VMware Banging Drum For Consumption-Based Pricing Model

VMware would like to avoid a repeat of the angry response to vRAM that followed its vSphere 5 launch, and so it's making sure customers aren't surprised by future licensing changes along the road to a consumption-based pricing model.

At VMworld Europe last month, CEO Paul Maritz gave what amounted to a friendly warning to customers about how VMware intends to handle the shift to consumption based pricing. "We are trying to keep the licensing stable for as long as we can, but in 10 years from now, things will have changed quite radically," Maritz said last month at, as reported by Computerworld UK.

Cognizant of the uproar vRAM caused, VMware is now setting customer expectations and putting its own stamp on an issue that will inevitably require future tweaks to its licensing terms. "VMware wants to be the first to put the consumption-based model out there so that they can have some control over defining it," said Chris Minnis, virtualization services manager at Mainline Information Systems, Tallahassee, Fla.

Consumption-based pricing is designed to accurately reflect how virtual and cloud resources are utilized, whether it's within an organization or between a service provider and its customers. It's a well established model in some industry circles, and VMware has been heading in this direction for some time, shifting to per-virtual machine licensing for its vCenter product portfolio in September 2010.

"From an IT perspective, this moves you into a services based model instead of a buy and upgrade model," said Keith Norbie, vice president and CTO at Nexus Information Systems, based in Minnetonka, Minn.

Mobility and the so-called consumerization of IT are effecting changes on IT infrastructure planning that are playing into the consumption based model, according to Sudhir Verma, vice president of consulting services at Force 3, a Crofton, Md.-based solution provider.

"Eventually, IT will look like the Apple App Store: You come in with own device and download whatever apps you need," said Verma. "As you move in this direction, a consumption based model does make sense because it removes complexity. You only use what you need and you don't need to buy a full-blown application."

However, VMware heard howls of protest from customers when it debuted vRAM, which pegs costs to the amount of memory that customers allocate to virtual machines on the host.

This was a departure from the vSphere 4 model of per-CPU licensing based on the number of server cores, and customers didn't like it because they perceived it as VMware's effort to extract a "tax" to account for the virtualization benefits customers are getting from more powerful server hardware. VMware reacted to the vRAM controversy by loosening its initial terms and giving customers larger allotments.

NEXT: Where Partners See This Heading

Jason Nash, data center solutions principal at Varrow, a VMware partner in Greensboro, N.C., says his customers have since grown to accept the model. "[vRAM is] easy to understand and applicable to almost all use cases, given how we allocate resources today," he said. "vRAM is also a first taste of 'bad medicine' for some people, although I think people have been overly pessimistic about it."

While the nature of future changes VMware plans to make isn't clear at this point, channel partners have their own theories about how things could play out. For example, since vRAM doesn't account for utilization of hardware components such as disk I/O, Network I/O and CPU, VMware may eventually decide to use these to determine licensing costs, says Dan Weiss, CEO and co-founder of Varrow.

"Perhaps in the future, VMware licensing will be based on a points system, with each of these four major hardware components -- RAM, CPU, disk I/O and network I/O -- scoring a certain point value based on the nature of the workload," Weiss said. "In this scenario, a customer may end up paying a little more for a CPU-intensive workload because of the leveraging of multi-core processors, while with RAM -- and especially disk I/O -- there is less leverage, so there could be a different point value system."

VMware didn't respond to a request for comment on the consumption based pricing issue.

Some VMware partners have already begun preparing their customers for the coming licensing model shift and the business changes it'll entail. ICI, a Marlborough, Mass.-based solution provider, has a division called cCubed -- which stands for consult, configure and consume -- that works with customers to transition their infrastructure and users to a consumption model.

Jamie Shepard, executive vice president of technology solutions at ICI, is a fan of the consumption-based licensing model for cloud services but says it's not quite ready for prime time. Still, there's education that needs to happen and Shepard is out on the front lines delivering the message to customers.

"The consumption model is where cloud will be at some point in the future, but right now all companies are doing is building cloud based infrastructure," he said.

NEXT: VMware Setting Stage For Future

In the meantime, VMware is setting the stage now for licensing changes that are coming in the future. But given VMware's track record with licensing changes, and the customer grumbling that typically accompanies such moves, it's unclear how effective this advance damage control effort will be.

"VMware has the appearance of constantly changing licensing, and whether true or not, it causes concern with customers and erodes trust. We see it all the time and I hope that is something they do fix," said Varrow's Nash.

Customers are understandably sensitive to price hikes, and VMware's rivals will no doubt continue to seize on future licensing changes to lure away customers, as Microsoft did in the wake of the vRAM controversy. This isn't new: VMware is regarded as the 'Cadillac' of virtualization, and despite Microsoft's efforts, it continues to dominate the server virtualization market.

Steve Kaplan, vice president of data center virtualization practices at INX, a Dallas, Texas-based solution provider, often tells customers that the benefits of pervasive virtualization outweigh the costs involved.

"We emphasize that clients look at the bigger picture," he said. "vSphere might cost little bit more than Microsoft Hyper-V, but it gives you so much more in terms of virtualizing your entire infrastructure and automating IT-as-a-service."

Kaplan believes VMware learned a valuable lesson from the vRAM backlash and will proceed more cautiously with future licensing changes.

"They won't shock the market with a new model without doing some preparation first," he said. "Talking about pricing model changes now gives VMware a forewarning of whether there's going to be too much unhappiness, or if this will influence purchasing habits."