Users find appeal in HP's usage-based pricing

Hewlett-Packard's new Pay per Use pricing option for its RISC-based Superdome and Intel-based Netserver families of servers is a good first attempt at true usage-based pricing in the distributed server space.

But the option as announced by HP on Monday isn't for everyone, cautioned users and analysts. In fact, apart from a narrow set of users who have widely fluctuating workloads, the option could end up costing more than outright purchase or traditional leases in many cases, they added.

"This is an example of HP thinking out of the box and delivering something that is truly unique," said Tim Daley, a director at beta-tester TRW Inc.'s application services provider group in Washington, Mich.

IBM offers a similar pricing plan in the mainframe space called workload licensing. A range of vendors, including Sun Microsystems Inc., Unisys Corp. and HP itself, also offer capacity upgrade-on-demand options under which users install more processors than they need upfront but pay for them only as they are turned on. But HP is the first major Unix vendor to offer users the option of using, and paying for, processors as needed, analysts said.

"It is targeted toward users with very specific needs . . . those who have modest overall capacity utilization but who require extra capacity to handle sudden bursts in load," said Gordon Haff, an analyst at Aberdeen Group Inc. in Boston.

"The model appears good, assuming you have applications that would utilize [at least] half of the processing power of the Wintel servers to start with," said Bruce Gowan, a senior systems consultant at Toronto-based Canada Life Assurance Co. "If this model applied to lower-end servers, it may be of interest."

"Generally, this seems like a good start into hardware usage-based pricing," said Jim Lackey, a longtime mainframe user and software configuration manager at Information Systems Management Corp., a services provider in Burnaby, British Columbia. But there are several question users need to ask relating to issues such as the impact of hardware upgrades, the administration of the scheme, and the availability of tools to simulate usage patterns for users considering the option, Lackey said.

Under HP's new pricing model, users pay both a fixed monthly cost and a variable cost that depends on the actual computing power they use each month (see story). The option is available only on 32-way and 64-way Superdome Unix RISC servers and on HP's IA-32 based L-series Netservers.

Here's how it would work with a 32-processor Superdome server: A customer would pay a fixed minimum monthly charge equal to one-half the monthly amount he would have paid for leasing a 32-processor server for 36 months. On top of this, the customer would pay a variable monthly usage fee based on the average maximum daily use of the system.

The option works similarly with HP's Netservers, except that the fixed monthly charge is equal to 75 percent of the monthly amount a customer would have paid under a three-year lease.

Customers who use less than 50 percent of the overall capacity of their systems on average each month should see cost savings using this option, said Ian Curtis, an HP marketing manager. For example, a customer with a 32-way system that uses an average of fewer than 16 processors per day would stand to save over a lease option.

But those who use more will end up paying more than they would have if they had simply purchased the system outright or had a conventional lease on it, Haff said.

Under maximum average utilization, a company using a Superdome server could pay 17 percent more than it would with a three-year lease, Curtis said. With Netserver, the premium is 20 percent.

As a result, the Pay per Use option makes sense only in situations where "the costs of not having instant access to extra capacity is very high, where the capacity demand is very unpredictable and where there are significant swings in the peaks and troughs of the capacity demand," Curtis said.

Despite such caveats, HP's move is a bold one and does make sense in some situations, said Ed Cowger, an analyst at Stamford, Conn.-based Gartner Inc.

For instance, it gives application service providers a way to charge their customers based on actual system usage. And it can also make sense in some commercial environments, like retail operations that have low average CPU utilization but need extra capacity three or four times a year to deal with seasonal sales promotions, Cowger said.

The option is also very useful for companies that don't have or don't want to make the capital investment needed to buy systems outright, Daley said. "If you are capital-restrained, this offers the most economical way to procure resources," he said.

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