Opportunity, risk for channel in new Dell EMC Cloud Flex flexible consumption model for HCI

New flexible consumption models were front and centre this week at Dell EMC World. They may attract new customers, but will they attract partners?

LAS VEGAS – While Dell EMC launched a massive array of new products at their Dell EMC event here this week, in many ways the most interesting news was not the new products but the new flexible consumption models they also unveiled.

The most strategic of these  – although not the one on which the most detail was provided – was a new Dell PC as a Service solution, which combines PC hardware, software and end-to-end services including deployment, management, security, support and end-of-life for a single, predictable per seat price per month. Dell EMC also announced Flex on Demand, which provides true on-demand pricing to reduce the need for businesses like retail which have seasonal demand to overprovision. And finally, they announced Dell Financial Services Cloud Flex for HCI. This is the one likely to be of the most interest to the channel, because it involves the red hot hyper-converged sector, and is starting with two channel staples – the VxRail appliances and the XC [Nutanix] series. Cloud Flex may also be the most complex of these models for partners to consider – because it provides clear new opportunities – but also an element of risk to partners’ traditional business models.

The idea of providing ‘cloud-like’ pricing as a competitive to the public cloud drives Cloud Flex.

“We are introducing a new Version of VxRail, but also introducing a new pricing model for it, getting really aggressive with cloud-like pricing,” said Jeremy Burton, Dell EMC’s Chief Marketing Officer. “This is the sort of thing that we are much more able to do as a private company, because we can take a longer view of the business.”

“When we talk with customers who are not into hyper-converged, they tend to say they are considering the public cloud as an alternative,” said Colin Gallagher Senior Director VxRail Product Marketing at Dell EMC. “They tell us they like the idea of hyper-converged, but they believe that two elements of the public cloud are attractive. There is no commitment. And they can get out easily – at least that’s their perception.”

Gallagher revealed that in putting together Cloud Flex, Dell EMC considered and discussed multiple pricing models.

“We considered a traditional utility ‘pay for what you use’ model – but for this we wanted a more cloud-like flexible pricing structure,” he said. “We now have a flexible consumption model with burst pricing [Flex on Demand], but this is a different system.

The core features of Cloud Flex are simple monthly payments, built-in price reductions over time, and no upfront costs or obligation after the first year. The intent is to provide the benefits of an OPEX pricing model that eliminates initial capital costs and spreads payments over time.

“We trump the public cloud here,” Gallagher said. “They have price declines, but they are completely dependent on the vendor’s policy, and are not predictable. We build in a predictable and significant price decline, starting with one of up to 30 per cent between Year 1 and Year 2.”

Gallagher also stressed that the customer is only committed to one year of payments, and after that can return some or all of the offering, to lower their payments, or eliminate them entirely. He also noted that while this format is similar to “Try and Buy” sales strategies that the industry has been using for decades, it’s really not the same thing.

“Try and Buy is much shorter and is really not on the same time scale,” he said. “With this, you are committed to twelve months get an invoice at the end of the first month.”

Dell EMC began a soft launch of Cloud Flex a month ago, although they couldn’t actually sell it until this week. While customer reaction has been good, Gallagher acknowledged that Dell EMC really doesn’t know at this point where the demand will come from.

“We have been having internal arguments about this,” he said. “Will it be mainly customers who need more than they can afford buying conventionally? Or will it be customers who are more cautious? Both of these have come up in conversations, but I bet something will come up we haven’t thought of yet.”

Gallagher also acknowledged that they expect this will be a niche way of buying – at least for now – rather than becoming the common way of acquiring equipment.

“It will require customers to change their behavior,” he said.

Given that the solutions where Cloud Flex is starting out are dominated by the channel, making this work with a channel-friendly compensation model is critical. The potential issue here for the channel is that the equipment is owned by Dell Financial Services – and the customer is as well.

“We have discussed extensively how to make this work for partners,” Gallagher said. “It is a finder’s fee model, where the partner brings us the deal, and gets paid a portion of the deal up front. That’s a 60 per cent commission. If the customer keeps the equipment for four years, each year we pay up to 100 per cent on that. If they keep it for the whole term, we pay up to 120 per cent of what the deal would have been if they had bought on CAPEX.”

Gallagher said that this translates into a win-win-win situation.

“The customers win because the rate drops. The partner wins because of the attractive finders’ fee. We at Dell EMC win because we have a happy, satisfied customer, and an ongoing revenue stream. We make money here because, like leasing a car, the lease value does cost more than what it would be if they bought it outright. There is a financing charge. That’s why we encourage partners to offer this to customers who they believe are likely to keep the gear for five years or more.”

Gallagher said that so far at the event, the finders’ fee model hasn’t been a sticking point with partners.

“With some partners, we do expect this will be an issue,” he said. “This is just one way they can sell though. It complements our existing leasing structure. There are plenty of different ways partners can choose to offer these solutions to their customers.”

Cloud Flex for HCI is available immediately with Dell EMC VxRail Appliances and Dell EMC XC Series. It has planned availability in the third quarter of 2017 for Dell EMC VxRack Systems.