Leasing the Cloud
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The technology leasing industry is undergoing rapid changes that will impact how corporate banking clients approach their enterprise-wide IT objectives in 2018 and beyond.

There’s a new wrinkle to the age-old “lease or buy” IT hardware dilemma. It’s the “Device-as-a-Service” model, in which companies pay a monthly fee to technology providers who not only provide their customers with devices, but also replace those tablets, computers, and other gizmos when new versions are released.

The concept started gaining traction in 2016, with manufacturers Microsoft and HP introducing DaaS options; Dell and Lenovo followed suit in 2017.

The DaaS model was inspired by the surging popularity of cloud-based, subscription-model software. More than 90 percent of chief information officers (CIOs) plan to make moderate or significant investments in Software-as-a-Service offerings in the next three years, according to the 2017 Harvey Nash/KPMG CIO Survey.

That means the pay-as-you-go model is in vogue, and also that organizations are signing up for frequent software upgrades — a choice that often necessitates corresponding hardware updates.

“Things are changing fast in our industry,” says Jim Blalock, Senior Vice President, Regions Equipment Finance Corp., who handles technology leasing deals. “Everybody's trying to figure out how you bundle hardware and services into some kind of managed-services play.”

Yet DaaS isn’t right for every company, or for every piece of tech a company uses. Just as there’s no one-size-fits-all answer to “lease or buy?,” the choice depends on each company’s unique circumstances. Buying your equipment generally results in the lowest cost of ownership, but the downsides are the initial cost outlay, as well as the limiting effect of locking yourself into equipment that may soon become obsolete. Leasing does away with the upfront costs of an outright purchase and is generally less expensive than DaaS, but doesn’t include device upgrades.

For example, one of Blalock’s clients, a food manufacturer, recently opted for a leasing deal over DaaS after determining that access to next-generation technology didn’t justify the cost premium associated with DaaS.

“In situations where you determine that you don't need to have the latest and greatest, and you’re able to extend the life of your equipment, then leasing that equipment can make a lot of sense,” Blalock says.

 

What about the server room?

In the server room, the debate is a bit different, because the hottest options for outsourcing are cloud-based. More than 80 percent of CIOs are planning for moderate or significant Infrastructure-as-a-Service investments, according to the 2017 Harvey Nash/KPMG CIO Survey.

Yet here, too, there’s no easy answer. Concerns about cybersecurity, for example, have led some of Blalock’s clients to keep their equipment onsite. And for organizations with large, highly skilled IT teams — especially those that have developed specialized solutions — it may make sense to keep more technical gear on site.

“Companies with proprietary solutions are still saying, ‘We’ll never go to the cloud with that,’” Blalock says.

Cloud-based services, in contrast, are perfect for smaller companies that need access to affordable services without a huge IT team or budget, as well as companies that need to stay on the forward edge of technological capability.

“If you’re stuck in that cycle of constant upgrades, it can be nice to say, ‘Hey, we can't keep up with this, but we can outsource it and make it somebody else's problem,” says Blalock.

Managed-services deals are changing the complexion of the old “lease or buy” dilemma, thanks in large part to advances in cloud computing. But even with the new look, the debate promises to rage on.

Continue reading to learn more about technology’s increasing impact on corporate banking.

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