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HP begins new server pricing plan

After promising the program for months, Hewlett-Packard begins a program that lets customers pay for how much they use their servers rather than how much power those servers have.

After promising the program for months, Hewlett-Packard began a program Monday that lets customers pay for how much they use their servers rather than how much power those servers have.

Traditionally, a server with more processing power has a bigger price tag. HP's new "pay per use" pricing policy, though, lets customers pay depending on how much computing the machine does, not how many CPUs it has.

HP announced the pricing plan in September when it unveiled the Superdome Unix server, the Palo Alto, Calif., company's most powerful machine. Monday's program also applies to some less-powerful Intel servers, though only in the United States.

The plan is part of HP's effort to stanch losses in its server business to IBM, Compaq Computer, Dell Computer and Sun Microsystems, compounded by a server market that's sinking overall. Servers, the powerful computers that handle everything from credit card transactions to keeping track of a shoe store's inventory, typically come with higher profit margins than ordinary desktop computers.

Also Monday, HP cut costs on several of its Intel servers. The company cut prices on its rack-mountable LP 1000r and LP 2000r as much as 23 percent, while offering some resellers $825 rebates for those two systems and the free-standing E 800 and LC 2000.

The move comes shortly after Compaq and IBM announced competing servers that use Intel's latest Pentium III-S Tualatin chip, which offers higher performance than its Pentium III predecessor used in the discounted HP servers.

Gartner analyst Ed Cowger believes that the pricing scheme places too much risk on HP's customers.

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HP executives have said that the pay-per-use program is expected to appeal chiefly to companies that provide services that experience spikes in demand. Without the new pricing plan, such customers would have to pay for expensive, high-end systems that they need only during these peak-demand periods.

With the pay-per-use plan, such customers wouldn't have to pay as much during the periods of comparative calm. During all periods, though, a customer must pay a monthly base fee.

The pay-per-use plan includes HP technology that monitors how much the server is used, HP said.

The plan is aimed largely at companies that host services accessible over the Internet or other networks. Such services often experience peaks in demand--for example, when a Web site becomes popular with masses of Internet users, or during the end of a quarter when corporate accounts are being balanced.