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Hewlett Packard Enterprise Wants to Go Big on Subscriptions and Software

June 18, 2019, 9:00 PM UTC

Hoping to offset declines in its core hardware business, Hewlett Packard Enterprise plans a major push into software services over the next three years.

The technology company said Tuesday it plans to sell a lot more software by subscription and on-demand for its hardware products, such as servers or networking devices. For customers, it would be similar to leasing a Tesla car, and then paying extra for additional features like autopilot—but only when needed.

HPE already offers various “pay-as-you-go” software for many of its existing data center products. The goal is to offer something similar with all of its hardware products, including the supercomputers it will inherit after the company’s $1.3 billion acquisition of Cray, Inc. closes in 2020, said HPE CEO Antonio Neri.

For example, he said that an academic lab could lease a Cray supercomputer from HPE, and then only pay to use its services when required. In that way, the university would save money.

Neri pitches the move as a “major turning point” for HPE.

“It is our North Star in what we want our company to look like years down the road,” Neri said.

The shift to selling software subscriptions and offering pay-as-you-go financing underscores how the rise of cloud computing has fundamentally altered how companies buy IT infrastructure. Legacy enterprise companies like Cisco and Dell Technologies have all debuted similar business models that mimic how customers can buy on-demand computing from Amazon Web Services, Microsoft Azure, and Google Cloud.

“This is the way they have to go to stay relevant in this market where the hyperscalers are basically eating their lunch in being able to supply compute on-demand,” said 451 Research analyst Jean Atelsek.

Atelsek called HPE’s decision to offer more flexible ways to buy its products in three years “pretty bold.”

“It’s a way of acknowledging this is where their customers are moving and should be moving,” Atelsek said.

Although many businesses increasingly use cloud computing, they continue to operate internal data centers because of regulatory concerns or the fact they don’t want to send all of their corporate data to cloud vendors, she said. Enterprise vendors like HPE and Dell are all vying to sell more data center gear and software services to those companies with in-house data centers while cloud computing providers are increasingly debuting their own hardware and services for corporate data centers.

HPE sells customers its subscription and software services for its hardware products through its GreenLake software line. Although he declined to say how much GreenLake contributes to HPE’s overall sales, Neri said that its second-quarter sales grew 39% percent year-over-year.

HPE’s total second-quarter sales were flat at $14 billion.

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Although HPE is betting big on software services, Neri explained that its hardware would still play an important role in its overall business. The company has no plans to sell HPE software services that work with competing hardware products from companies like Dell or Lenovo, he explained.

“We are not in the business to offer financing to other vendors,” Neri said.

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