VMware Pricing A Win For Service Providers

When VMware lifted its vRAM pricing for enterprise customers, a little-noted fact was that it left vRAM pricing in place for its cloud service providers.

That means even if customers aren't paying for vRAM on premises, if they use a VMware-compatible cloud supplier the vRAM pricing is part of what they're charged.

And there's apparently plenty of vCloud service use as VMware continues to expand its service provider universe. At VMworld on Aug. 27, outgoing CEO Paul Maritz cited the 8,500 vCloud service providers or VMware cloud partners who are ready to import and export EXS Server-based workloads. There are a few big names among them--including Dell, Colt, Singtel, BlueLock, the Terremark unit of Verizon, and Softbank--but according to Maritz, the vast majority are small regional providers of cloud services.

VMware has been encouraging the growth of these service providers by supplying them with its vCloud provisioning and management software, which they pay for as a subscription service. That means they don't pay big upfront licensing costs to become suppliers of a VMware-compatible environment in the cloud, but their annual charges will grow as their business grows.

[ Want to learn more about how enterprise users reacted to the announcement of vRAM pricing? See VMware Pricing Controversy: Users Say Microsoft Door Open. ]

Unlike many large data center managers, who were forced to face the fact that they could no longer ride the growing power of the CPU for free, most service providers have adjusted to vRAM pricing and understand how it fits their business model. They are charged according to the size of their resources and the hours of use. If a provider has so many customers that it exceeds the 96-GB limit of virtual RAM per CPU, for example, it will have to pay for another vSphere 5 or 5.1 license. But an increasing VMware bill is proof that a business is growing and it is getting maximum usage out of its resources.

Furthermore, most service providers, who typically fire up 4- or 8-GB machines, don't anticipate crossing the 96-GB virtual memory limit. According to at least two service providers, other resources on the machine tend to be exhausted before the virtual memory limit is reached.

"Service providers are very used to usage-based pricing. This fits in extremely well with our existing business model," said Jared Wray, CTO and founder of six-year-old Tier 3, a service provider with 150 customers using data centers in New York, Chicago, Seattle, Salt Lake City, and two overseas locations. "Our licensing has always been vRAM-based. As we grow, our license fees grow," he said.

If a Tier 3 server CPU does cross the limit, that means it is carrying so many customers that the service provider sees a direct relationship between its growing fees and business growth. That in turn reduces much of the friction that surfaced when VMware announced its pricing plan for enterprise users in July 2011.

Singapore-based service provider Singtel also supports VMware's pricing approach. "VMware's new pricing scheme does not affect SingTel ... SingTel's arrangement with VMware is based on a per-use arrangement where we pay for the licenses based on the reserved vRAM consumed every month," said spokesman Sonny Phua.

VMware explained in a blog post on Aug. 27 that service provider vRAM pricing would not change as enterprise vRAM pricing was lifted. Service provider vCloud software comes in two bundles--Standard and Premier--and VMware's Joe Andrews explained that vSphere 5.1 adds value to those bundles by offering "profile-driven storage" and a high-availability firewall.

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