Consumption-based pricing is a reality for on-premises infrastructure

Reading Time: 5 minutes

Consumption-based pricing (CBP) for data center hardware is not a novel idea. However, the voices clamoring for this extension of anything as a service (XaaS) and to integrate cloud benefits to their on-premises infrastructure are growing louder.

Access to on-premises infrastructure as a component of a hybrid environment is critical to support an organization’s ability to innovate and drive digital business models. “By 2024, 50% or more of newly deployed enterprise storage capacity will be as a service or subscription.” (Source: Gartner, ‘Market Trends: Consumption-Based Pricing for On-Premises Infrastructure is Evolving to an as-a-Service Model’, Kiyomi Yamada, Daniel Bowers, February 05, 2021)

What are the benefits of this model, and how do you know if it’s right for your organization? Let’s take a closer look.

What is consumption-based pricing?

If you’re unfamiliar with the term, consumption-based pricing for on-premises infrastructure is a model that lets organizations pay for data center hardware based on usage.

Like current public cloud offerings, it incorporates an opex spending structure that gives organizations the flexibility to scale their on-premises hardware up and down based on need. The hardware can be deployed in their own data center, in a colocation facility, or at edge locations.

Currently, consumption-based pricing for on-premises infrastructure comes in three programs:

1. Subscription. Subscription models are based on number of seats – or number of users – and are billed monthly. It does not account for the quantity of usage per user. So, if a user only accesses the asset 10% of the time, they are still billed as a full user.
2. Pay as you go (PAYG). You pay for a minimum committed amount of infrastructure, but you’re pre-provisioned for future growth as needed (i.e., a buffer capacity). You don’t start paying for the buffer capacity until its needed.
3. Pay per use (PAYU). Like PAYG, but strictly consumption based. You pay for the committed amount as well as the buffer capacity you use.

What are the benefits of consumption-based pricing?

Converting capex to opex is one benefit of consumption-based pricing, but there’s more. The value of this model boils down to changing customer needs.

Organizations pursuing an accelerated pace of innovation need flexibility. They must be able to update their infrastructure quickly to stay competitive and eliminate technical debt.

With consumption-based pricing, organizations reduce their upfront infrastructure costs while maintaining access to the latest hardware. This makes managing hardware refreshes much easier.

With hardware spend now linked to usage, organizations gain a clearer picture of their business demands and requirements, allowing them to scale up and down as needed and enact better long-term deployment strategies. Furthermore, by creating a better alignment between IT and overall business goals, consumption-based pricing supports improved digital resiliency.

When to consider consumption-based pricing for on-premises infrastructure

While many organizations have turned to the public cloud to store their applications and data, a growing number realized they may have jumped the gun.

Repatriation of workloads can be a necessary part of modernizing infrastructure. This could happen for any number of factors, including security and governance concerns and data sovereignty.

If you’re in this position – or have workloads that must run locally – yet desire the flexibility of the opex model of the public cloud, consumption-based pricing could be the right fit. Also, if your usage is unpredictable or you’re looking for predictable cost projects, you could benefit from this model as well.

Other considerations that might make consumption-based pricing worth investigating:

• Workloads that are data heavy with large ingress and egress traffic
• Edge locations with latency demands that may include remote artificial intelligence (AI) or machine learning (ML) functionality

Which vendors offer consumption-based pricing?

Many vendors are now providing this option, including:

• Cisco: Cisco Plus – Pilot program starting in the second half of 2021 and focused on hybrid cloud as a service. This partner-led program is designed to enhance customer experience by providing flexibility in how customers acquire technology. It will follow a pay-per-use model.
• Hewlett Packard Enterprise: Greenlake – Delivers infrastructure as a service (IaaS) for workloads on premises, fully managed in a pay-per-use model at the edge, colocations, and in your data center.
• Pure Storage: Pure as a Service – A utility-type program that bills customers based on actual consumption with minimum commitments. You can acquire the full stack with integration to hybrid cloud architectures.
• Dell Technologies: APEX – Deploy the service at the edge, colocation, or in your data center. Infrastructure services are owned and managed by Dell.
• Lenovo: TruScale – Pay-as-you-go model for on-premises data center hardware. Includes 24/7 proactive monitoring, management, and services.

Before selecting a provider, make sure that your workloads align with vendor strengths. Also, evaluate the fit with your company’s current staff and skill set.

Moving forward with consumption-based pricing

Consumption-based pricing is maturing and becoming more common, and response to the COVID-19 pandemic has only accelerated that trend.

According to a recent IDC survey, 61% of enterprises agreed that their organizations are aggressively shifting toward paying for technology investments based on consumption, and 59% are reducing the time/effort required to manage their technology investments – making consumption-based pricing for on-premises hardware that much more appealing. (Source: IDC; Future Enterprise Resiliency & Spending Survey Doc# US47568621; February 2021)

If your workloads aren’t suited for the public cloud, your usage is unpredictable, or you’re looking for the agility of the opex cloud model, consumption-based pricing is a viable option.

With consumption-based pricing, you can align your business requirements with application needs that match infrastructure – and you scale up or down based on those requirements. Of course, when considering these programs, make sure you’re evaluating workloads that would benefit from this model based on cost, latency requirements, performance, compliance, etc.

As you consider consumption-based pricing, remember that technical requirements, including architecture and solution design, aren’t much different than in a standard capex deployment. SHI can provide value to ensure that infrastructure projects leveraging these programs deliver the business outcomes you seek.

For additional approaches to cost management, check out our Optimizing Your Software Spend for 2021 & Beyond guide.