The cloud through a different lens: a two-part OPEX story for OEMs

Let’s begin by changing the lens on the topic of the cloud and Original Equipment Manufacturers (OEMs). In my role as a services consultant for Dell OEM Solutions, I talk to a lot of OEMs about the infrastructure needed to deliver their solution to customers via the cloud. However, when our OEM customers talk about it, they see it as a turn-key service, SaaS, managed service or a utility-consumption model. Fundamentally, more and more of our customers see the cloud as having two key benefits from an OPEX standpoint—it’s an effective acquisition tool for new customers/path to new markets AND a way to significantly reduce costs.

How so? Historically, there were only a few on-premise ways to consume software: software only, VM or on an appliance. Generally speaking, those on-premise solutions carry an annual software license with a support contract. Every year customers negotiate with their software vendor to update their licenses by writing a big check to cover a year’s worth of licenses, and tech support.

But now when OEMs look at cloud, they see how it gives them a more compelling story to compete and capture more customers—especially those who don’t want to, or can’t, shell out large capital expenditures annually. OEMs not only see the benefits of a cloud-based solution that leverages a pool of compute resources more efficiently with higher availability, but also, and more importantly, it gives them the ability to offer a new payment model to their customers based on what they actually use—reducing the barrier to entry by removing a big upfront investment. 

To be clear, this is about moving a step beyond a traditional hosting scenario. For OEMs to take their appliance model and simply move those customers to a hosted environment, they aren’t going to see a ton of cost savings because they still have issues like utilization, datacenter costs, ongoing management depreciating assets, etc. –all tied up into one customer. However, moving to a cloud infrastructure, you can share a pool of resources across an environment. That's where OEMs can realize the promise of cost savings and better compete via the cloud.

So as an acquisition tool, the OEM would first move from on-premise to an off-premise model and then set up a monthly utility-type model where customers pay a monthly bill based on actual usage. By offering a bundled solution like that, you don't have to deal with the complexity of installing the software on-site, all the bills from the datacenter, managing depreciating assets, having people tied up with supporting the HW/SW of the solution to keep it running as well as the infrastructure costs. Instead it gives them an option to pay as they go which ebbs and flows with changes in demand.

The other side of the cloud acquisition tool story for OEMs isn’t as obvious but you can see how it can open doors into new markets, industries, and geographies by reducing the complexity of the regulatory, testing, and validation processes and other time-consuming activities that are typical when going into new markets with an on-premise solution.

Simply, cloud is enabling competitive business models for a new path to market for OEMs.

Another significant way that going to a cloud-based delivery model can help OEMs save OPEX is how it shortens the sales cycle by simplifying the evaluation/proof of concept process with their customers. Typically, there are a lot of resources involved in setting up, shipping and managing an eval unit pool. With cloud, the OEM can spin up a virtualized image for their customer and in a shorter amount of time, they can be testing it—thereby skipping the longest step in the sales cycle. Also, managing a traditional eval unit pool means those units are depreciating in value, need to be refurbished periodically or taken as right offs if not returned, etc.—all adding costs to the equation.

So in summary, OEMs that I’ve been talking to are seeing the cloud through the lens that it can help them win new business, change the OPEX discussion for themselves and their customers and open doors to new markets faster—gaining advantages all along the way. 

About the Author: Tim Pavlovich