AT&T, Uber, And Zipcar Share Similarities With Subscription Hardware
Elucidate Subscription-Based Hardware Offerings
Public cloud innovations influence your technology decisions in many ways. Cloud pricing is shaping the pricing for on-premises data center infrastructure. I receive many client calls around evolving subscription-based hardware, and those discussions reveal their confusions. As you aim to make an optimal decision for your business, let’s develop an understanding by using services analogies from our personal lives. Your options are:
- Capex. This is the traditional purchase or spending model. This is like buying your own car and/or house or setting up your own power station. (Doesn’t this sound a bit too extreme?) You buy your own equipment, bring your own people, manage your own operations, and so on.
- Subscription and pay-per-use or usage-based. Most people use these terms interchangeably. In the context of infrastructure, these are significantly different and apply to different situations. In a pure subscription model, you sign up for a service and commit to a minimum duration and quantity. In a pure usage-based or pay-per-use model, you pay for the actual usage. Here are our life equivalents:
- Subscription-based is like your mobile phone subscription (you pay a price for unlimited calls and text messages) or like your car lease (you sign up for an annual quota of miles). During the pandemic, we experienced two changes: 1) we used our phones more often and many calls lasted longer; and 2) we parked our cars at home and didn’t clock those miles. In either case, we paid the same monthly leases or subscriptions. Similarly, for subscription-based hardware, you commit to some minimums and pay based on that whether you use it or not.
- Pay-per-use or usage-based is like a mobile phone subscription where, instead of bundling the mobile data into the monthly subscription, you pay per GB in that billing cycle.
For data center hardware, you won’t be in a pure subscription or a pure usage-based model. You will sign up for a combination of these two. Why? You don’t want to sign up for too little to frequently trigger usage-based pricing, as per-unit price is higher. Alternatively, you don’t want to sign up for too much and increase your minimum costs. Your aim is to strike a good balance.
- Managed services. Hardware vendors are not interested in selling just the infrastructure, as it is a thin-margin, nonrecurring business. Most — if not all — vendors deliver hardware with some form of managed services. They differentiate with a set of layered managed services. The current approaches are:
- Fully managed service: Think Uber or Lyft. These companies offer a managed service; they take you anywhere you like. You don’t need a driver’s license, or in other words, you don’t need skills to operate. You don’t own the infrastructure; you’re not responsible for the upkeep, maintenance, and insurance. You focus on the outcomes like the origin, destination, travel time, and so on. For businesses, infrastructure leaders need to define their business and technical outcomes. The technical outcomes should follow or rally behind the business outcomes.
- Partially managed service: Think Zipcar. It delivers a partially managed service. You must possess a driving license and pay a monthly subscription fee and a varying usage fee each instance. In your business, you need skilled staff to operate the infrastructure. You are not responsible for the regular upkeep and maintenance.
I hope these analogies help clarify the evolving options and the shifts/trends in the data center hardware market. While these analogies present a simplistic explanation, your options are more nuanced, including the role of channel, system integrators, and RACI between you and the vendor. Your decisions must be thoughtful. If you want to talk about how subscription-based hardware is relevant to your business and about vendor differentiations, you know I am an inquiry call away.