The shift from CapEx to OpEx payment models continues to extend from the software market into the hardware market. Among the latest examples: Cisco Capital, the financing are of Cisco Systems (CSCO), is gaining momentum with two two offerings called Easy Pay and Open Pay -- though Cisco stops short of calling them Hardware as a Service (HaaS).
Easy Pay is a 36-month hardware payment plan. Customers simply take 90 percent of the equipment price and divide that by 36 monthly payments. So, a $400,000 purchase becomes a $360,000 deal divided by 36 payments -- or $10,000 per month. At the end of the 36-month commitment the customer can:
- Return and refresh the equipment;
- extend the lease; or
- purchase the solution at 10% of original cost.
"It's fantastic for the partner and the end customer, and it's gaining great traction," according to Andrew Blacklock, senior director, strategy and financial product development at Cisco Systems Capital Corporation. Easy Pay is ideal for customers that have predictable network needs, and therefore want predictable hardware payments, he noted.
Open Pay: Aligning With Cloud Mindsets
Open Pay, in contrast, is a bit more complicated. It's designed for customers that may scale their businesses in unpredictable ways -- perhaps to meet seasonal customer demand or to reflect a new product launch. With those scenarios in mind, Open Pay allows customers to obtain more hardware and software capacity than they need at the present time -- just to make sure the customer is ready for a business spike at any time. Payments then scale accordingly if/when additional workloads are needed. In terms of a financial approach, "It's the flexibility of the public cloud -- but in your own data center," Blacklock said.
Open Pay recently shifted from pilot projects to early rollouts in the U.S. and selected countries in Asia and Europe. Early adopters include service providers, gaming companies and manufacturers that have unpredictable traffic and growth spikes, he said.
For channel partners, Open Pay and Easy Pay help to accelerate the shift to recurring revenues, Blacklock asserts. MSPs can wrap managed services around the hardware deals, essentially upselling customers who have already embraced an OpEx mindset on hardware.
Poke around and you'll discover that Cisco Capital has a track record for balancing (A) customer enablement with (B) a fiduciary responsibility not take on too much risk. The organization's attention to detail largely shielded Cisco Capital from the 2008 financial crisis, and many of the team members are long-term teterans of the business. Blacklock, for instance, has been with Cisco Capital for 17 years.
HaaS and Financing Competition
A growing number of IT vendors and financing firms are assisting the hardware shift from CapEx to OpEx spending. Microsoft, for instance, has a subscription payment service for its Surface devices. And Michael Dell recently described his own company's approach to CapEx hardware sale vs. OpEx financing:
Moreover, GreatAmerica Financial has been gaining momentum with a so-called Hardware as a Rental financing model for MSPs and their end-customers.
Bottom line? I don't believe all hardware sales will shift from CapEx to OpEx. In fact, I think we'll see some OpEx backlash over time as customers discover runaway recurring costs.
Still, customers are demanding flexible financing and payment options on their hardware. Cisco sounds like it's onto something with Easy Pay. And we'll be watching to see if Open Pay truly becomes an on-premises alternative to cloud-like consumption models.