Evolving Consumption Models Cloud IT Decisions

A myriad of new technology offerings, service tiers and pricing plans, including annual subscriptions, are shifting the focus from ownership to consumption.

By Joanie Wexler

By Joanie Wexler October 05, 2021

In IT, it’s not uncommon for disruptive technology to emerge and experience early adoption then an onslaught of competition from new, differentiated offerings. Suddenly a straightforward adopt-or-don’t-adopt decision can become exceptionally nuanced, with IT pros having to evaluate a proliferating array of service and pricing options layered one on top of the other.

Cloud computing is one of the latest and possibly best examples of this growing vortex, especially if cloud truly is the greatest growth market the world has ever known, as tech analyst and Cloud Wars creator Bob Evans claims.

A decade ago, the choice for IT buyers was to continue investing in private data center equipment and software licenses or “rent” IT infrastructure and software-as-a-service (SaaS), accessible via the Internet, from a public cloud provider. Renting allowed IT shops to avoid big upfront capital investments by dialing up a cloud subscription service as resources were needed, paying with funds earmarked for OpEx.

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Since then, some differentiation among early cloud services has evolved as new players have entered the market, each with unique offers, on- and off-prem cloud options, and myriad pricing packages, convoluting the decision process. Among the cloud options available to today’s IT buyer:

  • On-demand services, including serverless computing, billed based purely on usage
  • Services discounted with a minimum usage commitment
  • Service-level agreement (SLA)-based options, such as those that guarantee minimum service uptime and performance levels
  • Bring-your-own-license (BYOL) software offerings that help businesses migrating to a public cloud bridge existing software investments with newer subscription models

The IT landscape requires a new mix of skills in the IT professionals who procure them, according to Jeremy Gannon, Senior Systems Engineer at Kelser Corporation, a managed IT services company in Glastonbury, Conn.

“You can’t specialize the way you once did, at least not without limiting what you can do and where you can work,” said Gannon. “If your specialty is network engineer, deploying and managing integrated cloud environments requires knowledge of the whole stack” to be successful, he said.

It professionals are increasingly learning the challenges and benefits of hybrid IT operations in order to bridge owned and rented IT infrastructure.

OpEx Efficiencies

The OpEx model of turning on cloud services when needed began in the consumer market, said Todd McElhatton, Chief Financial Officer at Zuora, a software company that helps businesses launch and manage subscription-based services. 

“Instead of buying a record album, you streamed music; instead of being in a hurry to get a driver’s license, you used Uber,” said McElhatton. “Consumers learned that this could be a more efficient manner of procurement. That thinking has spilled over into the B2B space.”

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Cloud service providers have enabled consume-as-you-go behavior by building out near-infinite IT resources that are readily available to all comers. Businesses can quickly turn those resources on and off “so they’re always right-sized,” said Gannon, unlike CapEx models that can be thrown off by market disruption or flawed capacity-planning forecasts.

Providers differentiate themselves by layering services such as data backup, disaster recovery, SaaS applications, development tools, analytics capabilities and more onto compute and storage infrastructure services. 

Enterprises can opt to straddle multiple public and private IT environments to best accommodate different application and workload requirements, and buyers must determine the most strategic and economical mix for their businesses. Considerations for security, application response times, and economics based on workload stability all come into play.

Procurement Options

At Zuora, McElhatton sees many companies creatively pricing their subscription offerings to give customers a better handle of paying for what and when they consume a service. He has seen pricing options that reward customers for using resources during off-hours, pricing based on usage, and options for “bursting” above contracted-for server usage during times of heightened activity, he said.

“Usage-based pricing assures customers are paying for the exact value they receive, while product fee-based pricing makes it easier for companies to budget, predict and reduce churn," said McElhatton. 

While marketers like to compare cloud pricing to utilities like electricity and water, the landscape is often more complex than simply paying for exactly what you use.

“For example, there are options for how redundant and resilient your service is,” said  Gannon. 

“Is your data replicated over multiple regions? One region? You can purchase highly available storage or less expensive storage in a deep archive that’s potentially less available,” in that restoring data takes longer, he explained. 

“These options change the price per gigabyte that you pay and it’s up to you to decide what you want.”

Is Complexity Driving Cloud Costs Up?

The more complicated cloud service pricing becomes, the likelier it is that cloud costs will increase, wrote Jay Chapel, CEO and founder of ParkMyCloud, in a CloudTech article. Service providers of network and IT services have long been notorious for complex pricing. The sheaves of monthly pre-Internet business telephone service invoices, for example, spawned entire career tracks devoted to negotiating, analyzing and resolving phone service plans and invoices.

The same issue is unfolding with cloud pricing.

“Complexity,” wrote Chapel, “can often drive up bills and prevent the promised cost savings” that may have provided the primary impetus to move to the cloud in the first place.

McElhatton said, for example, that while vendors have historically sold IT to CIOs, “now others within the company are experimenting with subscription services” as they test-drive a capability for a minimal outlay.

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That’s all well and good for improving corporate agility. But such “shadow IT” trends also can become problematic from a cost and security perspective, particularly when services are spun up, then abandoned and forgotten, while the meter continues to run. It’s also “hard to know what your overall IT is costing you” if it’s being contracted for piecemeal throughout the company, noted Gannon.

Help with Cloud Cost Control

Fortunately, management tools that help businesses continually analyze and right-size workloads for optimum efficiencies are available. 

“Public cloud storage providers let you set up policies to move data across [service and pricing] tiers over time,” said Gannon. “You might use a service to back up files, then initiate a policy that data that hasn’t been touched in 60 days is moved to an archived storage service,” which is less expensive.

Enterprises can also invest in cross-cloud tracking software such as Nutanix Beam to track and audit workload instances across private and public cloud environments. Such programs help locate and shut down abandoned services while continually making optimization recommendations or automating processes to control costs. They can enforce policies to automatically move data to a different service or pricing tier if certain conditions occur and trigger an alert to do so.

As noted, some providers are allowing BYOL models so companies can maintain existing software licenses as they port their workloads to the cloud, helping them to derive value from their initial investments. Nutanix, which moved to a subscription-based model in 2019 for its software pricing, offers BYOL options.

BYOL agreements are often less expensive than SaaS subscriptions. However, experts warn, agreement conditions vary by vendor, and BYOL is not universally available. Where BYOL is an option, it also might be restricted to certain versions of apps or to specific cloud vendors, so it pays to investigate the terms before adoption.

Impact on Sellers

Not only the traditional IT buyer’s job has been disrupted by cloud economics. So has the IT distribution channel, which “has had to figure out how to sell equipment into hyperscale cloud environments and new types of virtualized offerings into more traditional IT shops,” said McElhatton.

He said he thinks the cloud model has been a more difficult adjustment for sellers than for buyers because buyers are very interested in pay-for-consumption pricing models.

For one thing, software companies must decide whether to change their channel strategies. Do they continue to deliver traditional software hosted on the customer’s premises, offer it from a third-party cloud service, or invest in building their own cloud infrastructure?

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A Deloitte Consulting 2021 Perspectives article advises that “software companies may want to consider offering cloud-based flexible consumption solutions while retaining their traditional models for customers that prefer to continue to consume the product in that way.”

Gannon added that selling networking products to a cloud service provider is quite different from selling to enterprises and smaller businesses. And the seller must be sure that the equipment capabilities match up to the service functionality offered.

“For example, with a typical VPN [virtual private network] service from AWS, you get redundant VPN endpoints” for high availability, Gannon said. “But some router vendors don’t have support for that kind of failover. So if a managed service provider is looking at cloud environments for a customer, the MSP needs to investigate whether the vendor supports that capability.”

This all leads to the tech industry’s constant quest for simplicity, which includes creating easy-to-get consumption pricing models.

Joanie Wexler is a contributing writer and editor with more than 20 years of experience covering the business implications of IT and computer networking technologies.

© 2021 Nutanix, Inc. All rights reserved. For additional legal information, please go here.

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