Hardware vendor touts fast-growing GreenLake services program and channel as catalyst for transition
Hewlett-Packard Enterprise (HPE) upped the ante on its traditional hardware competitors and cloud rivals by announcing it will transition to an Everything-as-a-Service sales model by 2022, building off the success of its fast-growing GreenLake program. The transition will change the way HPE’s direct and channel partners work with customers while creating persistent recurring revenue for all parties in the go-to-market chain.
The Lowdown: The transition goal, announced at the annual HPE Global Partner Summit in Las Vegas, is to move the total hardware and service portfolio to a consumption-based model under which customers pay based on what services they use. The sales model is a departure from the traditional model in which customers buy hardware through a one-time transaction and subscribe to attached maintenance, support, and attached professional services.
The Details: The move is consistent with HPE’s long-term growth and development strategy announced last fall. HPE is building off the success of its GreenLake initiative, in which customers buy servers and other hardware through a pay-as-you-go model similar to cloud computing subscriptions. GreenLake generates more than $2.8 billion in annual revenue and has more than 400 partners selling and supporting customers through the program. HPE says the channel portion of the GreenLake program grew 275% in the past year, making it one of the fastest-growing initiatives in the HPE portfolio.
In the short term, HPE will continue to give customers choice in the way they buy products. In other words, customers can choose to buy through a traditional transactional model or through the service-based model. It’s unclear whether customers will continue to have that choice after 2022. HPE plans to unveil GreenLake subscription buying options for products such as Aruba wireless networking hardware, as well as software such as Aruba Central, BlueData, CloudVolumes, and OneView.
The Impact: The consumption-based model offers benefits to both vendors and customers alike. For customers, consumption-based, or subscription, pricing normalizes expenses, making them predictable, and grants greater flexibility in deploying, upgrading, and managing infrastructure. For vendors and partners, the model creates predictable revenue, scales resources, creates persistent customer engagements, and – if executed correctly – generates better profits. HPE committing to the XaaS model within three years will give it a head start in transitioning partners and customers.
Background: Many traditional hardware vendors such as Dell Technologies and Lenovo, as well as new entrants such as Microsoft and Google, are selling hardware through subscription models. However, HPE is one of the first large hardware vendors to commit to a total consumption-based model. HPE believes subscription-based selling and engagements align with the customer need for hybrid infrastructure, in which local devices attach to cloud services for greater functionality and utility.
The Buzz: “Larger enterprise customers continue to go as-a-service, but also have on-premises,” said Davis. “We will have right-sized offerings for midmarket and the lower end of the enterprise. Large enterprises have access to data centers, but smaller companies don’t,” said Paul Davis, president of HPE’s hybrid IT business and chief sales officer.
“From a technology perspective, the news also provides yet more evidence that for the vast majority of businesses, the future of the cloud is a hybrid one that can leverage both on-premises (or co-located) computing resources and elements of the public cloud,” said Bob O’Donnell, a research analyst at TECHanalysis Research. “Companies need the flexibility to have capabilities in both worlds, to have additional choices in who manages those resources and how they’re paid for, and to have the ability to easily move back and forth between them as needs evolve. Hybrid cloud options are really the only ones that can meet this range of needs.”
Channelnomics Point of View: XaaS is the next logical step in go-to-market evolution for hardware vendors. Many traditional hardware vendors watched their cloud counterparts in awe as they amassed fortunes selling cloud subscriptions and generating massive recurring revenue. Selling hardware as a service isn’t easy, as someone — most often the vendor — must cover the capital expense of manufacturing and distribution while waiting for the compounding recurring revenue.
HPE seems to think it’s solved the upfront expense challenge. A contributing factor to HPE’s confidence is likely its channel partners. Analysts agree that HPE has a distinct advantage over rivals that are slowly transitioning to XaaS because of its large ecosystem of reseller and integrator partners that are capable of linking multiple products to its on-premises and hybrid products to create holistic systems. HPE’s decision to go XaaS will likely prove prophetic and lead others like Dell, Lenovo, IBM, and Cisco to accelerate their hardware subscription efforts.