Dear Mr Vendor: Leasing is Not ‘as-a-Service’

We’ve seen a certain amount of “repackaging” of propositions over the last couple of years as the supply community gets its heads and its business models wrapped around a market shift. It’s not clear that the fundamental basis of the as-a-Service proposition is always understood. Or if it is, then maybe that understanding is not reflected in some current market offerings.

It seems to me that while some “term-less” services have been around for a long time (prepaid mobile being one example), as-a-Service really “became a thing” when companies like Amazon made truly epic-scale commoditisation of data centre hardware happen. Such scale delivers a head start in reducing the cost of fundamentals (no matter who is doing the paying and who is doing the accounting). Hyperscale also spreads the utilisation risk across vast numbers of clients – the theory being that aggregated demand is smoother or at least more predictable.

So commoditised cost and a manageable utilisation risk supercharge the as-as-Service proposition, which is that a customer can scale services consumed up and down – and in many cases a very long way up and all the way down – very rapidly, and only pay for what it uses.

Leasing is, of course, a financial arrangement that is centred upon a real asset (except in the case of executive leasing when it is centred upon a long lunch, but that’s a another story). Savvy suppliers may bundle, for example, the support and maintenance services commonly associated with ICT hardware into a hardware lease transaction.

As with as-a-Service, the leased asset does not appear on the customer’s books and there are monthly payments, but regarding the important aspect of flexibility (or lack thereof), the customer might as well consider the asset as “owned” as it cannot rapidly scale up or down at will and without cost penalty. The customer owns the risk of utilisation and this is the key. The lease has a term and the term represents a commitment by the customer to the technology investment and capacity for the term. That’s our traditional mindset – invest in or make a commitment to a tool to meet an ongoing operational requirement.

a-a-S moves some, but not all, of the risk of utilisation to the supplier. I say “not all” because, although it is easy to overlook, the customer almost always still invests in any service in that there’s a planning and deployment commitment. Operational knowledge gained and change in an ICT operational environment is never free. And neither, of course, is a change-out.

This is one of the upsides for savvy a-a-S suppliers. Others include: winning business that under the traditional supply model would not have happened; customer approval processes that are shorter and less costly to the supplier, as the committed expenditure falls into much lower levels of delegation; and, for better or worse, the shadow ICT market is enabled by both the above points.

a-a-S is causing a buzz right now. The cost and agility benefits it offers are very attractive, but is not the best fit in every situation. For technology that may not be widely and readily shared, the premium paid to gain agility and flexibility of supply may be very high in real terms. When we get to the provision of a solution that is dedicated to a single customer and potentially at a nominated location (customer, supplier or third party), the proposition becomes even murkier.

Customers that have readily forecastable needs that don’t decrease over time, especially those that also have access to low cost finance, may be better advised to continue with a purchase or lease transaction rather than shifting to a-a-S.

To discuss the topic further, please get in touch with the author, Jon Wallace, on 021 500 035.


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