SIDEBAR: HP introduces a new style of cloud economics

BARCELONA, SPAIN – In the midst of HP’s massive 20 product cloud announcement at HP Discover was a new offering called Flexible Capacity that will allow customers to have more cloud capacity than they need without paying for it.

According to Francis Guida, the manager, cloud solutions for HP’s Enterprise Group, companies when they are experimenting with cloud are unsure how much they will need. They would like to build more in for contingencies and speed to market, but do not necessary want to pay for it upfront. They would rather pay for it when they are ready to use it.

“This is a common thing with customers with cloud. You start it and then it grows and there is no retrofitting because it’s not built in. Flexible Capacity is a pay-as-you grow environment,” she said.

This is how it works for channel partners: the product organization sells HP gear to its financial services arm called HPFS. HPFS (HP Financial Services) holds the assets and qualifies the customer. HP then constructs the arrangement in an Opex model. The channel partner still produces the monthly bill for the customer.

Scott Weller, the GM of worldwide support services for HP, told CDN that HPFS does not take on the asset on behalf of the channel partner. The reason for this is that most channel partners would not qualify and they simply do not wish to have the asset on their books.

“So this is run as a direct sale. The channel partner will still sell to the customer and achieve front and back end commissions. HP has so much of its business through the channel and we want to grow that. We are looking for more participation,” Weller said.

He added that HP has never done something like Flexible Capacity before.

One important piece of this model is that the channel partner retains the customer but the sale is a joint HP with solution provider deal. Weller said the channel partner retires the quote and HP then pays the channel partner a majority of the total deal revenue upfront. If and when the customer grows the channel partner gets what Weller calls “uplift” payments.

“In this model there is no inventory hold up for the partner,” he said.

A typical contract under Flexible Capacity would run five years. Weller said it’s important to note that it’s all driven by the customer and when the gear is sold there will be a terminate date. The deal will work as a rolling arrangement where in year three the solution provider does a re-assessment.

“Flexible Capacity avoids lengthy procurement cycles where the vendor get vetted again,” Weller added.

The deals also tend to start at a minimum of two racks, but Weller told CDN that HP is considering single box implementations with its recently released Sharks technology and is working with the channel to develop an individual Sharks model.

“This gives the customer the on premise advantage. The gear is here, the data is here, but the workloads may not be here yet,” Weller said.

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Paolo Del Nibletto
Paolo Del Nibletto
Former editor of Computer Dealer News, covering Canada's IT channel community.

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