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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