Whether through automated price tracking via a third-party marketplace like MarkITx, or having an intern monitor equipment values in a DIY spreadsheet, understanding the true value of your equipment can help you time your sale and purchase decisions.
Monitoring the price of used gear can also give CIOs leverage: by pointing out when the depreciated value of equipment falls below its true market value, the decision to sell and reinvest is obvious to even the most obstinate CFO.
2. Be Opportunistic
Great investors often sit on cash, waiting to strike when the price is right. While data centers don’t have piles of unused cash laying around, there is cash value in your current equipment. If you are tracking its value, you are positioned to sell it more rapidly, and thus be able to buy when prices are right – at the end of a sales month, quarter or year, or just before the vendor’s hot new product is released.
3. Manage Risk and Reward
The best investors in the world aren’t looking to double their money with every investment (though they’ll certainly accept it if it happens!). Instead, they recognize that if they effectively manage the risk and reward of each investment, over time the end result will be strong overall performance. In the data center, the “risk” would be paying top dollar for new equipment even if there was not yet a compelling case for it. To make the risk-reward equation more compelling, balance equipment performance with the actual demands that will be placed on it. You may find that certified used equipment, or something less than top of the line, is sufficient for your lower performance, non-mission critical applications.
4. Reinvest Dividends
Income investors love dividend-paying stocks, and they constantly reinvest the dividends to lower their cost basis, increase their holdings and improve performance. While equipment doesn’t pay cash dividends (though that would certainly improve Cisco’s fortunes), data centers should factor in the true value of their current holdings when budgeting their next purchase cycle.
5. Avoid Fear, Greed and Envy
Fear, greed and envy are death to any investor, as they lead to rash, foolhardy and ill-conceived decisions. And it’s easy to fall into their trap in a data center. There’s the fear of falling behind the competition, the greed of wanting the most state-of-the-art infrastructure, and the envy of peers who do, in fact, have the most state-of-the-art infrastructure. Instead, data centers should set an equipment refresh plan based on their specific business objectives and financials. Do what’s right for your business, and you’ll be the CIO that others envy, regardless of the age or sophistication of your infrastructure.
Moore’s Law has brought revolutionary change and improvement to enterprise IT, and IT equipment manufacturers spend billions of dollars on advertising and tradeshows to remind us. But if we’re not seeking to maximize the value of our current equipment and if we’re not making logical, informed decisions, then we’re cursed to be consumers – spending money needlessly, wasting resources and hurting our businesses.
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