Exploring the ins and outs of enterprise hardware pricing

Cloud computing has changed how businesses buy technology. How does the age of SaaS affect enterprise hardware pricing?

Cloud computing has fundamentally changed the way businesses consume technology, and by extension, how hardware pricing works.

Indeed, on-demand, usage-based application delivery has a broad appeal that extends beyond infrastructure as a service, platform as a service and software as a service. So broad, in fact, enterprises are now looking for other IT sectors, including hardware vendors, to offer the same flexible, economic and scalable attributes that have propelled cloud adoption to new heights.

As a result, a number of networking and data center hardware vendors are testing subscription-based models for their gear and servers, changing the face of hardware pricing. Sometimes called hardware as a service, these offerings give enterprises an attractive alternative to pure cloud services or traditional purchasing and leasing options. While enterprises are relying more than ever on third-party providers to host their IT assets, many still want to manage their IT resources internally. However, the notion of paying a fee based on actual usage is compelling -- particularly compared to the financial pain associated with making a massive upfront investment in capital equipment.

On demand, in demand

Subscription-based hardware pricing is exactly what it sounds like. Vendors supply the gear and receive payment based on usage. Typically, the supplier will overprovision the hardware, delivering gear with more ports and capacity than initially required. This gives subscribers the flexibility to expand on an almost elastic basis -- enabling them to consume capacity as needed, without having to wait for new equipment to arrive. By the same token, customers can shut off ports over time, if their capacity needs decline.

But while enterprises can benefit from tapping a hardware-as-a-service scheme, decision makers need to be aware that the devil is in the details.

Subscription-based network models differ from leasing in that the contracts are written with more flexible terms; the agreements usually run up to five years in length. Leasing arrangements typically include fixed terms over a defined period, with flat-rate pricing over that period. 

Mirroring many of the on-demand characteristics of the cloud, subscription-based hardware services bring the cost and usage-based pricing benefits of an Opex model -- along with the flexibility to scale up or down as capacity requirements change. But while enterprises can benefit from tapping a hardware-as-a-service scheme, decision makers need to be aware that the devil is in the details. In some cases, hardware upgrades only occur at the end of the contract term, potentially delaying the businesses' access to the latest technology. And some subscription-based services appear to be that in name only, restricting terms and pricing the hardware more akin to a leasing arrangement that an as-a-service model.

Savvy suppliers see marketing opportunities

Vendors that apply a true subscription model can use that strategy to differentiate their products and expand their customer bases. Savvy suppliers can also access new markets and sectors that may have been unavailable because of customer resistance to rigid leasing contracts or stiff upfront expenditures. Many vendors sell hardware-as-a-service packages through both their direct sales forces and the channel. The latter distribution is aimed specifically at smaller businesses that might be beyond the vendor's typical reach.

Hewlett Packard Enterprise and Alcatel-Lucent are among established vendors that offer hardware-as-a-service options. HPE's FlexNetwork Utility Advantage Program includes all of the company's wired and wireless products, but it's only offered to service providers that bundle hardware -- and, in some cases, managed services -- with their own networking products. Alcatel-Lucent sells its Network on Demand subscription service to the enterprise and through value-added resellers.

Big Switch Networks follows a modified subscription model for its Elastic SDN on-demand offering. While customers can purchase switches and capacity on a subscription basis, they must also pay some upfront capital costs. Big Switch also charges a burst fee in the event a customer exceeds capacity limits written into its contract. Switches are sold in small, medium or large blocks.

Some notable vendors, including Cisco, do not yet offer a subscription-based hardware model. However, as suppliers explore new pricing mechanisms in software and services, it is likely they will also re-examine how they can modify their hardware delivery mechanisms to better suit their customers' fast-changing requirements.

Next Steps

How to evaluate hardware based on price

Virtualization costs include hardware

New projects depend on private cloud hardware planning

This was last published in August 2016

Dig Deeper on Network Infrastructure