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HPE and Dell see gains in pay-per-use business models

  • Hewlett Packard Enterprise and Dell say a new pay-per-use business model, in which they charge clients only for the capacity they use in data center gear, is starting to pay off.
  • This approach helps give cloud-like flexibility to customers who don’t or can’t move to the public cloud, which helps the data center hardware makers stay relevant in a market dominated by Amazon Web Services and Microsoft Azure.
  • One HPE customer, Kern County, said the program helped it reduce capital expenditures while making it easier to manage the California public agency’s IT network. “All I have to worry about is paying for what I consume,” Chief Information Technology officer Mac Avancena told Business Insider. 
  • But while it’s still hazy how well the as-a-service model help HPE and Dell compete with the cloud, “it’s very clear they recognize that selling widgets and boxes in a siloed manner is not the way,” Gartner analyst Sid Nag told Business Insider.
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When Mac Avancena became chief information technology officer of Kern County, California two years ago, he found himself in charge of a convoluted IT network powered by expensive gear installed in a private data center.

Avancena described it as a “technology sprawl” which he said he could have fixed by moving the entire network to the cloud. But Hewlett Packard Enterprise, one of the county’s longtime vendors, offered another way: instead of spending millions on capital expenditures for data center gear, the county could retool its data center, paying only for the equipment capacity it used.

“All I have to worry about is paying for what I consume,” he told Business Insider. “It gives me a cloud-like experience” from the county’s own data center, but budgeted against its operating expenditures (opex, in accounting parlance), rather than its more rigid capital expenditures (capex). 

Kern County’s experience highlights the modest but snowballing success of HPE’s  hardware-as-a-service program, called Green Lake, which it launched in 2017. The pay-per-use business model, which has since been adopted by other traditional enterprise tech companies like Dell and Lenovo, is still in its early stages, though it’s now seen as a way for traditional enterprise players to bounce back from the sales slump triggered by the rise of the cloud.

“Basically our strategy is to provide everything as a service,” Antonio Neri, CEO of HPE, told Business Insider.

On Wednesday, HPE expanded the offering by also giving clients pay-per-use access to HPE supercomputers — systems that were once available mainly to big corporations that could afford to buy them.

HPE clients can now “get access to these tools and techniques, particularly with deep learning and AI,” Neri said. “Before, it was an enormous amount of capex up front. You’re talking about tens of billions of dollars sometimes.”

Dell, which introduced its own IT-as-a-service model last year, updated it last month with Project Apex, which it says gives clients a more seamless way to manage their accounts.

Jeff Boudreau, general manager of Dell’s infrastructure solutions business, said the offering makes it possible for enterprises to have “that cloud like experience” while maintaining a private data center.

The strategy is seeing early traction

Last month, Dell Chief Operating Officer Jeff Clarke said the strategy is gaining some traction, telling analysts on the company’s earnings call last month, “We’ve seen increased interest in our as-a-service and flexible consumption offerings.”

The as-a-service initiatives were launched in response to a trend that began to gain traction a decade ago. The cloud allowed businesses to set up networks on web-based platforms, making it possible to scale down or even abandon private data centers. It’s a fast-growing market dominated by Amazon, Microsoft and Google.

But HPE and Dell, as well as other traditional enterprise players such as IBM and Cisco, are eyeing new trends, called hybrid cloud and multicloud, in which businesses set up networks on one or more public clouds, while maintaining huge chunks of their data and applications in private data centers.

“Nobody wants to spend heavily on capex dollars,” Gartner analyst Sid Nag told Business Insider. “That’s a reason why people are moving to the cloud,  because people want to move to pay-as-you-go.”

That model is attracting businesses that are looking for the cost-savings associated with the cloud, but who either need or want to maintain private data centers, said John Murphy, head of commercial strategy at Arkphire, a Dublin-based IT services company which works with Dell clients. 

“There is a gap in the market at the moment for this,” he told Business Insider.

A viable alternative to the cloud

It was a gap that Avancena encountered in Kern County, California’s third largest, where his team supports 41 departments with more than 8000 government employees. Migrating everything to a public cloud was complicated because “we have a lot of very stringent regulations around how we’re able to get on to the cloud,” he said.

But he said the county wanted an alternative to spending millions on data center equipment that usually end up being underutilized. In fact, Keith White, Green Lake’s general manager, said a typical complaint of clients is “a lot of the hardware scenarios are well over provisioned.”

“Oftentimes people will get too much power for what they need,” he told Business Insider.

Avancena said the cost-savings from the Green Lake system are significant. In fiscal year 2019-2020, the county saw a 42% year-over-year drop in storage costs, even as its data storage needs jumped 39%, he said.

Signing with HPE also made it easier for him to manage the county’s IT budget. “Instead of going to the board every couple years, asking for a re-engineering budget of $5 million, everything’s all done as opex [operating expenses].”

Murphy of Arkphire, which serves many Dell clients, said a pay-per-use model has given them more flexibility with their data centers, which “they can scale up or scale down” depending on the capacity they need.

Early momentum doesn’t guarantee long-term success

Still, it is unclear if HPE and Dell will be able to scale their pay-per-use offerings to the point that it can be considered a potential gamechanger.

White of HPE said Green Lake now has over 1,000 customers, but he also noted: “Frankly, we’re still learning.” Boudreau also said Dell’s pay-per-use program is still “a small piece of our business” though he added that “customer interest has definitely picked up.”

Nag of Gartner said these programs can be compelling to longtime customers of a specific vendor. “If you’re an HPE client already and have been standardized on HPE hardware for the longest time before the cloud came along in a big way, you may go with HPE Green Lake,” he said.

But he said other businesses with no legacy systems are likely to find moving to the major cloud platforms easier and more cost-effective.

Eric Dynowski, chief technology officer of ServerCentral Turing Group, an IT services company, echoed this sentiment,  saying the cloud giants, led by Amazon, simply offer clients tools and services that give them “so much flexibility and control.”

“They just give you so many Legos to work with in terms of how you want to spend your money,” he told Business Insider. Traditional tech companies like HPE and Dell will have a hard time matching what companies like Amazon, Microsoft and Google have to offer with their cloud platforms, he added.

“It’s hard to catch up to somebody moving faster than you,” he said.

Gartner’s Nag said, “We don’t know how successful they’ll be, but it’s very clear they recognize that selling widgets and boxes in a siloed manner is not the way to go.”

Got a tip about Dell, HPE, or another tech company? Contact this reporter via email at [email protected], message him on Twitter @benpimentel or send him a secure message through Signal at (510) 731-8429. You can also contact Business Insider securely via SecureDrop.

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