Infrastructure on rent is the new mantra

While investing in IT has always been seen as a big enabler for any organisation, today’s technology is obsolete tomorrow. Many Indian firms have found a new way to tackle this problem by renting their IT hardware from specialist service providers, says SRIKANTH RP

TAKING IT infrastructure on rent has always been seen as the costlier option by Indian CIOs and CTOs. But as many surprised CIOs are now finding out, renting servers, printers, PCs, projectors and laptops is, in many cases, working out to be more cost effective in an industry where the value of IT hardware depreciates every year. While taking IT infrastructure on rent is a highly successful concept abroad, in India this industry is just showing signs of exploding. The boom can be seen from the fact that specialist vendors such as RentWorks, Compusoft and Rent-a-Computer have client lists running into hundreds of names.

Says Alan Van Niekerk, CEO, RentWorks India, “The Indian industry is in a high growth phase and it needs flexibility to deploy better technology without having to deal with capital losses associated with the sale of obsolete equipment. Rental provides an effective off-balance-sheet solution for corporates looking to deploy their capital productively rather than on depreciating equipment, thereby improving their return on assets and return on capital employed.” According to him, the concept of renting has been a success with corporates here as most Indian organisations have traditionally been cost-conscious, and look to make technology investments in line with their growth needs—which a concept like renting IT infrastructure fulfills.

To buy or to rent?

Traditional thinking by CIOs typically means comparing the cost of acquisition to costs associated with renting equipment year-on-year. But few CIOs take into account the costs that would be incurred via challenges such as high technology obsolescence, upgrades, asset management and new purchases. These challenges typically outweigh the benefits of outright buying vis-à-vis renting. As most rental vendors provide the option of upgrading or even changing the infrastructure, it reduces a company’s risk compared to a situation where it purchases a new piece of hardware and the technology decision does not pay off as expected.

Says Vipul Pandya, managing director, Rent-a-Computer, “Renting equipment gives organisations the chance to keep pace with new technological developments. For example, the cost of upgrading infrastructure in the renting concept is very low. If such equipment is owned, the value depreciates to such an extent that the gap between the sale price of old equipment and the procurement price of new is too high.”

Another thing working in favour of the rental option is the fact that taking IT infrastructure on rent is suitable for short-term projects. Because many Indian BPO and software service organisations derive their revenues from short-term projects, the concept of renting IT infrastructure is popular among these firms.

Explains Ketan Shah, director, Compusoft, “Small and mid-sized software companies need different servers in keeping with their project needs. For example, a software service client rented a Sun server for a specific project when the company had to migrate a software product from HP Unix to Sun Solaris. After completing the project in seven months, the company returned the server to us.” The rental option is also being effectively used as a strategy in many Indian organisations for meeting sudden surges in workload.

The concept of IT rentals also holds tremendous potential for start-ups as the period of establishing a business should typically be covered by low capital investment. Also, as promoter or VC expectation on return in a start-up is high, start-up companies are looking at options such as taking IT infrastructure on rent.

Says Pandya, “Renting equipment provides a start-up with the luxury of not only testing its potential at a much lower cost, but also in creating a more defined technology roadmap.” Apart from PCs and servers, laptops are another big area for IT rental specialists. Many exhibitors need quality equipment for the duration of an event. Even software companies which send their marketing personnel abroad prefer to rent laptops for specific periods.

India’s current sunrise industry, BPO, also prefers renting infrastructure to buying it. For example, many BPO organisations are given a pilot project to prove their worth. So if a BPO organisation gets a 300-seat order, the company would have to typically purchase 300 desktops. In the rent option, the organisation has to only take the infrastructure for the pilot project without the danger of being stuck with the systems if the order doesn’t materialise.

Different models

The most popular model is the one where the rental company buys products and rents it out on a daily/weekly/monthly/yearly basis. Then there are other models such as the one offered by RentWorks. The company offers a client the chance to choose products. The only difference is that instead of the client company, RentWorks buys the hardware and gives it to the company on rent for fixed periods.

Another option, the ‘Sell and Rent back’ from RentWorks, offers organisations the chance to remove non-income-producing assets from their balance sheets. RentWorks buys the equipment at market rates from companies sitting on legacy systems, and rents them back to the company for the remainder of their perceived life. This option has become very popular since it allows organisations to effectively plan for asset replacements. Since RentWorks has a global base, it moves equipment between high-end and low-end technology users. For example, a global consulting firm may need high-end PCs while a small manufacturing outfit may need less sophisticated stuff.

From PCs to servers

While the renting concept started with PCs, it is now fast spreading to servers. Almost everything that you would find in a typical corporate set up—PCs, laptops, monitors, Intel servers, Unix servers, routers, VSATs, modems, printers and mainframes is available on rent.

Software companies are not the only ones looking at hiring servers. Other organisations are hiring servers for enterprise application projects. Says Van Niekerk, “We are seeing major demand for servers in the IT rentals space due to various ERP, CRM and disaster recovery projects. In the case of servers—as with any high-end product—IT spends tend to be higher and the decisions tend to lock the customer in for a longer time. Through renting, our clients have the flexibility to change their decisions which may have not been possible in a purchase situation. This has been a significant growth driver for server rentals.”

In this age of rapid technology obsolescence, the question before a CIO or CTO is ‘What do we want to own forever and at what cost?’ Once that question is answered, consider renting the rest.

srikanth@expresscomputeronline.com