T. Bova Note: This is a guest post from Dave Russell. This post provides some insights into innovative pricing models he is seeing in the back-up market and how it will change the competitive landscape. The Future of Sales is touched in many ways, and pricing is one of the key ways providers attempt to differentiate.
It turns out that there seems to be almost no way to make everyone happy with backup software licensing. The backup vendor, the reseller / business partner / VAR, the managed service provider (MSP), the end customer, etc. In addition to making the cost of backup challenging for all parties to feel like the right cost and the right value is being exchanged, there is the even bigger challenge that every costing model that I have ever seen can be highly variable depending on the specific environment and implementation.
What do I mean by that? At one point, charging for backup agents was common. This meant that a larger server with more storage, even if that model of server (e.g. an 8-way Solaris machine) had a larger cost. Fast forward many year, and the proliferation of virtual machines started to force changes in backup licensing, with things like “per socket” charges or “partial server pricing.”
In the last several years, capacity based (charging by the Terabyte) backup licensing has become very common in the large enterprise. One vendor even charges to convert from the standard a la cart model to the capacity model. Is this all bad? Nope, not necessarily because many times there are only 1 or 2 suites of capabilities (base and advanced, or words to that effect), and even the advanced bundle can actually look very attractive since features that seemed cost prohibitive before are included, or deploying all of the application backup agents that you is no longer an issue as there’s no need to go back to the Purchasing department and try to get 5 more SQL Server agents. That same vendor that charges for the conversion also then drops the maintenance percentage from 21% to 18% per year after when you switch to the capacity based plan.
So what’s not to love!?…
At the end of the day, backup is the insurance policy that you hope that you never have to cash. Of course we know that we’ll need to restore something, but we hope that it’s only a file or two that someone accidentally deleted versus the entire data center.
The reality is that there is value in insurance, and backup, even if you don’t restore. What! How? Well because you know that you safe and can remediate against the “disaster” no matter how localized or broad that is may be, and this security and ability to continue operations has real benefit, even if not utilized. After all, no one with life insurance wakes up thinking that it’s a bad day as the policy can’t be cashed! 
But back to backup…
Backup cost can be painful
Back in August of 2010 I published the cost was the #1 reason that people switched backup vendors. Typically this is maintenance cost. I concluded this after examining over 2,500 end user data points. I recently concluded a more ambitious view that looked at five years’ worth of data and concluded the same thing. In fact this year I updated a predication that “Between 2012 and 2016, one-third of organizations will change backup vendors due to frustration over cost, complexity or capability.”
In the last two years (2012 and 2013), we heard an increasing number of enterprises complain about capacity-based licensing. Some issues have included?
1) How do I plan for future capacity when I don’t know myself what the data growth rate will be?
2) Isn’t this a geometric expansion of cost as I pay $X per TB, and say 18% maintenance / yr, but then I grow my backup by 30% / yr and have to pay the original maintenance + the new capacity amount, which just added to my amount that I am having to pay next year’s maintenance on. And this will rise every year!
3) Some vendors try to build in a “cost of living” increase of 3% to 5% per year on the maintenance, something that Gartner flatly rejects. We reject this notion because as you add capacity, you are indeed entitled to more and more future software upgrades, but you are also far less likely to need to place a support call as you expand your current environment with you staff that is becoming increasingly better versed in the backup application.
Change ahead?
Capacity based licensing is creating change. Some of the changes have been highlighted above, such as the ability to deploy more features and agents, but some other changes include:
1) Questioning if this model is very workable at scale?
2) Demanding steeper discounts as they deploy more capacity.
3) A willingness to deploy multiple backup solutions to contain cost (e.g. an enterprise backup vendor for many workloads, but due to higher costs, an operating system vendor for “no charge” backup of Windows files and/or a VM specific tool for virtual machines).
4) Deciding at the end of an evaluation or proof-of-concept that the selected vendor is untenable due to price (this is often after the technical team has made its choice and the Purchasing team cries foul).
5) Some vendors are responding with aggressive 5 year TCO models to demonstrate why they will be cheaper than the incumbent or another considered vendor.
A new model?
This summer one backup vendor, Asigra, introduced a new backup pricing model. This model that has a smaller base charge, but charges on successful recoveries performed (Asigra’s press release for its Recovery License Model, 10 July 2013). Gartner expects that the industry will begin to pressure backup software vendors for lower costs at larger backup volumes to avoid the similar issue where backup appliances become viewed as cost-prohibitive when broadly deployed.
This is a very interesting concept. As will any backup licensing model, there will be scenarios where this works better than others, but I like the fact that there is a new choice in the market and recognition that there is also a growing problem.
If you’ve actually even skimmed this far down, thank you! This is my first ever blog Many thanks to my esteemed colleague, Tiffani Bova, for allowing me to post in her blog space