Can the Vendors Eat Their Own Dog Food on Cloud Billing?

I keep hearing we are now in a Cloud based world, I keep hearing that to “Do Cloud” properly you need to bill like a utility company, small standing charge and then a charge per unit used. I like this model, pay for what you use. it is great for the clients as they are in control of their costs they know that if they use X amount of time they get charged XX amount of Dollars. So what is the problem? The very business model that the cloud providers are peddling is being undermined by the vendors telling the providers that it is the way you should charge but not charging that way themselves. There are two cost models:

  • Charge for all hardware and software upfront
  • Small standing charge for all hardware and software then a charge for what you use

I do not see the likes of VMware, charging for vCloud Director or vSphere on that cost model. I do not see EMC or NetApp providing Storage via that model, or Cisco, HP or Dell providing Servers or Network Infrastructure based on throughput etc. The fact is that Cloud provider still have to provide the upfront capital costs to build their clouds. This is not conducive to Cloud adoption, as a provider you need to spend big to get the economies of scale that vendors provide with big orders. This is against a business model that is not exactly mainstream. Ie Provider gets to take all the up front risk and the software and Hardware Providers still get their revenue.

That said not all vendors are the same, one of the things that I like about IBM as a provider of hardware is that they provide a service where you can have all the hardware you are projected to need delivered but pay for only that which you are actually utilizing. IBM manage this via a hardware lock-down that is opened up by inserting a alpha-numeric code into the management console of the environment to release or remove resource almost on demand. not perfect but a darn sight near to what a Cloud provider requires.

Microsoft have the SPLA license agreement for ISP and service providers, this provides a per monthly billing cycle based on user count or Machine count, again a nice start.

All that said, they are only available for big players and the hoops that have to be jumped though to get access to this programs are hard.

VMware, Quest, Citrix and the other “Cloud Software” providers, Cisco, HP, Dell, and other Hardware vendors, get with the program here, you keep telling us that we live in a time of utility cloud computing, so start charging for your product like a utility. Small Standing charge and a monthly/quarterly utilization invoice. That way maybe then there will be choice and the cloud can become a reality.

Tom Howarth (51 Posts)

Tom Howarth is an IT Veteran of over 20 years experience and is the owner of PlanetVM.Net Ltd, Tom is a moderator of the VMware Communities forum. He is a contributing author on VMware vSphere(TM) and Virtual Infrastructure Security: Securing ESX and the Virtual Environment, and the forthcoming vSphere a Quick Guide. He regularly does huge virtualization projects for enterprises in the U.K. and elsewhere in EMEA. Tom was Elected vExpert for 2009 and each subsequent year thereafter.

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2 Responses to Can the Vendors Eat Their Own Dog Food on Cloud Billing?

  1. Joe
    May 17, 2011 at 5:22 PM

    Hi Tom,

    VMware require Service Providers hosting multiple customers in a single multi tenanted environment use their VMware Service Provider Program (VSPP) licensing agreement. This is a hybrid of a pay as you go model and a fixed revenue model. Service providers are required to commit to a monthly minimum spend with usage is measured monthly and when the baseline has been exceeded then additional charges are applied, where the unit is a GB of vRAM allocated and powered on.
    This enables a service provider to build a large environment with no upfront capital cost for licensing and then pay for licenses in proportion to their utilization.

    While I understand this doesn’t assist non-service providers, it’s a step in the right direction.

  2. Seb
    May 19, 2011 at 4:29 AM

    Tom,
    I tend to not agree with your statements. Service Providers operate in the way you described since the very beginning and my experience with them is that they prefer to invest CAPEX in hardware. This is the financial mode for them. Startups are more inclined to OPEX investments – and for such SP’s – vendors offer very often financing options to turn CAPEX into OPEX.

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