Vendors see rise of hardware as a service

Editor's Note: This story originally appeared on GCN.com

In recent years, software delivered as a service has become old hat, a convenient way to swap the uncertainties of buying and managing new technology for the ease of paying for services in affordable installments.

Today, however, not only is software being offered as a service, but a growing number of hardware devices -- including tablet computers, smartphones, sensors, even train cars -- are increasingly being provisioned on a service basis.

In a hardware as-a-service (HaaS) formula, the complications of purchasing hardware can be made economical by offering customers the ability to amortize costs over a term of payments -- the digital equivalent of renting a car.

HaaS offers several advantages to hardware buyers, according to Transparency Market Research (TMR). The costs of provisioning and insuring the hardware can be added into a monthly subscription rate and paid by the client for managed services offered.

The bulk of maintenance can also be done remotely, cutting time and spending requirements for the client. There is often no need for buyers to maintain a staff to manage the installed hardware.

HaaS performance problems can be addressed in service-level agreements between service provider and client. “HaaS offers scalability to an organization, and the growing or decreasing needs of an organization can be addressed accordingly,” a recent TMR report says.

HaaS goes national

The appeal of a subscription model for hardware devices seems to be growing. In August, tech distributor Ingram Micro announced plans to offer “device-as-a-subscription” hardware purchasing option to resellers.

Under the deal, resellers would be free to finance the acquisition of everything from laptops and tablets to servers through Ingram Micro Financial Services, in “much the way auto buyers lease new cars,” Kirk Robinson, Ingram Micro’s senior vice president of commercial markets and global accounts, told ChannelProNetwork.com.

Ingram estimates the deal will cut hardware costs by up to 20 percent over a two-year term. Monthly payments would be based on the portion of a new device’s value lost during a subscription’s lifespan.

Resellers can either keep the savings or pass them on to customers they hope to attract in upgrading their hardware after a subscription ends.

“It gives the [reseller] a different look at how they can procure products for their customers,” Robinson said, who added that Ingram was “always looking for alternative ways to deliver product into the marketplace and simplify a sale.”

The Ingram plan was announced in July, several weeks after Microsoft Corp. announced it would expand its program offering its Surface tablet as a service.

Microsoft’s Surface service

The Microsoft plan calls for enabling cloud service providers and other distributors to sell “Surface as a Service.” Under the program, CSPs can offer Surface devices to Microsoft resellers and customers, alongside Office 365 and Windows 10.

“This new offering enables flexibility of solutions, faster device refresh and ensures customers can have the latest Surface devices that evolve with the best Windows and Office have to offer,” said Yusuf Mehdi, Microsoft corporate vice president for Windows and devices, a July blog post.

In the past year, the Surface business has grown from generating $1 billion in revenue annually to $1 billion in revenue per quarter, he added.

The Surface-as-a-Service program has led Microsoft to explore new partnerships with organizations interested in creating industry-specific solutions using the Surface, according to Microsoft.

In one case, Booz Allen is developing applications for government that take advantage of enhanced security features in the Windows 10 operating system running on most Surface devices. In another, Microsoft is working with IBM to draw on IBM’s expertise in data analytics to create applications that use the Surface tablet in the financial service and packaged goods sectors.

Microsoft is optimistic its formula for bringing together hardware, software and security in a services format will appeal to customers.

“We’re always listening to customer feedback, and what we’ve heard is that many customers like the predictable monthly payments for software subscriptions, and want to use the same financing solutions to bring hardware into the organization,” said Bas Paumen, global Microsoft devices commercial business development manager.

“There is clear demand to bring all IT investments away from capex investments into opex,” he said.

The whole gamut

“The basic idea of HaaS is not too different than software as a service,” said Ajay Kulkarni, CEO of iobeam, a firm offering real-time monitoring for connected devices and other hardware. “You’re essentially taking something that had fixed costs and an uncertain lifespan, and you’re amortizing it across the use of the service.”

“What’s unique about HaaS is that hardware tends to be fairly finicky….You’re guaranteed that at some point the hardware is not going to work,” he said. 

“It’s going to either breakdown or something’s going to be in disrepair or out of service, so hardware service plans sometimes include some kind of maintenance or upgrade contract attached to it,” he added.

That can often be a relief to understaffed IT departments, especially as enterprises start adding connected devices to their maintenance to-do lists. 

“It’s one thing to be able to maintain your computers and your servers and mobile devices,” Kulkarni said.  “But it’s once you start  introducing light bulbs and security cameras and sensors and thermostats, the whole gamut, at some point you say, ‘Am I really going to have to learn to maintain all these devices and stay on top of them?’ You can’t really. So that’s why it’s also helpful.”

Kulkarni also sees a trend in the HaaS market in which products are getting priced according to the value they generate -- and not according to the hardware costs.

“That’s obviously good for the consumer,” he said. “The same is true for the manufacturer, because hardware costs are eventually going to zero, and this allows them to maintain robust margins.”

“It doesn’t really matter how much the device costs to make, what matters” is whether the costs are “substantially less than the value it’s providing.”

Trains and TASERs as a service

State and local governments are also beginning to tap HaaS as a method for delivering hardware services, including police and other public safety gear.

In June TASER International was awarded a $28 million contract by the Los Angeles City Council to provide an additional 6,140 body cameras for the police force.

The hardware-as-a-service procurement will make the Los Angeles Police Department the largest police force in the United States to make body cameras and TASER devices available to all front-line officers.

The LAPD subscription provides unlimited storage and a platform for managing the digital evidence collected from cameras and TASER devices. It also provides camera upgrades every 2.5 years, TASER upgrades every five years and full hardware warranties.

“In this way, the LAPD is positioned to ensure a high degree of budget certainty and the best possible value for each technology across the platform,” according to the announcement.

Meanwhile, Hitachi is using a similar strategy that couples its transportation and data services businesses.

Besides its business in storage hardware, Hitachi manufactures increasingly computerized trains that collect data as they move over the rails. Last year, it signed a deal with the United Kingdom’s Department for Transport to manufacture and maintain Intercity Express Programme trains in which the rolling stock remains the property of Hitachi, according to Hitachi Data Systems CTO Bob Plumridge. “We're talking about trains-as-a-service. We get paid by the reliability of our trains.”

In June 2015, Hitachi acquired big data firm Pentaho, which will help it take advantage of the explosion of information generated  in the transportation sector and signaled the company’s shift from hardware to data services.

“Hardware will always be needed, but you won't be just selling hardware to most customers, Plumridge said in a statement announcing the deal. “What they want is end-to-end solutions. People want to know how we're going to analyze all this data [they’ve] collected over the last 20 or 30 years."

Grid or HaaS?

Despite the recent activity in the HaaS market, not every one agrees it is a better spin on a long-established approach.

“In a lot of cases, government is looking at this is and asking, ‘OK, how is this different than just leasing?’” IDC Government Insights Research Director Alan Webber asked.

Instead, he suggested a grid computing model might be a better fit for provisioning the Surface-as-a-Service plan.

“As you need another server, they bring it in and put in another server,” Webber said. “If you don’t need that sever anymore, ‘bam,’ they take your sever out and you’re no longer paying for it -- it’s a pay as you go model.

A grid computing approach might help avoid situations in which Microsoft is in the position of supplying both Surface hardware as well as updates to Windows 10 as they are introduced, according to Webber.

“Generally when you lease something, there’s maintenance and fees related to that; but what makes this a little bit different is the combination of the hardware and the software,” he said.

“Now there’s going to be additional pressure, because not only does [Microsoft] have the software, it also has the hardware, which means Microsoft has a lot more revenue at stake,” he added.

“I think it’s going to put some fascinating pressure on,” Webber said. “Let’s be honest , there’s not a whole lot of companies that can actually do this in the way Microsoft is … adding both the hardware and the software.”