It is a key part of OVHcloud’s identity to innovate at all levels. Our strength lies in constantly challenging ourselves to better respond to our customers’ challenges. The new features that await them for Premium Bare Metal Cloud are the result of our will to drive change, and listen carefully to our customers’ needs. But to challenge this market, we needed to build a solid strategy that involved radical internal transformations.
The Beginning of a Revolution
OVHcloud offers a wide portfolio of cloud products and solutions across its four universes (Web Cloud, Bare Metal Cloud, Public Cloud and Hosted Private Cloud). The cloud we deliver is always designed and developed with our customers in mind, and we’re always looking to understand their business so we have a better idea of their challenges.
We started our discussions on the Premium Bare Metal Cloud market back in 2016. At that time, we received feedback from a few customers regarding our price positioning on this particular range of powerful servers, which meet very high storage requirements. Our bare metal products were simply too expensive in comparison to what they were willing to pay for. We then worked with two customers in particular. Since they were open to share their costs with us, we were able to project their economic model onto our business model. These two customers hosted their own services via colocation, without a local team available 24/7, and they had a low-capacity internet network. They invested in their own servers by calculating their prices across a 5-year period. Once we performed this analysis, we realised that we could offer them these powerful servers for a lower, much more competitive price. But to meet this challenge, we would need to do some major work that would probably take several years.
A New Business Model
Our first project involved completely restructuring the mathematical basis of our business model, which we used to calculate our prices. We started this in 2017, and it took three years.
In our first year, we reorganised the company and created Units. Each of the Units is a kind of small business within OVHcloud. It contributes to our collective success by managing responsibilities corresponding to its expertise, and by contributing to our strategic plan. It is led by a Unit Lead, and has a roadmap to deliver.
In the second year, we created P&Ls for each Unit so that they could model the projects in their roadmap, through real costs generated compared to the expected benefits. To provide them with this analytical framework, we had to restructure our finances. This involved dividing the company’s overall P&L into several micro P&Ls. This meant we could allocate costs to the right Units and create an internal billing workflow. We were then able to calculate the revenue of each Unit by reconciling the revenue generated by customer billing with the revenue generated by the internal chargeback for other Units, while integrating the associated costs (teams, licences, etc.). We then had the margins released by each Unit.
In the third year, we linked all these metrics to financial statements, and made their KPIs available to Units in real time. The purpose of deploying these financial dashboards was to better manage the company’s efficiency — but more importantly, to empower the teams. By aligning financial monitoring tools with the new organisation, Units were able to produce more reliable forecasts, better anticipate risks, and better project their investments and salary expenditure. For the company, it was also a way of ensuring that every project created value for OVHcloud, as well as continuing to ensure that our development remained profitable, balanced and sustainable for our competitiveness and independence. From the customer’s point of view, this cost-conscious culture would mainly lead to even bigger price reductions.
In the digital world, economies also rely on two shifts: reducing fixed costs (by increasing sales volume) and reducing variable costs (by automating tasks through software, robotic systems, and artificial intelligence). Investing massively in automation is a crucial challenge for a cloud provider like ourselves. Through massive investments, we improved quality (fewer bugs, simplified procedures, faster service delivery), and we were able to carry out more operations per day, without increasing the size of the Units. This meant the Units no longer had to do repetitive tasks, and they could instead focus on the added value they needed to bring to our customers. We do this by following the principles of BFLNT, which I described in a previous blog post.
Finally, this combination of operational and financial efficiency — as well as the level of automation in Units — helps us develop increasingly cost-effective solutions, and provide even more value for money to our customers.
CAPEX is Value
To support their ambition, companies that incur a high CAPEX — through spending high amounts on real estate or equipment investments — are never highly valued on the financial market. To secure these large investments, they often operate complex — even opaque — financial schemes that are perceived as too much of a risk.
For OVHcloud, these large sums are the foundation of our virtuous model — investing in building and improving our datacentres, renewing our production equipment, and acquiring new manufacturing premises. Our business model completely demystifies these massive investments, because it ensures returns on investment by design. Our ability to invest by generating profitability has enabled us to raise capital in 2016 ($279 million from KKR and TowerBrook) and even raise debt at the end of 2019 ($976 million). CAPEX is our main vector for creating value. We must constantly invest in future innovations and infrastructure to ensure our sustainability and competitiveness.
With all the work we have done over the last three years, we have also been able to make huge changes to our business model. With the sophisticated analysis we gained, we can now calculate a server’s price based on multiple variables like commitment time, order volume, server type, and investment spending on the infrastructure and the business itself. This new financial model is internally called “Jackpot”, as any reduction in our CAPEX or OPEX (operating expenses) will certainly lower the price for our customers. And in the event that we don’t provide the price expected — which means that our CAPEX or OPEX solutions are not sufficiently optimised — we are always looking for where we can innovate, and what level we need to disrupt. Because if we improve our costs, we reduce our prices rather than increasing our margins. This constant self-reflection through innovation is what enables us to offer customers better prices, as we will soon be doing with a Premium Bare Metal Cloud.
New resource usage methods
Our ambition is to become a global expert in Premium Bare Metal Cloud. We want to shake up the market from 350 to 2,500 dollars per month (for the top-range premium servers) and become a benchmark, as we are already doing for entry and mid-range servers. Customers who need the most power and capacity will start to notice the first effects of our strategy. To better serve their challenges, by the end of 2020 they will see our public prices drop. But we will maintain the same high performance. In addition to our industrial model, which is unique in its total control and enables us to adapt constantly, it is mainly our new “Jackpot” business model that has helped us go even further in recent months. And based on this new model, we have reviewed everything — servers, network, energy and water-cooling. Now more than ever, we are a price leader by design.
By allowing us to follow product life cycles with greater finesse, our new financial model has also enabled us to review our commitment models. Before the end of the year, we will offer more competitive prices on longer-term commitments. In addition to the monthly payment models already available, i.e. with no commitment or with a commitment of 6, 12 or 24 months, we will also offer commitment plans over 3, 4 or 5 years. Our prices will be even better for customers who are able to commit to both volume (3 or 12 racks with 48 or 96 servers) and duration (3, 4 or 5 years). In the future, our customers will also be able to get Bare Metal prices per hour, billed per second.
Finally, for customers who need a lot of server racks and don’t want to manage their infrastructure, we can already deliver private spaces in our datacentres, with 12, 24 or 48 racks* equipped with cameras, badges and logs. This use case not only meets the needs of Bare Metal Cloud customers, but also Public Cloud and Hosted Private Cloud customers in “private region” mode. From 100 racks onwards, we are able to deliver true private datacentres in third-party buildings (customers’ premises)*, wherever they are in the world. This significantly reduces their costs. For these datacentres, we deploy our industrial and technical expertise, including our exclusive water-cooling technology, and all of our hardware innovations — including the very latest technology on the market. We also manage all software layers and their lifecycles.
A Global Impact
The purpose of this blog post is not to detail our future offerings, but to explain the long journey that has led us to drop our prices on Premium Bare Metal Cloud. But if you follow my Twitter account (@olesovhcom), you may have seen some previews of them — because I share information about our work regularly.
In all, OVHcloud will soon offer around 300 Bare Metal Cloud models! This is a very wide range, and our marketing teams have taken on the impressive challenge of offering a simplified browsing experience, so that you can find exactly what you need. In late October 2020, the menu name will change from “Server” to “Bare Metal Cloud”. This will be the first step in a transition that will take place in the coming months, with a much more usage-based approach, such as virtualisation, storage, deep learning, databases, etc. The aim is to make your journey easier, and help you easily pick the models that best suit your needs.
As internal customers, our three other cloud universes (Web Cloud, Public Cloud, Hosted Private Cloud), which all rely on our Bare Metal Cloud infrastructures, will also benefit from these innovations and new prices. Before making this global impact, we needed to review the fundamentals of the cloud. Expect some great announcements in 2020-2021!
We will prove to you in concrete terms that by thinking out of the box through disruption and creating a solid ecosystem, we are helping to make OVHcloud a genuine alternative in the cloud industry every day.