Consumption-based Infrastructure: A Game Changer
January 2019
In this issue
Why Consumption-based Datacenter Infrastructure Pricing is a Game Changer 2
Research from Gartner: How to Get the Best Returns From Consumption-Based, On-Premises Infrastructure 4
Consumption-based Infrastructure Pricing: A Game Changer
Kaminario’s composable storage platform offers cloud
application providers a solution for delivering the
performance and capability of shared storage and the
economic elasticity of the public cloud. This paper
discusses the rise of consumption-based pricing and
the potential of technology solutions like Kaminario’s
to transform datacenter economics.
Cloud-First IT Strategies
Enterprise IT has been transformed by modern cloud
technologies. SaaS is dominating the enterprise
software market. Certain workloads, like filesharing
and backup, are quickly moving to public cloud-
based services. Wherever possible, enterprise
IT organizations are minimizing their datacenter
footprint, leveraging external service providers, and
getting out of the business of owning their own
datacenter infrastructure.
While SaaS and IaaS offerings make sense for many
enterprise IT use cases, critical applications often
benefit from dedicated, optimized private cloud
infrastructures maintained on premises or in shared
colocation facilities. While private clouds leverage
dedicated infrastructure, software composable
storage solutions with consumption-based pricing
offer a solution for building cloud-scale datacenter
infrastructures with the elastic economics of the
public cloud. The ability to scale up and scale down
as IT demands change enables businesses to better
match infrastructure expense with the value they
deliver and the revenue they generate.
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Utility Pricing for IT Technologies
The concept of utility pricing for IT infrastructure
has been around for years. Traditional hardware
solution providers have built secondary businesses
based on financial services for their customers. Exotic
leases and other financial engineering instruments
can transform capital expense into operating
expense. The drawback with these approaches is
the complicated bundling of financing costs with
the hardware, software, and support components of
modern datacenter technologies. Storage technology
in particular has proved difficult to create transparent
and economically efficient consumption-based pricing
that is as simple as the public cloud offerings.
Kaminario
Kaminario offers a software-based platform
that lets cloud-scale application providers build
enterprise-class, all-flash infrastructures based on
industry standard “whitebox” hardware. Kaminario’s
composable storage technology can seamlessly scale
up and scale out as software-driven businesses grow.
Named a leader in Gartner’s 2018 Magic Quadrant for
Solid State Arrays, Kaminario also received the highest
ranking for Analytics and High Performance Computing
in Gartner’s 2018 Critical Capabilities Report.
Kaminario is differentiated from traditional storage
technologies in its complete disaggregation of its
software platform from the hardware it runs on.
This disaggregation supports economically efficient
consumption-based pricing for Kaminario’s software
platform that can span any number of infrastructures
across any number of datacenters. Kaminario scales
up and scales down in line with actual usage.
The Power of Consumption-based Pricing
True consumption-based pricing can deliver the
economic elasticity of the cloud for private cloud
infrastructure. Research from Gartner provides
guidance on best practices for evaluating and getting
the most from consumption-based infrastructure.
They advise IT organizations to ask their technology
providers, “How are all programs really structured,
and what is meant by consumption or usage basis?”
Combining world-class technology capability with the
pricing flexibility of the cloud allows a new generation
of cloud-scale application providers to optimize their
IT strategy for scalability, profitability, and competitive
differentiation.
Source: Kaminario
Research from Gartner:
How to Get the Best Returns From Consumption-Based, On-Premises Infrastructure
Consumption-based programs for on-premises
infrastructure are emerging as an alternative option
to buying outright on-premises systems or paying
for cloud services. Technology strategic planners
at DCI providers must introduce such plans by
optimizing the business model against traditional
products.
Key Challenges
■ Consumption (usage)-based programs for on-
premises infrastructure are emerging, fueled
by explosive growth of public IaaS adoption;
however, they vary significantly among
providers, creating confusion for customers.
■ Many of the current consumption-based
programs are not truly based on consumption
or flexible in their usage.
■ Consumption (usage)-based programs
will generate additional benefits such as
alternative solutions for cloud services or
service attachment, although providers may
not get sufficient profits from these offerings
and/or will have a negative impact from
cannibalization of traditional system sales.
Recommendations
Technology strategic planners at DCI providers
seeking an alternative offering to traditional
infrastructure sales must:
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■ Introduce flexible programs by including short-
term commitment/termination notice, monthly
price adjustments and bidirectional scalabilities,
supported by strong capacity planning tools with
monitoring and reporting capabilities.
■ Develop a strong value proposition by defining
the attributes and benefits in crisp clear terms
as a consumption-based model is a relatively new
concept.
■ Target only markets where a substantial return
exists by carefully analyzing cash flow and life
cycle profits for these offerings.
Strategic Planning Assumption
By 2020, enterprises will spend 5% of their on-
premises infrastructure budgets for consumption
(usage)-based offerings, from virtually zero today.
Introduction
Driven by demand for XaaS (XaaS refers to anything
as a service), a growing number of data center system
providers are introducing consumption-based pricing
as an alternative to capex purchasing for on-premises
infrastructure. Flexible server capacity offerings are
not new, but old programs tended to be for special
cases and not elastic. For example, hosting for legacy
platforms such as IBM AS/400 and Unix has offered
capacity on demand and monthly deals with a three-
year commitment.
Consumption (usage)-based purchasing model for
on-premises infrastructure is getting traction as it
has been fueled by the explosive growth of public
IaaS. It aims to provide customers the ability to scale
up and down their compute capacities along with
workload demand, while needing to pay for only what
they used. It will be more prevalent as users run a
more agile Mode 2 operational style in which resource
consumption demands dynamic and elastic scalability,
as most DevOps demands this operational style. This
also provides an opportunity for providers to reach
out to new customers that hesitate to try an emerging
infrastructure, such as HCIS, or for providers that
users have never done business with.
Gartner believes the term “consumption based” implies an opex pricing model for an on-premises data center system, paid on a periodic basis based on measured resource usage, with bidirectional resource scaling.
However, it is not always readily apparent what terms
and conditions each program provides and in what
deployment circumstances IT procurement and
operations leaders should choose specific programs.
How are all programs really structured, and what is
meant by consumption or usage basis? Are there hidden
conditions in the contract? It must be self-service
capable and fully automated, while responding to the
self-service request to scale up/down in real time.
The flexible consumption model works well where
margins are high. The high margins give the vendor
flexibility to install a higher-featured system, with
the expectation of higher margins as the customer
increases consumption. The model also works for
storage products, where margins are good due to the
software component, and incremental storage can
be installed as headroom shrinks. However, unlike
Unix systems, x86 servers have very thin margins. A
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provider, therefore, must be able to charge a premium
for the server, which implies that the systems have to
be sold into organizations that are less sensitive to
operating costs. This flexibility will show, for example,
in fast-growing businesses that need all their capital
to grow, or in companies with high margins, but with
dynamic business demands that cannot be serviced
in the public cloud for corporate privacy reasons. In
these cases, the switch from capex to opex, along
with flexible scalability, may justify the price premium
needed for success.
Buyers may also choose this approach for a system
that runs proprietary data, needs a measure of
confidentiality and can run for a decade without
restructuring. Such systems are usually core to the
business, and a no-touch strategy frees resources to
develop cloud-based front ends that deliver scalability
and agility at the customer.
When the environment is suitable, we believe that the
flexible consumption model can be beneficial for both
providers and end users. Providers must design the
offerings to deliver sufficient profits, and/or avoid a
negative impact from cannibalization of traditional
system sales. Flexible consumption provides an
opportunity to compete with not only public cloud
service offerings, but also with other on-premises
service offerings such as HyperGrid’s HyperCloud
(IaaS) or Microsoft’s Azure Stack, extending hybrid
cloud capabilities for on-premises data center
infrastructures. Additionally, these offerings will
generate the following benefits.
For providers:
■ Ability to provide alternative solutions to cloud
services by providing an opex payment
■ Ability to include maintenance and service/
support
■ Ability to attach hybrid cloud service offerings
to on-premises infrastructure and to transition
existing customers
■ Addressing the need for on-premises infrastructure
with cloudlike pricing (that is, verticals needing
on-premises infrastructures due to compliance or
regulations such as financials and healthcare)
■ Improving the customer experience, leading to a
better relationship
■ Increasing opportunities to acquire and retain new
customers
■ Providing additional sales opportunities for
channel partners
■ Shortening sales cycles
■ Reducing the need for upgrades and hardware
restructuring
For end users:
■ Moving system costs from capex to opex for
occasional workloads provides accounting benefits
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■ Accommodating to elastic capacity requirements
■ Ability to rapidly implement features in a growing
service base
■ Shifting some or all of the risk of under- or
overprovisioning from the end user to the provider
■ Ability to test systems first before making a long-
term commitment
■ Freedom from continual life cycle management
due to flexible termination policy
■ Shortening assessment periods without a risk
This research compares the major consumption
pricing model programs and provides advice for
strategic planners at DCI providers wishing to
enhance competitive opportunities that utilize
these offerings. Figure 1 illustrates how we believe
consumption models should be constructed. A true
Figure 1. Gartner’s Concept of the Consumption Model
Source: Gartner (December 2017)
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consumption model should provide cloudlike elasticity
by allowing bidirectional capacity adjustments. As
this is an evolving model, we anticipate seeing many
adjustments over time to these initial offerings. The
price modelling may be still too immature to recover
profits from these offerings.
Analysis
Define the Attributes and Benefits in Clear Terms
First and foremost: Simplify your program and
make it clear to customers. Many users may find
it hard to understand the benefits and drawbacks
of consumption pricing models as this concept is
relatively new and many are unfamiliar of these
programs. Currently, there is no “standard” for these
offerings, and each vendor provides its unique values.
Unlike the word “consumption” suggests, some are
not metered based on consumption or as flexible
as marketing programs suggest. To differentiate the
programs, we have created a framework to compare
some programs from various perspectives (see Table
1; the list is not meant to be exhaustive). In later
sections and Table 2, we provide more details about
each program.
Key Program Conditions
Allow Flexible Options — Short-term Commitments and Termination Notice
Don’t allow your program to excite interest and
then subsequently lose interest because of initial
investment commitments signifying lock-in with
termination fees if you suddenly decide to back out
for short periods and want to re-enter later. State
terms and conditions explicitly and openly to reassure
the prospect that the contract is a win-win for both
parties, including the channel. The less the upfront
commitment (capex costs, configuration size and term
length, for example), the more likely you can move to
the next stage to cement the negotiations. As providers
may bear more of the financial risk, eligibility should
be discussed in advance.
Provide Elasticity — Monthly Price Adjustments and Up/Down Scalabilities
Always bear in mind that your program will be
compared to cloud consumption models, and any
glaring weakness could be the program’s downfall. The
following steps detail the key points providers should
go through with their customers:
■ Prioritize systems of record that a company may
not trust to the cloud, or business systems that
can run for a decade without material change.
■ Seek to rival cloud consumption elasticity with few
limitations in scalability.
■ Allow for periodic price reductions due to price/
performance improvements with automatic
reductions in payments.
■ Provide good dashboard insights to resource
utilization to enable IT to lower its consumption
and costs by period and components.
If the model is only a one-way street — scale higher.
The projects from DevOps or other projects that have
risks of long-term deployment may be seen as a
sinkhole of continual investments, but decoupled from
the user’s actual ROI.
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Vendor Dell EMC HPE IBM Nutanix Oracle Pivot3
Program Cloud Flex HPE GreenLake Flex Capacity
IBM Power Systems enterprise cloud offering Elastic Capacity On Demand through IBM Marketplace
Nutanix Go Oracle Cloud at Customer
Pivot3 metered billing program
Description Opex-based consumption program without upfront capital investment for HCIS and storage products
On-demand infrastructure with payment based on actual metered use above a minimum commitment
On-premises infrastructure capacity program, offering on-demand service (after initial, base infrastructure investment or baseline capacity requirement)
Financing program without upfront capital investment for HCIS products
On-premises cloud offering that delivers Oracle Public Cloud services (IaaS, PaaS and SaaS) on subscription-based pricing for the services they use
Financing program without upfront capital investment for HCIS products
Product Dell EMC VxRail
Any HPE product (Existing systems can be bought out and included at fixed capacity)
IBM Power servers NX-3060, NX-6035C models for short-term agreements Any current NX model for long-term agreements
Oracle IaaS (Compute, storage, network, virtualization) along with Oracle Cloud functionality and add-on PaaS and SaaS can be purchased
All Pivot3 products
General Availability
May 2017 July 2012 November 2017 May 2017 March 2016 July 2016
Geographic Location
U.S., Canada, 16 countries in EMEA, Australia and New Zealand
Global North America and South Africa (Most European countries in 1Q18)
North America More than 50 countries worldwide
U.S.-based entities (Asset location can be global)
Metered (M) or Fixed (F)
F M (After meeting baseline)
M (After meeting baseline)
Fixed F for IaaS M
Payment Frequency
Monthly Monthly Monthly Monthly Monthly Monthly or quarterly (Client preference)
Charged By System- Month
Per server, per VM, per core, per container node, per GB, per compute unit and per port
After baseline, processor core per day or memory per day
Node per month System-Month Any metric that can be measured. Common choices: Aggregated unit of measurement capturing storage, memory and compute usage
Recommend- ed For
HCIS trial and testing Limited capex Flexible capacity adjustment after 12 months
IT opex spend MSP and xSP
Seasonal, short-term project; periodic demand spikes (such as end-of-quarter processing)
IT opex spend HCIS trial and testing Seasonal or short-term project
Oracle on-premises public cloud General-purpose IaaS for non-Oracle and Oracle workloads Add-on PaaS and SaaS
IT opex spend HCIS trial and testing Seasonal or short-term project
HPE = Hewlett Packard Enterprise Source: Gartner (December 2017)
Table 1. Comparing Consumption-Based Offerings for On-Premises Infrastructures
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Offer Capacity Planning Tools — Predictive Capacity Automation and Notifications
A good capacity planning tool accompanying your
consumption-based offering is critical because
users are attracted to these programs if they cannot
accurately predict their capacity. With monitoring and
reporting capabilities, predictive capacity automation
and notification using advanced data analytics will
provide good incentives. This helps eliminate the
fear of “writing a blank check” to the vendor, or the
“sticker shock” after getting the first bill.
An Alternative Option — Upfront Payments With
Annual True-Ups and Adjustments
When possible, negotiate annual upfront payments
for expected use. Use the SaaS companies as a
template for this approach. Although this model
adds complexity, capturing the dollars at the
beginning of the period generates compelling cash
flow. Such a system requires carefully designed
true-up mechanisms. For the customer, however, a
10-year sustainable environment may justify such a
relationship.
Go-to-Market Strategies
Target Service Providers, as They Welcome Capex Saving and Elastic Deployments
Service providers are constantly reviewing their
operational cost-saving efforts in their data center
investments as these savings can directly contribute
to their bottom lines. Intensifying competition from
hyperscale service providers, which have deep levels
of internal engineering skills, has also added another
pressure. Consumption-based offerings help save
service providers’ capex investment, while allowing
them to keep up-to-date systems on-premises.
Target BU and DevOps to Reduce or Manage Shadow IT
The main focus of business units (BUs) and DevOps
is to drive business value as soon as possible, leading
to Mode 2-type agile operational style. It is common
for BUs and DevOps to buy nonstandardized IT
infrastructures or use public cloud services from their
budgets if corporate IT cannot provide what they
require or procurement will take too long. However,
these options may not be the most cost-efficient in
the long run or create negative IT assets in the future.
Providing “DevOps in a box” (a packaged offering
specially targeting DevOp needs) will give long-term
benefits for all stakeholders.
Provide Benefits to Channels to Accelerate Sales
Channel partners are critical to promote and deliver
this model. Also, consumption-based offerings
could be seen as a threat to your channel partners
because they may lose an opportunity to sell value-
added services through system sales. Make sure
channel partners also have mutual benefits to avoid
unnecessary conflicts by developing programs that:
■ Enable channel partners to take responsibility for
service and support
■ Add extra services such as a cloud service
brokerage or security services
■ Allow partners to offer geographic or vertical
extras to the model
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Provide Calculator Tools Allowing Users to Estimate the Costs and Cost Savings
Users will more likely build their own models to figure
out whether or not a particular pricing model works
for them. By providing a calculation tool, providers are
likely to be able to control which criteria and risks are
included, and to shorten sales cycles.
Key Matrix Suggested
Table 2 details the current consumption model
programs from the major providers that offer these
programs (continued from Table 1). These are the
terms and conditions that Gartner recommends for
providers to be considered as a consumption-based
model. IT decision makers should be able to evaluate
each program based on these criteria.
Summary
Follow these best practices to maximize the
opportunities for this emerging consumption model
for on-premises infrastructures by incorporating our
suggestions described in this research. A program that
clearly lays out the attributes and benefits, and includes
the key criteria such as short-term commitment/
termination notice, monthly price adjustments and
bidirectional scalability with capacity planning tools
should provide beneficial choices for customers.
Acronym Key and Glossary Terms
capex capital expenditure
DCI data center infrastructure
HCIS hyperconverged infrastructure system
IaaS infrastructure as a service
MSP managed service provider
IaaS infrastructure as a service
PaaS platform as a service
opex operating expenditure
SaaS software as a service
xSP any type of service provider
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Vendor Dell EMC HPE IBM
Program Cloud Flex HPE GreenLake Flex Capacity
IBM Power Systems enterprise cloud offering
Upfront Cost N N Initial base infrastructure or purchase of baseline capacity
Initial Capacity Commitments Y (Three nodes/ $100,000)
Y Y (See above, Upfront Cost)
Period of Coverage (Minimum) One year Three years Minimum contract term is variable depending on the lease
Granularity N Y Y (Purchase processor core per day or memory per day)
Predictive Capacity Automation and Notifications
N Y Y
Parts Recycling (New, Refurbished and Activation)
N N N
Elasticity (Growth) Y Y Y
Elasticity (Shrinkage) Y (After 12 months)
Y Y
Capacity Movement (Between Systems and Geographies)
N Y Y
Opex and Capex Combinations N Y Y
Monitoring and Reporting N Y Y (System monitors resource usage)
Extended Hybrid Cloud Y Y Y
Discount on Public Cloud N Y (Microsoft’s cloud service)
N
Lease Options N N Y
Self-Service Y Y Y
Configuration Choices Four All HPE products (Existing systems can be bought out and included at fixed capacity)
Three system models; flexible configurations around those system models
Service and Maintenance Included Y y Y (Requires base service agreement for baseline)
Management Software and License Included
Y Per license or
included in hardware units Y Y Y
Price Adjustment/Renegotiation N Y (Per change order/renewal)
N (Can request special bid)
Termination Notice Without Penalty 60 days Termination options negotiable
Variable, depending on lease of baseline infrastructure component
Remark Payment reduction every year
- Via IBM Marketplace
(continued on page 13)
Table 2. Comparison of Server Consumption-Based Offerings
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Nutanix Oracle Pivot3
Nutanix Go Oracle Cloud at Customer Pivot3 metered billing program
N N N
Y Y N
Six months (Three-month minimal renewals)
Four years No minimum period of coverage
Y Y Y
Y (Available via Nutanix Prism)
Y Y
Y N N
Y Y Y
N Yes for PaaS Y
N Yes for PaaS Y
Y N Y
Y Y Y
Y Y Y
N N N
Y (Long-term [three years or more] agreements)
N Y
N Y Y
Y (Built into Nutanix Sizer)
Scalable/flexible compute, storage and network building blocks
Y
Y Y Y
Y
N N Y
N N 120 days
Longer commitments = lower payment
Related programs: Oracle Exadata Cloud at Customer, Oracle Big Data Cloud at Customer. Subscription price includes support, maintenance, delivery and deployment costs
Duration of agreement extends from commencement until cancellation
HPE = Hewlett Packard Enterprise Source: Gartner (December 2017)
Table 2. Comparison of Server Consumption-Based Offerings (continued)
Source: Gartner Reserch, G00325244, Kiyomi Yamada, George J. Weiss, Philip Dawson, 22 December 2017
Consumption-based Infrastructure: A Game Changer is published by Kaminario. Editorial content supplied by Kaminario is independent of Gartner analysis. All Gartner research is used with Gartner’s permission, and was originally published as part of Gartner’s syndicated research service available to all entitled Gartner clients. © 2019 Gartner, Inc. and/or its affiliates. All rights reserved. The use of Gartner research in this publication does not indicate Gartner’s endorsement of Kaminario’s products and/or strategies. Reproduction or distribution of this publication in any form without Gartner’s prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner’s Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see “Guiding Principles on Independence and Objectivity” on its website.
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