The rise of consumption-based IT services pricing is an organic extension to—and result of—cloud computing, with its modular and flexible services-based model.
Industry commentators have referred to consumption-based IT services pricing as à la carte computing, but that’s inaccurate. With à la carte, you have to pay for everything you’ve ordered and, if you don’t consume it all at once, you can take the rest home and save it for later.
In the world of consumption-based pricing, you can order what you like, eat as much or as little as you want… and you can still expect some form of partial (or complete) reimbursement on anything that you don’t need.
It’s in the Fine Print
The specifics ultimately depend on the agreement you enter with your provider. Although I’m not aware of any restaurant that has offered a consumption-based à la carte menu, IT services are virtual in nature, so it’s far more feasible in that example.
I’ve already explored this topic a bit, but here we’ll cover clarifications, caveats, and cautions ASUG members need to keep in mind.
This subject warrants analysis and discussion because it reflects the moves SAP has made with SAP Cloud Platform, which added the option for a form of consumption-based pricing in 2018.
Clear IT Benefits to Extend and Innovate
SAP is offering clear, upfront benefits. Customers can now enjoy the flexibility of using any technical or business service within the SAP Cloud Platform without having to place orders for specific services.
As Agile methodologies increasingly filter across business models that must be able to adapt as fast as change happens within technology itself, customers will need to execute more ad hoc data queries “on the fly.”
While more traditional data analysis models will remain regimented, SAP HANA’s core advantage lies in its in-memory speed to drive data analytics of all shapes and sizes much faster than before. Executing ad hoc queries is a positive, but it’s hard to plan for it. So, it makes sense if SAP allows for a more flexible consumption-based pricing approach.
SAP says that customers (ASUG members and others) can now benefit from a more metered approach to pricing. They can configure and estimate cloud services for specific projects so that together with the existing subscription-based model, they now have choices of how to integrate, extend, and innovate.
How Does Consumption-Based Pricing Work?
SAP explains the actual procurement process like this: The customer acquires cloud credits via a prepay contract. According to SAP, customers can use these cloud credits to activate any available SAP Cloud Platform service or capability (e.g., data storage, bandwidth, or user experience), as needed or wanted.
The customer can then rapidly activate the service or capability via a self-service cockpit that controls the provisioning of the functionalities requested.
To keep track, SAP explains that it will provide customers with regular detailed reporting of services they consume, as well as the status of each customer’s cloud credit balance.
Origins of Openness
Vice President for product marketing at SAP, Dan Lahl, has been talking about this subject, even before it became part of SAP pricing. Previously, SAP identified key strategic partners that it would offer a kind of utility-based pricing structure to for areas of “very clear cut and certain” business that were easier to supply IT to.
“Where a customer has/had a specific and clearly defined application type and data workload channel being pumped by analytics functions that can be quantified in terms of size, frequency, and complexity—then a more sophisticated version of consumption-based pricing could be an option,” Lahl said at the start of 2018.
It says a lot that SAP has brought the utility-style concept and model forward to offer this approach in full. The company has continued its openness theme with what it calls a “complement to the engagement model.” That is, it has moved from selling specific services to allowing “access to everything” through the new cloud platform enterprise agreement.
Which Industries Will Win?
So, how will ASUG members feel about this development? Does it reflect the current market appetite for IT procurement? Are there specific industries more likely to benefit from this type of model?
ASUG members will need to tell us for themselves.
“Purchasing by meter” is not exactly à la carte, but more à la mode. It is most likely to work well in industries that experience extremely changeable supply chains and customer demand swings such as food supply, retail, and the fast-moving consumer goods sector.
That said, it could work equally well in any industry environment where use cases are cyclical or unpredictable. That could be anything from entertainment, tourism, and travel all the way to some applications in the health care or finance space.
The bottom line according to Forbes writer and principal analyst of Futurum Research Dan Newman is that consumption-based IT services will be “for the win” in 2019. “This ITaaS [approach] allows for scalability, the latest technology (without the latest tech price tag), shorter procurement cycles, and increased agility. It only makes sense that companies are leaning this way and they will be more and more in 2019,” Newman wrote.
Rebates Rather than Takeout Boxes
In the long run, a consumption-based model scores well as more cost-effective for any business. Yet not every ASUG member (or other SAP) customer will necessarily have the operational procedures or tactical workflows in place to take advantage of it.
Some customers may be able to see the potential advantages but may not join the early adopter group as they watch SAP further finesse what is still an essentially new development.
Either way, imagine going for your next burger and fries. Ketchup, mustard, and pickles are free for all diners. And once you’re done with your order, you can decide that you would rather get some form of rebate than ask for a takeout box. It could be a tasty way to order your IT services, too.
Want to learn more about supply chain strategies and technologies? Join us March 16 – 18 in San Antonio for the SAP-Centric Supply Chain conference.