This month at VMware Explore Europe in Barcelona, we hosted an Executive Briefing session for VCPP companions. It included a number of breakout periods, and I used to be invited to current the one titled “Exploiting your VCPP Bundles to the fullest with incremental revenue streams”. In essence, my breakout session lined easy methods to construct further, monetizable companies utilizing the VCPP Flex-Core Bundle and Add-Ons.
During the session, one of many attendees requested an attention-grabbing query, that comes up in lots of conversations with companions: “How do I arrive at a reasonable pricing model for per-GB-VRAM features and products in VCPP?”. This is what I’m going to reply on this weblog submit.
Understanding VCPP Pricing
When you look into the Product Usage Guide, situated in Partner Connect, you can see that almost all of merchandise and options are metered and priced primarily based on the quantity of VRAM consumed by the VM that leverages a given set of options. For instance, NSX-T DC Professional provides x Points to the Flex Core Bundle cost, whereas the NSX-T DC Advanced Edition provides y Points to it. The extra options and merchandise a given VM makes use of, the dearer it turns into for the supplier – in direct relation to the GB of digital RAM reserved or allotted to that individual VM.
This mannequin gives a properly aligned foundation for calculating the complete value of any given workload and is totally Pay-as-you-go and scalable for the supplier. On the gross sales and pricing facet, nevertheless, the per-GB-VRAM metric could cause a problem. It is pretty unusual within the cloud market to cost for options, like community capabilities in NSX or monitoring capabilities in vRealize, primarily based on the quantity of VRAM a VM has. Customers can be reluctant to pay a distinct worth for his or her distributed firewall or OS monitoring between two VMs, solely as a result of they’ve completely different sizes of reminiscence. There is just no relatable technical connection between the characteristic and the completely different worth factors.
Aligning on a per VM cost
The apparent reply to the above query is subsequently: Charge per characteristic set that any given VM makes use of, no matter the quantity of VRAM the VM has. This often raises some eyebrows with the viewers. Why? Because this proposal disconnects the associated fee driver (VRAM) from the income driver (No. of VMs). And that may make calculations sophisticated and improve danger on the specified margins.
However, with the correct knowledge and a few easy monetary engineering, VMware Cloud Providers can mitigate this danger and make sure the margins they need. Both whereas promoting options and merchandise on a compelling, per-VM foundation.
It’s all in regards to the Math
Here is the way it’s executed: We to start with want a stable understanding of the typical VRAM dimension and distribution of VMs {that a} single buyer or the sum of all prospects are operating on the cloud platform that we need to calculate pricing for. Whether the evaluation is finished for one buyer solely or throughout all prospects depends upon whether or not the supplier has a devoted pricelist per buyer or a single pricing mannequin throughout all prospects. Overall, the bigger the set of VMs we have a look at, the higher to reduce danger.
As a straightforward instance, lets assume the checklist of VMs seems to be as follows:
VM | vRAM (GB) |
VM-1 | 4 |
VM-2 | 4 |
VM-3 | 2 |
VM-4 | 8 |
VM-5 | 24 |
Since the associated fee driver for the supplier within the VCPP mannequin is GB of VRAM in relation to the factors per GB VMware prices per set of options, we have to perceive the incremental variety of factors. You can check with the Product Usage Guide to calculate the variety of factors primarily based on the options and merchandise your prospects want. Let’s assume the supplier needs to cost and promote a set of options that provides 5 factors per GB of VRAM to the Flex-Core worth. This provides us the next:
VM | vRAM (GB) | Added Points |
VM-1 | 4 | 20 |
VM-2 | 4 | 20 |
VM-3 | 2 | 10 |
VM-4 | 8 | 40 |
VM-5 | 24 | 120 |
And primarily based on the VCPP factors worth, the supplier can now calculate the incremental value for any given VM dimension. We assume the checklist worth of 1 USD per VCPP level right here. So far really easy. Now comes the vital half. We need to discover a worth in direction of the client that fulfils the next necessities:
- Be relevant throughout any given GB VRAM dimension of a VM
- Reduce Risk
- Preserve Margin
- Be aggressive
To obtain this stability, we first must calculate the typical value added for the characteristic set. In this case, it’s 42 USD:
VM | vRAM (GB) | Added Points | Added Costs |
VM-1 | 4 | 20 | 20 USD |
VM-2 | 4 | 20 | 20 USD |
VM-3 | 2 | 10 | 10 USD |
VM-4 | 8 | 40 | 40 USD |
VM-5 | 24 | 120 | 120 USD |
Average Cost: | 42 USD |
With this data, the supplier can add a markup as proportion of the full common prices for the add-on characteristic set to find out an incremental worth per VM. That worth is impartial of the VMs VRAM dimension, which is the primary necessities we had.
The absolute margin is, nevertheless, completely different for VMs of various sizes, and should even be detrimental on a per VM foundation. In this instance, VM-5 would generate a detrimental margin primarily based on these assumptions. To scale back danger and protect wishes optimistic margin, the supplier can now calculate primarily based on completely different markups for the characteristic set and decide the optimum, absolute margin that additional ensures competitiveness. In this instance we used 25 p.c markup:
VM | vRAM (GB) | Added Points | Added Costs | Price | Margin |
VM-1 | 4 | 20 | 20 USD | 52,5 USD | 32,5 USD |
VM-2 | 4 | 20 | 20 USD | 52,5 USD | 32,5 USD |
VM-3 | 2 | 10 | 10 USD | 52,5 USD | 42,5 USD |
VM-4 | 8 | 40 | 40 USD | 52,5 USD | 12,5 USD |
VM-5 | 24 | 120 | 120 USD | 52,5 USD | -67,5 USD |
Average Cost: | 42 USD | Total Margin: | 52,5 USD |
It’s vital to watch that, whereas some absolute margins for bigger VMs, like VM-5 on this instance, are detrimental, the full total margin all the time stays optimistic as a result of restoration from smaller cases. In this case, a set of options or capabilities delivered by merchandise which might be charged at a further 5 VCPP Points, can be bought at 52,50 USD per VM. This equals a complete of 262,50 USD of incremental income with a complete of 52,50 USD or 20 p.c total margin.
If extra granularity and extra risk-mitigation is required, companions can phase the projected sizes of VMs and apply completely different costs primarily based on the weighted common for per-VM options in these segments. This segmentation may usually be executed primarily based solely on VRAM dimension, which leads us again into the unique path of a hyperlink between technically disconnected options to promote and the completely different worth factors. Therefore, is have to be used with warning, i.e. solely in few segments.
An analogous method is to mannequin VM courses and worth these VM courses and their add-ons in response to their use-case. This is steadily seen in hyperscale pricing fashions and could be executed in VCD utilizing Compute Policies, too. With this, VMware Cloud Providers can construct, for instance, memory-intensive VM courses and t-shirt sizes, that include a distinct per-VM add-on worth in comparison with general-purpose VM courses.
As a closing choice, Providers can embody the extra options within the base VM worth for a category, for instance a high-security VM class, that features further networking, safety and monitoring capabilities within the per-VM base worth with out Add-Ons.
Additional Considerations and Planning
With the above instance, we have been capable of present easy methods to calculate a per-VM worth from a per-GB-VRAM value driver. The logic introduced therein doesn’t change whether or not the calculation is finished for five, 50 or 5,000 VMs. Yet there are a few further issues for real-world eventualities.
First of all, incremental cost inside VCPP is capped at a certain quantity of chargeable GB of VRAM. Every VM that’s bigger than that cap, have to be handled as if it has the capped most of GB VRAM within the calculation. If that’s not executed, the supplier is susceptible to being much less aggressive and overpricing.
The larger difficulty that comes up in conversations about this method, is the static nature of the mannequin. We checked out a snapshot of VMs and their VRAM sizes at a given cut-off date. This method contradicts the scalable and versatile nature of utilizing Cloud sources, the place VMs get spun up, scaled or deleted as calls for change. To counter this impact and its probably detrimental impression on margin, companions ought to calculate primarily based on completely different eventualities and assumptions in regards to the improvement of the surroundings. As the surroundings grows or the calculation is finished throughout a bigger set of VMs, outliers in both path could have much less impression on the margin.
Besides this primary monetary engineering, companions can implement contractual security nets that enable them to regulate pricing in accordance with the typical dimension of workloads or different adjustments to the surroundings, which is widespread observe in cloud environments.
In some instances, it will possibly make sense to have sure options included in an elevated base VM worth with out breaking them out into separate, per-VM SKUs. This is for instance the case when a characteristic is often utilized by each VM within the surroundings, like IDS in NSX-T DC Advanced. The similar mannequin could also be utilized for options and functionalities that aren’t detected on a per VM-basis by Usage Meter. Examples embody IPv6 dynamic routing, EVPN and VRF, that are detected per Tier-0 Router. Or L2VPN, which is detected on a per-Segment foundation. In this case, companions may nonetheless implement a extra granular charging mannequin, however want to concentrate to the inherit danger of disconnecting the associated fee driver from the income driver. For this purpose and to create a predictable pricing mannequin for purchasers, an elevated base cost for all VMs could be the more sensible choice in comparison with granular per-VM pricing.
Partners ought to seek the advice of the Usage Meter Detection information, accessible in Partner Connect, to know the precise metering mechanism and derive the suitable charging mannequin.
Additional Support
If you’d wish to get began with calculating the enterprise alternative behind these further worth added companies, VMware gives Cloud Provider alternative calculators for Flex-Core and value-added companies.
And as all the time, please don’t hesitate to succeed in out to your account groups and as for assist with constructing what you are promoting case and monetization technique.