January 2019 Consumption-based Infrastructure: A Game Changer

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. 3

Utility Pricing for IT Technologies Kaminario is differentiated from traditional storage The concept of utility pricing for IT infrastructure technologies in its complete disaggregation of its has been around for years. Traditional hardware software platform from the hardware it runs on. solution providers have built secondary businesses This disaggregation supports economically efficient based on financial services for their customers. Exotic consumption-based pricing for Kaminario’s software leases and other financial engineering instruments platform that can span any number of infrastructures can transform capital expense into operating across any number of datacenters. Kaminario scales expense. The drawback with these approaches is up and scales down in line with actual usage. the complicated bundling of financing costs with the hardware, software, and support components of The Power of Consumption-based Pricing modern datacenter technologies. Storage technology True consumption-based pricing can deliver the in particular has proved difficult to create transparent economic elasticity of the cloud for private cloud and economically efficient consumption-based pricing infrastructure. Research from Gartner provides that is as simple as the public cloud offerings. guidance on best practices for evaluating and getting the most from consumption-based infrastructure. Kaminario They advise IT organizations to ask their technology Kaminario offers a software-based platform providers, “How are all programs really structured, that lets cloud-scale application providers build and what is meant by consumption or usage basis?” enterprise-class, all-flash infrastructures based on industry standard “whitebox” hardware. Kaminario’s Combining world-class technology capability with the composable storage technology can seamlessly scale pricing flexibility of the cloud allows a new generation up and scale out as software-driven businesses grow. of cloud-scale application providers to optimize their Named a leader in Gartner’s 2018 Magic Quadrant for IT strategy for scalability, profitability, and competitive Solid State Arrays, Kaminario also received the highest differentiation. ranking for Analytics and High Performance Computing in Gartner’s 2018 Critical Capabilities Report. 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: 5

■■ Introduce flexible programs by including short- up and down their compute capacities along with term commitment/termination notice, monthly workload demand, while needing to pay for only what price adjustments and bidirectional scalabilities, they used. It will be more prevalent as users run a supported by strong capacity planning tools with more agile Mode 2 operational style in which resource monitoring and reporting capabilities. consumption demands dynamic and elastic scalability, as most DevOps demands this operational style. This ■■ Develop a strong value proposition by defining also provides an opportunity for providers to reach the attributes and benefits in crisp clear terms out to new customers that hesitate to try an emerging as a consumption-based model is a relatively new infrastructure, such as HCIS, or for providers that concept. users have never done business with.

■■ Target only markets where a substantial return Gartner believes the term “consumption based” exists by carefully analyzing cash flow and life implies an opex pricing model for an on- cycle profits for these offerings. premises data center system, paid on a periodic basis based on measured resource usage, with Strategic Planning Assumption bidirectional resource scaling. By 2020, enterprises will spend 5% of their on- premises infrastructure budgets for consumption However, it is not always readily apparent what terms (usage)-based offerings, from virtually zero today. and conditions each program provides and in what deployment circumstances IT procurement and Introduction operations leaders should choose specific programs. How are all programs really structured, and what is Driven by demand for XaaS (XaaS refers to anything meant by consumption or usage basis? Are there hidden as a service), a growing number of data center system conditions in the contract? It must be self-service providers are introducing consumption-based pricing capable and fully automated, while responding to the as an alternative to capex purchasing for on-premises self-service request to scale up/down in real time. infrastructure. Flexible server capacity offerings are not new, but old programs tended to be for special The flexible consumption model works well where cases and not elastic. For example, hosting for legacy margins are high. The high margins give the vendor platforms such as IBM AS/400 and Unix has offered flexibility to install a higher-featured system, with capacity on demand and monthly deals with a three- the expectation of higher margins as the customer year commitment. increases consumption. The model also works for storage products, where margins are good due to the Consumption (usage)-based purchasing model for software component, and incremental storage can on-premises infrastructure is getting traction as it be installed as headroom shrinks. However, unlike has been fueled by the explosive growth of public Unix systems, x86 servers have very thin margins. A IaaS. It aims to provide customers the ability to scale 6

provider, therefore, must be able to charge a premium For providers: for the server, which implies that the systems have to be sold into organizations that are less sensitive to ■■ Ability to provide alternative solutions to cloud operating costs. This flexibility will show, for example, services by providing an opex payment in fast-growing businesses that need all their capital to grow, or in companies with high margins, but with ■■ Ability to include maintenance and service/ dynamic business demands that cannot be serviced support in the public cloud for corporate privacy reasons. In these cases, the switch from capex to opex, along ■■ Ability to attach hybrid cloud service offerings with flexible scalability, may justify the price premium to on-premises infrastructure and to transition needed for success. existing customers

Buyers may also choose this approach for a system ■■ Addressing the need for on-premises infrastructure that runs proprietary data, needs a measure of with cloudlike pricing (that is, verticals needing confidentiality and can run for a decade without on-premises infrastructures due to compliance or restructuring. Such systems are usually core to the regulations such as financials and healthcare) business, and a no-touch strategy frees resources to develop cloud-based front ends that deliver scalability ■■ Improving the customer experience, leading to a and agility at the customer. better relationship

When the environment is suitable, we believe that the ■■ Increasing opportunities to acquire and retain new flexible consumption model can be beneficial for both customers providers and end users. Providers must design the offerings to deliver sufficient profits, and/or avoid a ■■ Providing additional sales opportunities for negative impact from cannibalization of traditional channel partners system sales. Flexible consumption provides an opportunity to compete with not only public cloud ■■ Shortening sales cycles service offerings, but also with other on-premises service offerings such as HyperGrid’s HyperCloud ■■ Reducing the need for upgrades and hardware (IaaS) or Microsoft’s Azure Stack, extending hybrid restructuring cloud capabilities for on-premises data center infrastructures. Additionally, these offerings will For end users: generate the following benefits. ■■ Moving system costs from capex to opex for occasional workloads provides accounting benefits 7

■■ Accommodating to elastic capacity requirements ■■ Freedom from continual life cycle management due to flexible termination policy ■■ Ability to rapidly implement features in a growing service base ■■ Shortening assessment periods without a risk

■■ Shifting some or all of the risk of under- or This research compares the major consumption overprovisioning from the end user to the provider pricing model programs and provides advice for strategic planners at DCI providers wishing to ■■ Ability to test systems first before making a long- enhance competitive opportunities that utilize term commitment 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) 8

consumption model should provide cloudlike elasticity the prospect that the contract is a win-win for both by allowing bidirectional capacity adjustments. As parties, including the channel. The less the upfront this is an evolving model, we anticipate seeing many commitment (capex costs, configuration size and term adjustments over time to these initial offerings. The length, for example), the more likely you can move to price modelling may be still too immature to recover the next stage to cement the negotiations. As providers profits from these offerings. may bear more of the financial risk, eligibility should be discussed in advance. Analysis Define the Attributes and Benefits in Provide Elasticity — Monthly Price Adjustments Clear Terms and Up/Down Scalabilities Always bear in mind that your program will be First and foremost: Simplify your program and compared to cloud consumption models, and any make it clear to customers. Many users may find glaring weakness could be the program’s downfall. The it hard to understand the benefits and drawbacks following steps detail the key points providers should of consumption pricing models as this concept is go through with their customers: relatively new and many are unfamiliar of these programs. Currently, there is no “standard” for these ■■ Prioritize systems of record that a company may offerings, and each vendor provides its unique values. not trust to the cloud, or business systems that Unlike the word “consumption” suggests, some are can run for a decade without material change. not metered based on consumption or as flexible as marketing programs suggest. To differentiate the ■■ Seek to rival cloud consumption elasticity with few programs, we have created a framework to compare limitations in scalability. some programs from various perspectives (see Table 1; the list is not meant to be exhaustive). In later ■■ Allow for periodic price reductions due to price/ sections and Table 2, we provide more details about performance improvements with automatic each program. reductions in payments. Key Program Conditions ■■ Provide good dashboard insights to resource Allow Flexible Options — Short-term utilization to enable IT to lower its consumption Commitments and Termination Notice and costs by period and components. Don’t allow your program to excite interest and then subsequently lose interest because of initial If the model is only a one-way street — scale higher. investment commitments signifying lock-in with The projects from DevOps or other projects that have termination fees if you suddenly decide to back out risks of long-term deployment may be seen as a for short periods and want to re-enter later. State sinkhole of continual investments, but decoupled from terms and conditions explicitly and openly to reassure the user’s actual ROI. 9

Table 1. Comparing Consumption-Based Offerings for On-Premises Infrastructures

Vendor Dell EMC HPE IBM Nutanix Oracle Pivot3 Program Cloud Flex HPE GreenLake IBM Power Systems Nutanix Go Oracle Cloud at Pivot3 metered Flex Capacity enterprise cloud Customer billing program offering

Elastic Capacity On Demand through IBM Marketplace Description Opex-based On-demand On-premises Financing On-premises Financing consumption infrastructure infrastructure program without cloud offering that program without program with payment capacity program, upfront capital delivers Oracle upfront capital without based on actual offering on-demand investment for Public Cloud investment for upfront metered use service (after initial, HCIS products services (IaaS, HCIS products capital above a minimum base infrastructure PaaS and SaaS) on investment commitment investment or baseline subscription-based for HCIS capacity requirement) pricing for the and storage services they use products Product Dell EMC Any HPE product IBM Power servers NX-3060, NX- Oracle IaaS All Pivot3 VxRail (Existing systems 6035C models (Compute, products can be bought for short-term storage, network, out and included agreements virtualization) at fixed capacity) along with Oracle Any current NX Cloud functionality model for long- and add-on PaaS term agreements and SaaS can be purchased General May 2017 July 2012 November 2017 May 2017 March 2016 July 2016 Availability Geographic U.S., Canada, Global North America and North America More than 50 U.S.-based entities Location 16 countries South Africa countries worldwide (Asset location in EMEA, can be global) Australia and (Most European New Zealand countries in 1Q18) Metered (M) F M (After meeting M (After meeting Fixed F for IaaS M or Fixed (F) baseline) baseline) Payment Monthly Monthly Monthly Monthly Monthly Monthly or Frequency quarterly (Client preference) Charged By System- Per server, per After baseline, Node per month System-Month Any metric that Month VM, per core, processor core per can be measured. per container day or memory per Common choices: node, per GB, per day Aggregated unit compute unit and of measurement per port capturing storage, memory and compute usage Recommend- HCIS trial and IT opex spend Seasonal, short-term IT opex spend Oracle on-premises IT opex spend ed For testing MSP and xSP project; periodic HCIS trial and public cloud HCIS trial and demand spikes (such testing General-purpose testing Limited capex as end-of-quarter Seasonal or short- IaaS for non- Seasonal or short- processing) term project Oracle and Oracle term project Flexible workloads capacity Add-on PaaS and adjustment SaaS after 12 months HPE = Hewlett Packard Enterprise Source: Gartner (December 2017) 10

Offer Capacity Planning Tools — Predictive service providers’ capex investment, while allowing Capacity Automation and Notifications them to keep up-to-date systems on-premises. A good capacity planning tool accompanying your consumption-based offering is critical because Target BU and DevOps to Reduce or Manage users are attracted to these programs if they cannot Shadow IT accurately predict their capacity. With monitoring and The main focus of business units (BUs) and DevOps reporting capabilities, predictive capacity automation is to drive business value as soon as possible, leading and notification using advanced data analytics will to Mode 2-type agile operational style. It is common provide good incentives. This helps eliminate the for BUs and DevOps to buy nonstandardized IT fear of “writing a blank check” to the vendor, or the infrastructures or use public cloud services from their “sticker shock” after getting the first bill. budgets if corporate IT cannot provide what they require or procurement will take too long. However, An Alternative Option — Upfront Payments With these options may not be the most cost-efficient in Annual True-Ups and Adjustments the long run or create negative IT assets in the future. When possible, negotiate annual upfront payments Providing “DevOps in a box” (a packaged offering for expected use. Use the SaaS companies as a specially targeting DevOp needs) will give long-term template for this approach. Although this model benefits for all stakeholders. adds complexity, capturing the dollars at the beginning of the period generates compelling cash Provide Benefits to Channels to Accelerate Sales flow. Such a system requires carefully designed Channel partners are critical to promote and deliver true-up mechanisms. For the customer, however, a this model. Also, consumption-based offerings 10-year sustainable environment may justify such a could be seen as a threat to your channel partners relationship. because they may lose an opportunity to sell value- added services through system sales. Make sure Go-to-Market Strategies channel partners also have mutual benefits to avoid Target Service Providers, as They Welcome unnecessary conflicts by developing programs that: Capex Saving and Elastic Deployments ■■ Enable channel partners to take responsibility for Service providers are constantly reviewing their service and support operational cost-saving efforts in their data center investments as these savings can directly contribute ■■ Add extra services such as a cloud service to their bottom lines. Intensifying competition from brokerage or security services hyperscale service providers, which have deep levels of internal engineering skills, has also added another ■■ Allow partners to offer geographic or vertical pressure. Consumption-based offerings help save extras to the model 11

Provide Calculator Tools Allowing Users to Acronym Key and Glossary Terms Estimate the Costs and Cost Savings capex capital expenditure Users will more likely build their own models to figure out whether or not a particular pricing model works DCI data center infrastructure for them. By providing a calculation tool, providers are likely to be able to control which criteria and risks are HCIS hyperconverged infrastructure system included, and to shorten sales cycles. IaaS infrastructure as a service Key Matrix Suggested MSP managed service provider Table 2 details the current consumption model programs from the major providers that offer these IaaS infrastructure as a service programs (continued from Table 1). These are the terms and conditions that Gartner recommends for PaaS platform as a service providers to be considered as a consumption-based model. IT decision makers should be able to evaluate opex operating expenditure each program based on these criteria.

SaaS software as a service Summary

Follow these best practices to maximize the xSP any type of service provider 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. 12

Table 2. Comparison of Server Consumption-Based Offerings

Vendor Dell EMC HPE IBM Program Cloud Flex HPE GreenLake IBM Power Systems enterprise cloud Flex offering Capacity Upfront Cost N N Initial base infrastructure or purchase of baseline capacity Initial Capacity Commitments Y (Three Y Y (See above, Upfront Cost) nodes/ $100,000) 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 N Y Y Notifications Parts Recycling (New, Refurbished N N N and Activation) Elasticity (Growth) Y Y Y Elasticity (Shrinkage) Y (After 12 Y Y months) Capacity Movement (Between N Y Y Systems and Geographies) 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 N service)

Lease Options N N Y Self-Service Y Y Y Configuration Choices Four All HPE products Three system models; flexible (Existing systems configurations around those system can be bought out models and included at fixed capacity) Service and Maintenance Included Y y Y (Requires base service agreement for baseline) Management Software and License Y Per license or Included included in hardware units Y Y Y Price Adjustment/Renegotiation N Y (Per change order/ N (Can request special bid) renewal) Termination Notice Without Penalty 60 days Termination options Variable, depending on lease of negotiable baseline infrastructure component Remark Payment - Via IBM Marketplace reduction every year

(continued on page 13) 13

Table 2. Comparison of Server Consumption-Based Offerings (continued)

Nutanix Oracle Pivot3 Nutanix Go Oracle Cloud at Customer Pivot3 metered billing program N N N Y Y N Six months (Three-month Four years No minimum period of coverage minimal renewals) Y Y Y Y (Available via Nutanix Y Y Prism) 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 N Y or more] agreements) N Y Y Y (Built into Nutanix Scalable/flexible compute, storage and Y Sizer) network building blocks Y Y Y

Y N N Y N N 120 days Longer commitments = Related programs: Oracle Exadata Cloud Duration of agreement extends from lower payment at Customer, Oracle Big Data Cloud at commencement until cancellation Customer. Subscription price includes support, maintenance, delivery and deployment costs

HPE = Hewlett Packard Enterprise

Source: Gartner (December 2017)

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 Contact us 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 For more information contact us at: 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.