hardware-as-a-service (in managed services)

Contributor(s): Kevin Ferguson, Yuval Shavit

Hardware-as-a-service (HaaS) is a procurement model that is similar to leasing or licensing in which hardware that belongs to a managed service provider (MSP) is installed at a customer's site and a service level agreement (SLA) defines the responsibilities of both parties. Sometimes the client pays a monthly fee for using the hardware; sometimes its use is incorporated into the MSP's fee structure for installing, monitoring and maintaining the hardware. Either way, if the hardware breaks down or becomes outdated, the MSP is responsible for decommissioning it and replacing it. Depending upon the terms of the SLA, decommissioning may include wiping proprietary data, physically destroying hard drives and certifying that old equipment has been recycled legally.

The HaaS model can be a cost-effective way for small or mid-sized businesses to provide employees with state-of-the-art hardware in a cost-effective manner. HaaS can be contrasted with infrastructure-as-a service (IIS) and managed hosting, procurement models in which the hardware is housed at the MSP's site.

HaaS, in a grid computing context, is a pay-as-you-go model for accessing a provider's infrastructure and CPU power. Grid computing is a technology in which several computers work together to act as a single, more powerful computer. Some companies sell use of their grids over the Internet on a per-use basis. The user sends data and a program to process that data; the vendor's grid does the processing and returns the result. A prime example of this is Amazon's Relational Database Service and Microsoft's Azure.

Pros and cons of HaaS

The benefits of HaaS include:

Costs. HaaS incurs reduced upfront capital expenses, allowing businesses to shift allocations from the capital expense (CapEx) budget to the operating expense budget (OpEx), thus freeing up cash flow. CapEx purchases can carry tax benefits over multiple years as the equipment's value depreciates, as amortized value is deducted from annual, taxable revenue. On the other hand, OpEx expenses are accounted for within a year, so the amount deducted from revenue -- that is, the amount spent on equipment rental in one year -- would be accounted for in that single year. OpEx expenditures are usually easier to approve because CapEx purchases typically take several layers of management approval.

Obsolescence. Ideally, under the right management contract, clients' hardware would be updated with state-of-the art equipment. If the contract with the MSP, does not specify how often new equipment is to be offered, however, clients can be saddled with out-of-date equipment.

Maintenance: As with auto leasing, HaaS carries the benefit of built-in maintenance and troubleshooting costs. Also, ideally, security measures are kept up-to-date as part of the HaaS option.

Cons for HaaS include contract terms. HaaS can be saddled with unfavorable exit or buyout clauses, should you wish to end the contract early.

This was last updated in June 2019

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