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