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On-demand storage: dollars and sense

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Most of the larger storage vendors offer pay-per-use storage options, including EMC Corp., Hewlett-Packard Co. (HP) and IBM Corp. In all cases, the pay-per-use plans are based on traditional leasing arrangements, but each company offers a twist or two to distinguish their service. Most plans include a buyout option at the end of the lease period.
EMC's OpenScale on-demand storage requires an entry level capacity of 50TB. EMC works with the user to estimate expected capacity growth; the base capacity is added to the future capacity requirements to determine the "concurrent usage" for the basic monthly billing. Unusual demands are considered "swing capacity" and are billed only when that capacity is used. Customers can also add software to the mix--for business continuity or performance optimization, for example--as part of the monthly payment.
IBM Big Blue offers a variety of programs and can tailor them to fit specific needs. IBM works with the customer to determine a baseline capacity--or "band"--which also factors in growth over a three-year period. The band usage includes a plus/minus 10% buffer and is billed on a gigabyte-per-month basis. Usage above the band is called "burst" and incurs an additional charge for the time that the additional storage is used.
HP As part of its Adaptive Enterprise program, HP's pay-per-use storage plan is based on a three-year lease. Base monthly payments are figured on 65% of the lease value for the total amount of installed capacity--which is the initial capacity plus incremental growth over the three-year period. In addition to the base payment, customers pay for actual use on a monthly basis (metered daily use averaged over the month).

Pay per use
Today, the most popular utility storage models are the on-demand or pay-per-use offerings from major storage vendors such as EMC Corp., IBM Corp. and Hewlett-Packard Co. (HP). (See "On-demand storage: dollars and sense.") The vendors consult with users to determine their current storage needs and apply trending analyses to reasonably predict storage growth. They also try to identify any peak periods where storage that is above and beyond normal requirements might be needed.

After determining current and anticipated storage requirements and identifying any capacity needs above those levels, the on-demand vendors install enough capacity to cover all of those circumstances. The storage is installed at the customer's site and is fully controlled by the customer--which means that until the user decides to increase capacity, they only pay for the base level.

The financial arrangements for pay per use are modified lease agreements, with terms that spell out the costs for base usage and how charges apply to other levels of usage. There are some differences in how vendors bill for storage above the base level. For example, pricing for HP's on-demand packages for its StorageWorks XP and EVA storage array families is based on 65% of three-year lease plus usage, which is figured on average use over a month. EMC slices its on-demand storage pricing into three tiers: base usage, expected growth and peak periods. All vendors offer a buyout option at the end of the lease term.

For Bell Canada, the Toronto-based telecommunications firm, opting for a modified on-demand storage plan provided by IBM to handle its 28TB of storage wasn't a difficult decision. Consultant Patkowski says their experience with on demand for their servers and mainframes since 1996 made the transition on the storage side relatively easy.

Working with IBM, Bell Canada determines their requirements periodically. "We just give them a forecast of what we'll require," says Patkowski. And when more capacity is needed, "within 48 hours the [disk] space is attached to the servers--this way we can grow into the space as opposed to buying a large storage box and divvying it up." IBM's on-demand program has worked well for Bell Canada, allowing the company to cut its storage costs by 30% in the first year--which translates to about $1 million in savings. The future looks promising, too, as the contract includes price-performance improvements that could further pare costs by about 20% per year (based on reduced hardware and support costs).

Chuck Hollis, EMC's vice president of markets and products, says that the typical on-demand user works in a medium-sized company because larger companies have ample storage management experience and "already have storage forecasting and provisioning capabilities in place." Smaller companies, on the other hand, tend to have far less dynamic storage needs, so they may gain little economic benefit--if any--from an on-demand solution.

HP has been in the on-demand business since 1999 when it first offered its Instant Capacity On Demand program for servers. With that program, users would buy a four-way server, for example, but HP would install an eight-way unit. Customers could then turn on the additional processors as needed and then be billed appropriately. "That's been a hugely successful program for us," says HP's Nick van der Zweep, director of virtualization and utility computing, "and we've extended that to storage as well." In 2000, HP introduced a pay-per-use option--as an alternative to the outright purchase required in the on-demand plan.

Sometimes HP's pay-per-use storage model runs against the grain to customers' internal purchasing procedures. "What you get with usage-based pricing, and even capacity on demand, is the ability for the system administrator to activate and deactivate capacity--thus committing that company to expenditures," says van der Zweep. This can upset the normal purchasing authorization process and cause some concern within purchasing departments. HP addressed this issue by improving its storage management system with password and hierarchical authorities.

HP added "security so that only the right people at the customer site can turn things on and off," notes van der Zweep, and provided access to more information, such as a portal where customers can monitor the metering system that keeps daily track of actual usage.

All of the pay-per-use storage vendors say they are committed to their programs and that customer interest is growing. EMC's Hollis says the company's young program has been "somewhat successful," adding about 10 customers each quarter to their current roster of approximately 50 users. Companies that show interest in the program tend to "have enough capacity, but never really developed the capacity planning and forecasting discipline," says HP's van der Zweep.

IBM has seen similar success with pay per use and is planning for its evolution. IBM's Stouffer says the company is looking at how to better integrate applications into the utility storage picture. IBM sees Web services technologies as a key to integration that will "allow customers and application developers to describe the business process in essentially a programming-like language." Applications would directly address the storage infrastructure and "carry along their attributes of service-level objectives, business priorities and even process flows."

Despite the apparent popularity of pay-per-use storage, consultant Geis maintains a somewhat contrarian perspective, saying that if capacity and resource planning is such a management challenge "you have a bigger issue than having resources on-demand."

This was first published in June 2004

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