Consumption Financing

Consumption Financing Overview

The allure of the cloud has grabbed all of our attention. The notion of tapping into unlimited compute resources and only pay as you use it. What could be better? Imagine if you could still retain your own private hardware but also pay as you use it…the best of both worlds, right? Too good to be true? Not at all, it is called consumption financing and it is an option right now!

In 2018 the IT market juggernaut will ship another 12 million servers worldwide. This will go on top of about 60 million other servers already in production. It might surprise you to learn that more than 60% of all this infrastructure will be spent supporting private cloud computing solutions and traditional single tenant architectures.

All this is happening while the world of IT procurement and delivery is being radically disrupted by companies like AWS and Microsoft. We live in a world where any company of any size can tap into massive pools of compute and storage and pay only when you use those resources, turning IT into the Utility envisioned by futurists like Nicholas Carr, who wrote about this emerging trend over 10 years ago.

Therein lies the ultimate disruption of cloud computing: Supply chain economics and the nature of how we buy and sell in this trillion dollar market.

At 6fusion, we’ve prided ourselves on creating the tool and technologies that help buyers make smarter decisions about what they buy, how much they buy, and from whom they buy it. In fact, over the past 18 months, 6fusion has helped quantify and align financial efficiency for hundreds of millions of dollars in proposed infrastructure builds.

That’s why we are proud to announce the next big thing in IT procurement: 6fusion has turned all of that rich information and intelligence into a new type of financial services contract.

We call it Consumption Financing.

Here’s how it works:

1. 6fusion creates a composite IT financial baseline for your IT service or IT operation.

2. We work with your team to produce an optimized BoM configuration that matches your true consumption profile.

3. You take your proposed configurations from vendors and establish a target price per unit so they can sharpen their pencils.

4. You decide which vendor you want to work with.

5. Our downstream banking partner provides you with a Consumption Finance contract, allowing you to take possession of the infrastructure, install it wherever you choose, and pay for only what you consume on a monthly basis, just like a Utility.

There are no minimums. There are no term buy back clauses. There is no guessing. The entire operation is delivered by the 6fusion Platform providing both you and your financial partner access to the billing data.

Analysts estimate that in just a short few years over 80% of all IT infrastructure will be consumed on ‘pay as you go’ models. 6fusion is leading the way!

(sources: IDC Server Tracker, IDC Futurescape 2015, ‘IT Doesn’t Matter’, HBR 2003)

6fusion + IT Financial Management Tools = Unprecedented Visibility

IT Financial Management (ITFM) tools enable technology leaders to manage their business with the same process driven accuracy, financial visibility, and discipline as their corporate peers. In short, they provide visibility into precisely what IT is spending.

For those who aren’t familiar with how IT Financial Management tools work, data is pulled directly from accounting general ledgers for software, hardware, and every IT “soft cost” in between. Data models are applied to combine those costs into stacks and cost centers for management purposes. Key reports are then built and made available for all constituents to access. This visibility lets organizations make better allocation decisions, accelerate initiatives for investments and drive greater efficiency. Think of it as financial accounting for IT – a very powerful tool to understand how an organization’s scarce resources are being spent.

One of the main reasons to adopt IT Financial Management tools is to gain the cost insight necessary to develop a cost allocation / chargeback strategy that is transparent, and based on the actual costs of running the business. Instead of charging a department based on their size or the number of computers, IT organizations can show actual spend numbers for each department. This allows the IT department to act more like an internal service provider, just as you would see pricing from an external service provider. The pricing of services is presented in a rational way that is also defensible.

There is clear-cut data to answer the question, “Why did my bill go up by 20%?” This cost transparency is extremely valuable. There are however, some areas that can be improved upon, including how to measure exactly how many resources are used in large-scale virtual environments, and how cloud based workloads impact the model.

With the integration of 6fusion’s WAC based utility model, IT Financial Management tools become even more powerful.

Instead of relying only on an arbitrary definition of a server as the standard unit of measure to calculate spend, organizations can extend the IFGM-based cost model, and use the 6fusion kWAC as the standard unit of measure to calculate actual usage of IT resources. As mentioned in previous blogs, the WAC offers an open, impartial, and consistent view of IT infrastructure resource consumption and the output yields a single representative unit value of actual consumption. This model improves the existing ITFM-based cost models by changing from a fixed view of how resources are consumed, to a fact based view of ACTUAL resource consumption. Real consumption-based costing can yield significant improvements in cost allocation / chargeback, even over and above those provided by ITFM tools. This is particularly true in hybrid or cloud environments, where differing economic models are used, and consumption can be highly variable.

With a successful shift from outdated owned or allocation model into a consumption or usage-based model, organizations can:

• Directly compare costs between platforms to improve allocation decision making.

• Access a holistic view of infrastructure consumption, needs, and cost allocation.

• Perform baseline comparisons between internal and external operations.

• Set long term goals for improved efficiency and measure the results of investments.

Initial work with 6fusion and IT Financial Management tool integrated customers has shown up to a 30% improvement in accuracy for chargebacks and cost allocation.

With an integrated tool, organizations also have access to better benchmarking. Using the WAC as the standard unit of measure provides the ability to compare apples-to-apples costs with external service providers like Amazon Web Services or Microsoft Azure. Business units can see that they’re being charged a fair amount for their software and services.

There are benefits to this integrated approach for Capacity Management teams as well. Capacity Management often involves manual methods to determine how much capacity an organization has, how much is being used, and what may be needed to manage future bottlenecks. 6fusion provides a near real-time view of capacity needs, and automates a lot of those calculations that used to take hours or days of valuable team resource time.

6fusion’s consumption patterns also help organizations understand what their IT Financial Management tool figures mean. For example, without the integration, an organization might see that their excess storage capacity is 48%. But what does that 48% mean in terms of future storage needs? Will that capacity last two days, two months or two years? With 6fusion’s consumption patterns as a guide, this question is easily answered, and IT can adequately prepare for future storage needs.

Synergy between 6fusion and IT Financial Management tools provides the entire picture – the costs of an organization’s infrastructure resources down to the granular level of usage. It’s a bottoms-up approach to figuring out how each IT dollar is being spent across the organization, allowing for accurate cost allocation.

6fusion’s mission is to organize the global market for IT infrastructure and bridge the gap between Finance and Technology through the power of information. By combining actual IT consumption data, existing cost data, and standardized IT industry data to drive improved forecasting, venue decision making, and external benchmarking 6fusion will take IT transformation projects to the next level in the IT Financial Management domain.