VMware Cloud Providers VMware Cloud Well-Architected Framework: Spend Management
A VMware Cloud environment requires a continuous alignment and collaboration between an organization’s internal IT and financial teams. This collaborative approach is especially important for organizations switching from a Capital Expenditure (CapEx) to an Operational Expenditure (OpEx) model, where infrastructure resource has an amortization schedule, and not a strict termination date. This is a great opportunity for both IT and finance teams to cross-collaborate and evolve their roles and responsibilities to better support the business.
This section is written for both a financial and technical audience, certain terms are used which may only be familiar to one group or the other. Please read these definitions carefully before continuing.
- Bring You Own License (BYOL): Utilizing a license, not purchased specifically for cloud consumption, when permitted by the terms of service.
- Enterprise Agreement (EA): Tailored agreement between a company and a service provider for software and services. It may contain or provide a vehicle to create a discount and/or private pricing program.
- Manufacturer Suggested Retail Price (MSRP): The retail price of a product or service.
- Microsoft Services Provider License Agreement (SPLA): A mechanism by which service providers and independent software vendors (ISV) can purchase Microsoft software, which includes entitlement on behalf of their customers.
- Term Commitment: A contractual commitment to a service for a pre-determined period (usually one or three years), usually at a discounted rate.
- Azure reservation is the term used by Microsoft Azure
- Committed Use Discount (CUD) is the term used by Google
- Subscription is the term used by VMware Cloud on AWS
- Commitment is the term used by Oracle
- Subscription Purchase Program Credits (SPP Credits): A unit of value denominated in VMware transacted local currencies that can be purchased by a customer and redeemed for any VMware Subscription Services. (source).
- Seller of Record (SoR): A vendor which sells a particular product or services to a customer from their inventory. This is distinct from a reseller, for example, a VMware who is authorized to resell SPP credits.
While each VMware Cloud Infrastructure Provider has its own unique discounting programs, there are potential opportunities to maximize an organization’s investment such as: seller of record, payment method, term commitments, and renewal planning.
Note: This document is VMware Cloud Infrastructure Provider agnostic, it also does not advise customers on enterprise agreements, which are tailored to an organization’s specific needs.
Seller of Record
Whether direct, through a partner or a seller of record, the selected vendor can provide additional saving opportunities. As part of identifying a potential seller of record, assess whether additional services, software, and support are available for purchase in addition to a VMware Cloud offering. Bundling these additional services along with a VMware Cloud offering may result in potential savings. For more information, please consult a VMware sales or account team.
The next step is to decide the type of payment method, on-demand or a term commitment which is generally one or three years. For example, committing funds up front for services that will be utilized over the term commitment versus on-demand, where organizations are billed on a monthly basis. Deciding on which payment method will largely depend on how well an organization can forecast its multi-year spend as well as the capability for large up-front investments.
Term Commitments can reduce service costs by up to 50%. Host term commitments are applicable to VMware Cloud based SDDC offerings. Other VMware Cloud services may also be eligible, for example VMware Cloud Disaster Recovery. It is common for organizations to use a combination of hosts term commitments as well as on-demand. Determining the resource requirements for term committed hosts requires both technical and business data to be analyzed.
Note: Paying up-front is generally required for EAs to maximize discounting. To determine the best option for your organization, please contact VMware's Cloud Economics team. Additional resources can be found in the VMware’s Cloud Economics team’s eBook.
It is important to recognize the benefits and risks of both payment methods. Host term commitments are optimal for long-lived (9+ months) workloads. On-demand host capacity can benefit workloads that are time-bounded with resource utilization spikes, such as end-of-year or end-of-quarter activities or event-based usage such as seasonal demands.
VMware Cloud Sizer with LiveOptics data provides an excellent snapshot of an organization’s current data, while vRealize Operations Cloud's Capacity Analytics can be used to help forecast growth.
While it may seem counterintuitive to think about renewal planning during an initial VMware Cloud deployment, it may have an impact on future discounts. When a term commitment expires, the underlying hosts term commitment will revert to an on-demand billing. To prevent this reduction in discounting, monitor for expiring term commitments at least 90 days in advance. The VMware Cloud Notification Gateway can also be used to provide proactive alerting 30 days and 60 days prior to term commitment expiration.
Licensing is an important consideration when transitioning to a VMware Cloud-based environment and can be divided into the following categories: VMware infrastructure and Management software, Guest Operating System (OS), and application licensing.
VMware vSphere (vCenter Server and ESXi), vSAN, NSX, and VMware HCX is included in all based VMware Cloud Infrastructure Service offerings. However, licensing levels, versions, and capabilities may vary depending on the VMware Cloud infrastructure service providers. Organizations with existing VMware infrastructure software licenses can be exchanged for entitlements to VMware Cloud Infrastructure Services. This exchange program is available for VMware Cloud Infrastructure Services that support the VMware Cloud Universal program.
VMware’s vRealize Suite of products such as vRealize Automation, vRealize Operations, vRealize Log Intelligence and VMware Skyline are also available as VMware Cloud Services. Organizations with existing vRealize Suite licenses can similarly be exchanged for vRealize Cloud services using the VMware vRealize Universal program.
For guest OS and application licensing, the following options may be available: bring your own licenses (BYOL) or a service provider’s and independent software vendor’s (ISV) licensing program. For BYOL, verify the terms of the license agreement for applicability in a VMware Cloud based environment. For additional assistance, please contact your VMware sales representative for more information.
Terms of Service
Most VMware Cloud Infrastructure Service providers have a Service Level Agreement (SLA). Carefully review the Terms of Service for the selected VMware Cloud Infrastructure Service provider(s). For a link to the SLA documentation, please see the section below.
The roles and responsibilities for spend management may introduce organizational challenges that differs from typical on-premises server and/or IT services procurement. Finance and IT teams are encouraged to review and potentially adapt their existing approval frameworks to support cloud resource commitments.
Here are some questions to consider for that framework:
- Who are the personas involved in spend management? For example: Finance manager, Cloud Admin, IT director.
- Which individuals or roles decide on when a subscription is needed? Is capacity trending analysis required?
- Who is authorized to commit funds? Does the same individual have permission to provision additional capacity and/or services?
- Does the procurement workflow require any processes for authorization? (Jira, ServiceNow, Remedy, Email/Spreadsheets)?
- Are there tools being used to provide spend management reporting and tracking?
Note: VMware Cloud Health or other third party can be used to analyze and manage cloud cost, usage, auditing, and governance.
In the next section, learn about customer and cloud provider responsibilities.