As Recession Hits IT, HP Tries Variable Pricing on Services

Computerworld — In an effort to make its outsourcing and IT services more affordable in a down economy, Hewlett-Packard Co. is changing its services pricing to a model that's akin to ordering a customized laptop.

The new approach may have its broadest impact on how HP prices the application support services offered by its Electronic Data Systems unit. HP, which acquired EDS last August, said that users now will be able to specify different application service levels based on the importance of individual apps.

For instance, a company could set high service levels for critical applications that require a rapid support response, such as order processing, while others that aren't as central to business operations could be designated for lower levels of service—with HP's pricing varying accordingly.

The change isn't a price cut, according to HP officials. But the variable pricing could reduce overall application support costs by as much as 40% for customers, said Jeff Womack, vice president of product marketing at EDS.

Womack said EDS is also "unbundling" its IT infrastructure services, which include support of servers and storage devices, so they can be aimed at smaller companies—for instance, businesses with as few as 100 servers to support. HP thinks the new approach will enable EDS to go after a broader customer base, beyond the large enterprise users that it has focused on until now.

John Madden, an analyst at consulting firm's Ovum's office in Boston, said that HP is trying to be proactive in response to the economic recession. "If you have customers that are hurting financially," Madden said, "do you pound them over and over again with the same terms?"

But he added that HP also may be looking at the competitive challenges that outsourcing and IT services vendors like EDS face from cloud computing services, which typically are based on variable pricing.

In addition to the new pricing options, HP is changing the way it designs data centers for customers, also to give them more choices.

Data centers typically are built to one of four reliability levels, as defined by Uptime Institute Inc. in Santa Fe, N.M. Tier 1 is the lowest level and Tier 4 the highest, with redundant systems and the least potential for downtime.

HP now will offer customers the ability to set up data centers with different tier levels, a move that could reduce building costs by as much as 25%, said Peter Gross, vice president and general manager of the company's HP Critical Facilities unit. That's the new name for what was EYP Mission Critical Facilities Inc., a data center design firm that HP acquired early last year.

The design process will incorporate a "building block" approach, with variable levels of redundancy and fault-tolerance, Gross said. He added that users will be able to adjust the amount of space given to the different tiers as business needs change.

Editor's Note: The following article is reprinted from Computerworld.com.