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Commentary: HP's pay per use--a fair start

Hewlett-Packard has delivered on its promise to offer a utility pricing for its enterprise-class Superdome and Intel-based NetServer family of servers.

By Ed Cowger, Gartner Analyst

Hewlett-Packard has delivered on its promise to offer a utility pricing option (dubbed "pay per use") for its enterprise-class Superdome and Intel-based NetServer family of servers.

In Gartner's opinion, however, the initial program offers less flexibility than anticipated and applies mainly to a very narrow customer class.

The pay-per-use program for Superdome servers is based on the monthly average of the daily maximum active processors. The customer pays a base or minimum monthly charge (with one active processor) equal to one-half that of a conventional lease for a fully configured 32-way or 64-way system plus a usage fee for daily maximum active processors.

HP has indicated that an average daily maximum usage of 50 percent is the point at which the pay-per-use payment stream equals that of a conventional 36-month lease for a fully configured system. That is, above 50 percent usage, the customer pays a premium; below 50 percent, the customer gets a savings compared to a full configuration lease. The NetServer pay-per-use program is based on average CPU use, and with a similar result: Above 50 percent usage, a premium is incurred; below 50 percent, savings are achieved.

See news story:
HP begins new server pricing plan
However, for a utility model, most customers do not expect to incur 50 percent of the total cost for one active processor and pay a premium for using, on average, more than 50 percent of total system capacity. Gartner believes that the pricing scheme places too much risk on HP's customers.

Gartner also believes that only enterprises with widely fluctuating daily, weekly or monthly workloads will gain any appreciable savings from the current pay-per-use program, and estimates that the program will apply to no more than 5 percent of new orders.

Moreover, not all independent software vendors have bought into the HP program, and some of them may charge based on the total physical processors or potential power of the system. Enterprises should check with all ISVs to determine their pricing policies and use those costs in their economic evaluations. The HP program also lacks planning tools so customers can model best-case and worst-case cost scenarios.

On the other hand, although the program may have some shortcomings today, HP deserves credit for taking an important first step in usage-based server pricing.

(For related commentary on the complexities of server software pricing, see registration required.)

Entire contents, Copyright ? 2001 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.