PHP Friends issues statement regarding price adaptation in the light of the energy crisis
Can be found here: https://blog.dataforest.net/news/umgang-mit-stark-gestiegenen-energiekosten-und-preisanpassungen/ (they mentioned it on their Twitter/FB)
The topic of energy costs has been on everyone's lips for several months. As a web hosting company, we need a lot of electricity despite efficient cooling and modern hardware, so electricity accounts for the largest share of the operational costs of our data center space.
Background of our cost structure
With today's article we want to explain transparently how we have dealt with the topic in the last few months and what news has arisen in the last few days. After an easing on the energy markets was not foreseeable at first, we started to deal with the topic. To understand the impact on our business, you need to know what our energy costs are made up of.
Last year, as some of you must have noticed on social media, we rented a larger area of our own in our maincubes FRA01 data center (instead of individual racks as before), which will be expanded with racks according to our needs, to ensure our growth. Ultimately, it is two rows of racks with their own cold aisle and door in the middle, which we can expand until we reach the opposite wall. There are also separate cable routes that can be used to independently connect our racks as desired. This setup creates space for the next few years and enables us to implement practically all connection needs ourselves - whether for customer racks or our own. With a long contract term, we have ensured
What is quite common in the (larger) data center business also applies to us: Our total costs are primarily made up of the so-called (fixed) provision of power and a variable kWh price. The power provided is measured in kW and, to put it simply, means that we can use a certain peak power (e.g. 100 kW) and are also guaranteed that this load can also be cooled 24/7, i.e. the waste heat from our infrastructure can be dissipated. Since the data center has to ensure that it can provide this power and cooling capacity at all times, it is common for users to pay for their peak and not average consumption. Therefore, you usually have to pay a little more for the provision of performance than you consume on average.
Put simply, our price for the actual power consumption is made up of the annual purchase price of the data center and the so-called PUE (Power Usage Effectiveness). The PUE value results from the secondary consumers of the data center in relation to the productive load; i.e. primarily air conditioning, uninterruptible power supply (UPS) and other building technology.
On the one hand, we tried to find out the electricity price for 2023 as a basis for calculation as soon as possible, and on the other hand, a few months ago, we "preventively" increased the price for new orders of some of our products by 11-14%. The hope was quite frankly that the additional costs expected in 2023 through the actual increase and the additional income in the last few months of this year could be absorbed to a sufficient extent. We expressly wanted to avoid making blanket price increases for all products without knowing the final electricity price. Although many competitors have corrected their prices upwards, in some cases drastically, in recent months, we wanted to wait and see what electricity price we ultimately have to calculate - knowing full well that the time window
From 2021 to 2022 we had already received a roughly 40% increase in electricity prices, which we were able to cushion at the time through forward-looking planning and the previously very low kWh price without having to touch existing contracts. First and foremost, we adjusted dedicated servers back then when they were canceled and thus rented out again. This enabled us to compensate for part of the additional costs.
The electricity price in figures
On the afternoon of November 30th, 2022 the time had come - we received a letter regarding the electricity price for 2023. The increase is more than 80% compared to 2022 and has, we have to say quite frankly, exceeded our fears and insofar shattered our hopes to be able to cross-finance them purely from new orders.
Since it is the easiest for them to implement and is one of the most important cost factors, we communicated their new electricity price to all customers who purchase their own racks from us on the evening of November 30th, 2022. This applies from January 1st, 2023 and cannot be intercepted by us in any way, since the margin for colocation is low and the electricity costs are passed on by us. That's why we design our colocation contracts in such a way that the electricity price is adjusted according to our procurement costs - of course also in the other direction with reduced costs.
Anyone who has already guessed while reading that we now have to make price increases for existing customers is right. However, we do not want to take the path of the currently “customary” flat-rate increase of all products by a certain percentage. Since we separate our racks according to product, we were able to determine relatively quickly which of our products will generate which additional costs. We have been doing this for the last few days.
Finally, with this knowledge, let's approach the problem from different perspectives:
Adaptation to cheaper products: Thanks to a high level of loyalty from existing customers, we still have active contracts that date back to 2014. At that time, for example, IP addresses could still be obtained free of charge for us and we rented vServers for €2.00/month and cheaper, albeit not often. With today's IP and energy prices, this is no longer a good idea and must be corrected at all points where, from today's perspective, a price that has been maintained for many years is no longer profitable. This also applies in particular to additional IPv4 addresses and IPv4 networks, but will also affect some newer products if they are simply no longer profitable in relation to the current calculation.
Replacing old systems: For many old contracts, we still operate servers with old processors that are no longer energy-efficient enough. We will replace these with more modern CPUs next year and at the same time upgrade products that we have to raise in price.
Other power-saving measures: Admittedly - there is not much more that can be done, since we have been paying attention to energy efficiency for a long time, but starting next week we will be working on further reducing the costs for cooling our servers by optimizing their ventilation without affecting the actual supply air temperature of ours to increase cold aisles so that our customers are not disadvantaged. Depending on the result, there will be a blog post about it.
Wherever possible, we will not only upgrade older products in terms of CPU performance, but also raise traffic and bandwidth to a modern level in order to be able to provide at least a certain added value.
Pricing Adjustment Details
We will write to all affected customers in the next few days and communicate the respective increase. In terms of our transparent communication policy, it is important to know how we proceed. We will not make a hard adjustment to an exact date, but to the next regular maturity that is after that date. The following example should illustrate this:
A product previously costs €10.00 per month and will be increased to €11.50 per month from January 1st, 2023. However, the product's next due date is December 31, 2022, i.e. before the deadline. Therefore, the product is billed again on this day for a full billing period at the old price - even if this is always paid a year in advance. In particular, we want to reward customers who have placed their trust in us with an individually selected longer billing period, and still enable those with a shorter billing period to be able to plan to a certain extent, since any billing that is due before the key date will always be at the old price; even if the period billed well into the next year.
With the measures mentioned, we intend to compensate for about half of the additional costs. What about the other half?
Politicians are currently discussing an electricity price brake. Many details are unclear; but above all, of course, where exactly the effective electricity price for the next year will level off for us. Of course, we don't expect the electricity price brake to completely solve the cost problem, but it should bring some relief.
In addition, many industry experts expect prices to ease from 2024. Our idea is to absorb the remaining additional costs in part for a year and to be able to buy electricity again from 2024, which, in combination with the necessary price adjustments, will make our products profitable again brings to the previous level. We consider this to be more customer-friendly than making a larger, flat-rate increase now and then promising later price reductions that nobody can really estimate.
It is annoying that we received the new electricity price so late, as our own communication was and is directly dependent on it, and we are aware that the resulting late communication will also be met with resentment. Nevertheless, we hope that we have explained well why we acted in this way and not otherwise. The next year will bring some challenges for the hosting industry; not only in Germany. We are grateful to have loyal and understanding customers by our side and are confident that we can make the best of the situation.