New H-P Server Offers a Twist -- a Pay-Per-Use Function

But some wonder whether customers want to pay for computing like they pay for electricity.
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Water. Electricity. Heat. Extremely large and expensive

Unix

servers. What could they possibly have in common? You now can pay for what you use when it comes to each.

At a press conference Tuesday at New York's Regent Hotel,

Hewlett-Packard

(HWP)

unveiled its new Unix

Superdome

towers, which have a pay-per-use feature.

H-P's president of computing systems, Duane Zitzner, claimed that the company's new high-end server is "the mother of all computers." That may or may not be the case. But leaving the genealogical question aside, Superdome boasts a number of important features. It holds 32 processors in a single tower. It's bundled with a servicing package that includes a dedicated, onsite "solution manager." It offers "virtual partitioning" technology that allows users to assign separate functions to any of the server's processors.

But perhaps the most interesting aspect of the Superdome is what the company is dubbing its "utility pricing," which takes its name from the pay-per-use pricing models used by providers of things like electricity and long-distance telephone service. Under the utility pricing model, H-P customers can expand and contract the processing power of their Superdome servers whenever they feel like it -- paying service charges for only the extra power they use, and only for the time they use it.

It works like this: When a company places an order for a Superdome server, it specifies both the number of processors it expects to use and the maximum processing capability it wants the server to hold, paying a purchase price for the former and another base charge for the tower's total capacity. If a company later decides it needs more power, it simply switches on the additional chips, whose serial numbers are then routed to an H-P database that maintains the records used to bill for the extra usage.

"Sure, it's interesting," said Dan Kunstler, a

J.P. Morgan

analyst who rates the stock a buy, his firm's highest rating. "But is it something that can remain exclusive to H-P? I tend to doubt it. It's somewhat gutsy, and has some seasonal appeal. But in reality, how many people will take advantage of it? If you're in a growth business, it's unlikely that you'll be turning off microprocessors." (J.P. Morgan hasn't performed recent underwriting for H-P.)

H-P figures that enough of its customers -- e-tailing outfits in particular -- experience dramatic, seasonal swings in their demands for processing capacity to make the service worthwhile. The company is currently the only boxmaker ready to use utility pricing.

Nick van der Zweep, the company's director of utility computing, acknowledged that it's possible H-P could make enough money off service charges to more than make up for whatever it forsakes by stuffing excess processing capacity in its servers. But H-P isn't pushing utility pricing as a big money maker. "It's designed to be revenue neutral," said van der Zweep. "We're the only ones who have this product, and we believe we'll be able to drag customers to H-P because of it."

So far, H-P hasn't been dragging any new customers. All of the 150 companies in the pipeline to receive Superdome, and the 16 for which it's already installed and running, represent existing accounts. The company would give no specifics on sales goals for the remainder of the year, with Karen Slatford, vice president and general manager of business customer sales, only saying they were "pretty damn aggressive."

H-P is confident that the Superdome server will help it make significant inroads against industry leader

Sun Microsystems

(SUNW) - Get Report

, which has been building momentum in the Unix market with its

E10000 Starfire

, despite the fact that that machine is four years old.

That's formidable competition, so it might be best not to get carried away. "H-P has a very robust platform out there with a useful generational life," said Kunstler at J.P. Morgan. "That's what I'm taking away. H-P is leapfrogging everybody else in terms of the products that are available now. But to what extent are they leapfrogging new products? That's simply a claim made in front of an audience."

Investors may start weighing that claim more seriously as the year wears on, and H-P moves outside its existing customer base to go head-to-head with competitors like Sun,

IBM

(IBM) - Get Report

and

Compaq

(CPQ)

.