Be it an enterprise or a growing mid-size business, a company at some point has to decide whether to build a data center to expand its compute capacity or to turn to one of the many shades of data center outsourcing.

Paul Hohnsbeen, COO of the wholesale data center provider Global Switch, made a case for going with the wholesale model instead of building and operating your own facility during a presentation at this week’s DatacenterDynamics conference in London Docklands.

The pitch mainly revolved around risk, or the significantly smaller amount of risk involved in leasing wholesale data center space than in building and operating your own facility. Besides just the high cost of building a data center, sources of risk are aplenty: from risk associated with land investment to risk in contracting for large quantities of energy.

Buying land, for example, can be risky because of the increasing scarcity of high-voltage power and costs associated with remediating environmental contaminants from a property.

Global Switch’s development of its Canary Wharf data center, for example, was stalled for about a week because the crews had found a military rocket in the ground that had to be extracted.

At least in the UK, the planning permitting process is so subjective that a property owner is never sure they will receive approval for development.

“There are really no structured codified planning regulations,” Hohnsbeen said. “One has to convince the planners. They don’t necessarily have business agenda close at heart. Where there’s not a codified planning process, that again raises risk to entry.”

Buying energy is risky from both the environmental-impact perspective and the purely financial one. Consumption of power is constant, intensive and growing in data centers. Power is largely a non-controllable business cost, and making the most efficient use of power requires scale, Hohnsbeen said.

The way a wholesaler addresses risks associated with energy and minimizes its cost is through demand forecasting, forward bulk procurement and hedging.

“We are spending in excess of £18m on energy,” Hohnsbeen said. “We buy it in bulk; we buy it forward; we hedge where we can.”

Global Switch, a 13-year-old company, today has more than 3m sq ft of space across its seven data centers (five in Europe and two in the Asia Pacific) total. This includes a new data center the company launched in Paris last week.

The facilities provide 120MW of power total and the company’s total current property valuation is about £3.2bn, Hohnsbeen said, adding that the properties were 94% occupied.

Image: Paul Hohnsbeen, COO, Global Switch (left), talking to an attendee at DatacenterDynamics London 2011