CEO Michael Dell tells us why Dell is allowing customers to pay only for the computing power they use, rather than buying whole hardware systems (DELL)

Michael S. Dell

Dell says business will now be able to pay for enterprise tech hardware and software products based on what they consume, instead of buying entire systems.
Company founder and CEO Michael Dell says the new offering, dubbed Dell Technologies on Demand, gives clients more options and flexibility in setting up and maintaining computer networks
"Essentially it is a consumption model that allows customers to flex their usage of the technology and pay for what they use," he told Business Insider.
Dell, like other traditional tech IT companies, have had to adapt to the rise of the cloud, which allows businesses to scale down or abandon private data centers by setting up their networks on web-based platforms run by providers led by Amazon, Microsoft and Google.
But Dell is taking aim at new trends such as hybrid cloud, in which businesses set up networks in the cloud while maintaining big chunks of their data and applications in private data centers, and multi-cloud, in which they set up networks on different cloud platforms plus private data centers.
At the same time, Dell is still subject to the increased pressure on the hardware market, as customers increasingly turn to Amazon Web Services and its rivals to cut down on their own data center spending.
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Dell will let businesses pay for computing power based on what they use, instead of buying the tech gear and software for private data centers. CEO and founder Michael Dell said the new product will give businesses access to hardware and software products based on a pay-per-use model, instead of having them buy entire systems.

"Essentially it is a consumption model that allows customers to flex their usage of the technology and pay for what they use," he told Business Insider.

In other words: If you want Dell hardware and software in your server room or data center, you no longer have to buy it outright — under this program, you can pay based only on your consumption of Dell's products. It's a bit like leasing a car, but only paying based on how much you drive.

"In a sense, we've been doing this for quite some time, and we are not enhancing it by putting metering and monitoring into the product so we can offer them on a consumption basis. Many customers want that. We're well positioned to do it. We have a lot of great assets and capabilities there," Dell said.

The offering, called Dell Technologies on Demand, underscores the cloud-era trend of giving businesses more flexibility in the way to set up their computer networks, especially when it comes to costs.

The cloud changes the equation

The cloud allowed businesses to set up their networks on web-based platforms run by major providers like Amazon, Microsoft and Google. This enabled them to scale down or even abandon private data centers, leading to huge cost savings.

This trend has been challenging for many traditional enterprise tech companies, such as Dell, which historically make their money from selling expensive gear and software to companies. Dell had embraced the pay-per-use model a few years ago by introducing PCs-as-a-service, which allowed businesses to pay for PCs based on how much computing power they use — similarly to Tuesday's announcement.

But Dell and other traditional tech giants, including Dell rivals Hewlett Packard Enterprise and IBM, are eyeing new trends in the cloud.

One is the hybrid cloud, in which businesses move their networks to the cloud, while maintaining a big chunk of their data and applications in private data centers. The other big push is multi-cloud, in which businesses set up and manage networks across different cloud platforms and maybe even their own data center.

Customers want value

Businesses, including big corporations, are now focused on the concrete benefits they get from their technology investments, and are looking for vendors than can address their needs at a reasonable price, said analyst Christian Renaud of 451 Research, a tech research organization.

He said companies like Dell are in a better position to address this need given advances in technology, including more powerful computing, higher bandwidth connections, and technologies that make it possible to install computing systems and sensors on a wide range of devices, a trend called the Internet of Things.

"You don't go to a restaurant and ask for a knife and a match to get your outcome — you want a steak," he told Business Insider. The Dell move is a positive sign, he said. "The fact that they're announcing this means they're not behind."

In fact, Dell rival Hewlett Packard Enterprise unveiled its own pay-per-use model called Greenlake.

"While Dell is not the first with this model , it's important for Dell to support these kinds of models," IDC President Crawford Del Prete told Business Insider. "Dell has a very broad and strong product portfolio, and customers increasingly are interested in subscription models to things that were previously bought in the traditional way - so this is an important move."

Taking a page from Amazon

In a way, Dell is taking a page from the playbook of the dominant player in cloud computing, Amazon Web Services, said analyst Roger Kay of Endpoint Technologies Associates.

"This is sort of the application level of AWS," he told Business Insider. "AWS provides capacity on demand for IT professionals who know what to do with it. Dell is positioning itself one level closer to the customer, offering complete systems that actually do something. The ability to dial capacity up and down is increasingly important to customers in today's uncertain world."

Still, Dell faces a challenging road ahead as the size of the hybrid cloud market opportunity remains unclear. Bernstein Research analyst Toni Sacconaghi said in a recent note that among traditional tech companies affected by the rise of the cloud, "hardware vendors have it worst."

"Hardware vendors like HPE, Dell, and IBM have pointed to rising customer interest in hybrid cloud as evidence that some 'legacy' spending will always exist to fill needs that AWS and [Microsoft] Azure cannot single-handedly satisfy," Sacconaghi wrote. "However, few have actually tried to quantify what percentage of spending will remain on-premise in the long term."

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