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How Much is This Gonna Cost? Price Models for IT Infrastructure

October 19, 2012 at 9:59 am PST

Steve Watkins, Guest Blogger

Steve Watkins is a Consulting Systems Engineer for Cisco Intelligent Automation for Cloud.  He came to Cisco as part of the newScale acquisition in 2011.  He has been helping customers manage the migration to IT as a Service (ITaaS) since 2004.

 

Showback and Chargeback have become increasingly hot topics for IT, especially infrastructure teams.  This is fuelled at least in part by the general acceptance of cloud computing, including private clouds and SaaS applications.   Chargeback (and even Showback) are great ways of affecting behavior of the consumers of IT.   It keeps consumers from demanding an unreasonable amount of services, and encourages them to use of what has already been invested in.  There is also a growing mandate from Finance to make IT accountable for its spend, or at the very least to justify any requests for further investment. So infrastructure teams find themselves in the unexpected position of defining prices for the services traditionally offered.   Most have no idea where to start.

Several vendors have produced offerings to help manage the showback/chargeback business case.  This post will not discuss any vendor in detail.  Instead, I want to talk about philosophy.

Broadly speaking, there are two major approaches to creating a price model for IT.  There is the Utility-based model, in which pricing derived from actual consumption of CPU cycles, RAM, bandwidth, storage, etc.  In this model, if you stood up a virtual machine for one week you would only pay for the actual amount CPU cycles and storage you consumed.

Alternately, there is Service-based pricing, which advocates a fixed price based on either the service itself or some other unit of measure such as hours, etc.  In this model, if you stood up a virtual machine for one week you would pay for how many hours the VM was active, whether you used it or not.

I always council my customers to adopt service-based pricing.  I think utility-based pricing is the wrong approach for IT departments, especially infrastructure teams.  Here are my reasons:

1.INFLEXIBLE – Utility pricing is asset based, and therefore assumes that the assets will remain more-or-less the same.  The model breaks down when you introduce changes, like renting infrastructure from public providers or changing service levels.  What about if I offer VDI next year?  That may mean two different types of pricing models, which gets even more complex.  A service-based pricing scheme works with all services.

2.POOR CAPACITY MANAGEMENT – by only charging for the CPU cycles you actually consume, it encourages users to stand up systems and leave them in place.. which is exactly what we don’t want.  Think of renting a car: you rent a car for 4 days but only drive it for a total of 3 hours, you still have to pay for all for days.  If I just paid when I actually drove it, I would keep it all the time.  We want to encourage users to return unused assets. Which leads to..

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