Whether to use asset finance to purchase servers that will exist on site, or to invest in cloud services that hold data in off-premises servers is a consideration for businesses across Europe. Christopher Marchant speaks to senior figures in the IT leasing industry to uncover the mysteries and challenges of financing computer storage.
The provision of cloud services may be an enforced departure from leasing in its core form, yet it is an increasingly necessary option for lessors to consider as both businesses and consumers become increasingly comfortable with the idea of their data being held on physical servers located off their premises.
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Making the case for cloud, Sari Leppänen, chief information officer at 3 Step IT, says: “Cloud is considered to be more scalable, secure and low-maintenance – and brings clear business benefits like faster time to market, reduced operating and maintenance costs and improved operational efficiency.” These benefits are leading many companies to pursue a ‘cloud-first’ strategy.
For example, use of the subscription-based Microsoft Office 365 among organisations globally reached over 56% in 2018. Sven Jirgal, vice-president of worldwide sales and field marketing at Cisco Capital, says: “A large proportion of consumer relationship management is delivered by the cloud, and consumers in these instances are less interested in where the storage actually is.
“When a consumer logs onto a banking application to make payments or look at their account, they may not necessarily know or be concerned whether that application is running inside the four walls of the bank or if it has been outsourced to external data centres.”
DATA CONSIDERATIONS
Paramount to the continued existence of cloud data storage is the preservation of consumer data. On the consumer side, cloud storage services such as Apple’s iCloud have previously seen their reputations damaged by internationally publicised data breaches, while for European operations, the implementation of GDPR has led to an even greater awareness of the need to preserve user privacy.
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By GlobalDataJirgal says: “We focus on the data we receive from the borrower, and make sure that any data we receive from them – whether it be their financials or their personal information – is highly protected. It is especially important at the times when Cisco collects passport details for ‘know your customer’ and antimoney laundering purposes we process that data in accordance with GDPR and further regulatory aspects.”
Leppänen adds: “Security and privacy are a critical consideration when adopting cloudbased solutions, especially when we handle sensitive personal data. Laws, regulations and customer-specific requirements define the right level.
“In general, keeping data within the EU is sufficient for most companies and customers, and satisfies the GDPR requirements. [International security standard] ISO 27001 gives the basic framework for security-related items, so all cloud service providers should consider that as a basis.”
INHIBITIVE COSTS
A setback that must be considered for companies seeking asset finance provision for physical data centres kept on premises is the continuing costs of maintaining the infrastructure.
While storage issues can be resolved simply enough by merely purchasing another server, this can also outstrip equivalent expenditure on simply buying a greater data allowance from a cloud provider.
Jirgal says: “Costs relating to in-house servers come not only from the physical security and the building of all the equipment that is in there, but also the management and the manpower to manage and maintain this infrastructure.
“At Cisco, we allow our customers to compare that with running applications in the cloud. Very often, part of the discussion relates to these potential costs: problems arising when they are comparing apples with oranges in on-premises server and cloud benefits. On occasion there is a need to step back and critically assess what the total cost of ownership or total cost of delivery is, including physical infrastructure and product application software.”
Often the best outcome for both a lessor and the company is in seeking out solutions that can combine the two data storage options.
HYBRID MODEL VIABILITY
Christian Roelofs, managing director at Datatec Financial Services, identifies the solution as beyond one particular storage outlet. “My personal opinion is that the storage industry is attuned to a hybrid model whereby you retain some on-site and some external storage options,” he explains.
“At Datatec we’ve seen some of this work is for institutions where they have a requirement to have a number of data backups. In these scenarios, you can actually have public cloud, private cloud and on-premises for the business all running concurrently.”
This hybrid conclusion is in many ways echoed by Leppänen: “There are multiple options for a business managing its applications and data: an on-premise data
centre or a public, private or hybrid cloud. Today, the most-used solution is a hybrid cloud where some or all these options run in tandem,” she says.
“Cloud solutions actually help when running legacy solutions and new, cloudnative solutions in tandem. That is why the hybrid cloud is the most-used combination in most enterprises. Management in a hybrid cloud environment might be somewhat challenging, and so companies specialised in managing hybrid cloud environments have emerged.”
Leppänen’s consideration of legacy is important for businesses that are considering the shift to cloud.
Customer accounts that can go back years may be hard to shift in large quantity without careful consideration of both regulation and the expense that may be accrued. It is another area in which these two storage options must work together to create an optimum solution.
Jirgal adds: “With a physical data centre, you have legacy applications and you also have applications, or you have data centres that are ‘on-premise cloud’, so they deliver the same experience to the customer as a cloudcentred application but just run within the walls of the enterprise.
“At Cisco we focus on that interaction between data centres, between on-premise cloud, between multi-tenant cloud and managed services, and ensuring that the management of applications and the management of security is all seamless across those different infrastructure platforms.”
SUBSCRIPTION MODELS
Further obscuring any binary definition of cloud and on-premises data servers is the way in which IT leasing companies can offer finance, namely through the various forms of subscription models available.
At Cisco Capital, the finance provider runs the Open Pay programme, which allows customers to explore a range of subscription options for asset finance provision.
Jirgal explains: “Open Pay allows customers to have a utility model in which they can sign up to a base payment: for example, a base utilisation of 50% or 70%, and then the rest of the consumption is billed on a variable basis.
“Beyond that, Cisco works with our customers to understand how much capacity they need. As they grow their capacity on these models, we always try and find an optimum financial point where they have that variable capacity available but without paying a huge price. We try to adjust the base and the variable portion as the customer grows into their infrastructure.”
The notion of subscription relates to the openness of interpretation of what cloud lending is, and how may relate with traditional asset finance. Roelofs’ views of subscription underpin his views on data storage lending as a whole.
“Some people would immediately interpret the term ‘cloud’ to mean they don’t have to buy the asset; it is provided for them purely on a consumption basis and the subscription can be cancelled at no cost.
That’s a cloud model, but it is also includes flexible consumption and termination. “A customer can also have a similar cloud subscription model that includes fixed payments and a termination cost, and that is cloud storage that looks a lot more like finance. It’s less about the term ‘cloud’ and more about the underlying contractual terms, such as can you cancel it for free? That’s more relevant than ‘cloud’ to finance in these scenarios.”
For subscription services at 3 Step IT, these forms of finance are a sign of the times. “Pay as you grow, pay as you use, etc. are attractive – certainly to a customer with new business or providing new cloud-based services as the cost increase links to business growth,” explains Leppänen.
“This also supports the internet-era ‘fail-fast’ model in product or service development. The financial risk of launching new services or adapting cloud-based applications can be alleviated with the pay-per-use model as no prior infrastructure investments are required, and that clearly helps cash flow and improves ROI,” she adds.
BENEFITS COMPARED
While much has been spoken of the benefits of cloud data storage, there are also incontrovertible benefits to having on-premises, physical data centres located
within the midst of a company’s own staff and infrastructure.
Jirgal says: “What we’re seeing is that there are certain applications that will always run an internal data centre. Banks do not want their storage co-mingled with other customers.”
However, Jirgal adds that banks can still seek out external server solutions on a specific basis. “If banks are to use cloud services they would go out to a managed service provider, have their own corner with their own compute resources and their own storage and their own networking dedicated too,” he notes.
These on-premises-server benefits, such as a greater level of control over user data, have not been forgotten.
While there has, in recent years, been a widespread belief across industries that mass adoption of cloud solutions was the inevitable future for the storage of data, there is now an understanding that, in some form or other, on-site servers are here to stay.
REVOLUTION IN GOOD TIME
Certain technologies are always more accustomed to physical servers, while others may be more attuned to the possibilities of transferring to cloud solutions. Identifying the factors that are leading this change, Jirgal notes: “What is really driving the modernisation of storage solutions is the whole aspect of security and complexity. Customers who have old networking equipment installed in their infrastructure will have increasing difficulties managing the complexity and managing security.”
An important consideration is whether providing a company with cloud services can even be defined as asset finance. “In the end, what traditional asset finance does is use a customer’s obligation to make payments to finance their ownership of an asset,” explains Roelofs.
“You can only actually finance the customer in the situation where the asset is for their sole use, otherwise you are breaking the link between the asset and the payment obligation, which traditional asset finance can’t cope with very well.”
He continues: “Not too long ago, most believed that the industry would quickly move from product and traditional resale to the cloud. That model probably is the future, but it’s going to take a little longer than was anticipated for it to embed in the sales process and the customer base.
“What we’re seeing now is more of a middle ground, whereby a lot of the more traditional vendors are starting to sell things on a subscription or licence basis, which often gives the customer a similar outcome to a cloud solution.”
At 3 Step IT, industry trends are identified as directly linked to user preference rather than shifts outside this critical dynamic.
Leppänen says: “Consumer behaviours have an impact on enterprise solutions. Often we talk about ‘liquid experience’, where the new behaviours migrate across industries and user segments.
“Cloud storage and solutions support working irrespective of place and time, but that can be implemented also by an onpremise data centre solution. So it is not the technology, but the user behaviour that has most impact here.”
This is not a case of progress coming too late, but that progress comes in many forms. IT lessors have been able to identify the appeals of both sides in the physical-datacentres-versus-cloud-lending debate, and are attuned to the solutions of a hybrid model being the best option for customers.
Whatever the abstract considerations of what asset finance is in relation to these services, what can be settled is that, in its many forms, data storage is an industry that can continue to expand, incorporating the subscription models that are revolutionising leasing in the process.
