An Abstract Correlation between Phone Contracts and IT Technology Refreshment Cycles

Such an Abstraction Might Be Forbidden, but Let's Explore It and See

By Ed Higgins

You have all certainly heard of Moore’s Law, which states that every two years the number of transistors on an integrated circuit (and thus processing power) doubles.

Gordon Moore, a co-founder at Intel made this observation way back in 1965 and it became popularized in 1970 – so it shouldn’t be news to any of us.  In fact, this assertion is a reality in our daily lives.

Think about your smartphone and your cellular phone contract: every two years you are eligible to get a new one from your carrier, and your carrier is willing to underwrite the bulk of the cost of it. Why? Because the company can make enough money on your contract to absorb the cost of the physical phone.

Now, think about this for a moment: the services are more valuable than the hardware. Press the "M+ button" in your mind on that one and we'll press the "MR button" later. The other reason is, the cellular carrier knows that a new model will come out in two years – which gives them an opportunity to renew you to stay with them.  Much of the hype on mobile phone innovation has to do with processing power.

Technology is advancing, processing power doubles every two years, and service is more valuable than the hardware.

Now let’s talk about servers and the data center.  Your data center has a LOT of servers: several thousands of them in some cases. You may consider it a badge of honor keeping them all running (and you should), but are you getting the message from your cellphone provider, in your case, the IT Finance department, that every three years, they’re ready to replace that server?  Think about that – EVERY THREE YEARS YOU NEED TO REPLACE A SERVER.  A thousand servers, 333 replaced each year. A third of your data center turned over each and every year. “Really?” you may ask. It’s simple:  think of a server’s cost and the power it consumes and the workload it executes.

The hardware (and software) costs typically account for only 15 to 25 percent of the overall costs associated with installing, maintaining, upgrading and supporting a dedicated server. So, if you can save HALF of the power a server consumes with it’s newer cousin in three years (Moore’s Law), and the fixed cost is a fraction of its overall life, why wouldn’t you change out that old server (“but it’s only three years old”) with a new one?

Your Finance department has other laws it needs to abide by, specifically Generally Accepted Accounting Principles (GAAP).  GAAP states that capital equipment like servers cannot be fully depreciated in less than three years. There are financial impacts of leaving a server in place past its 3 year schedule: the lost tax benefits or the lease over runs (plus lease cost acceleration beyond the initial term), the cost escalation of service and/or warranty extensions.  Or what about the cost of having abandoned servers that take up space and idle power artificially consuming precious capacity that could be freed up, or worse, may lead you to think you need to expand your data center. Or the costs of having dual sets of gear as the replacement process is slowed by inefficiencies, you pay for lease/warranty/depreciation/service/power – all of it  – all overlaps.

So EVEN IF Finance drove the rest of the organization to tightly manage asset replacements every three years, they’d still be violating Gordon’s Law already by an entire year.  But at least they’d be doing their best to not be a rule breaker.  The question is, are you?


I hope you enjoyed this article.

Stay tuned, and stay safe

Ed