Transforming HPE From A Hardware Company Into A Software And Services Company

That is our vision, honestly. It is a transition that is not black and white. We think about two business models in the cloud—one is SaaS [and the other is] the subscription to our software, which may include infrastructure sold as a Capex. Let me give you a real example. You buy an HPE ProLiant server and you buy it outright. It may have a lease or something. But the software to deploy and life-cycle the server is on HPE GreenLake, which means you subscribe to the software which, by the way, is not just SaaS software. There is also an [HPE] Pointnext OS that ships with it.

With Aruba Network as a Service you would be charged per port. This is exactly what we did with Home Depot. The Home Depot is a Network-as-a-Service model. We charged them per port for all the stores.

That is the model over time, and that is what really composes as-a-service. The way we measure that is what we call the annualized revenue run rate. The ARR mix is heavily skewed to software and services. Today that ARR is on track to deliver by the end of this year $1 billion. Two thirds of that—65 percent—is software and services. If you think about margins on software and services, which are very high, you can see how accretive it is to the company.

I think long term the vison is very simple: The infrastructure piece of this is nothing more than the cost of sales. There is revenue, there is margin and a cost of sales. The majority of the margin will be services and software. The hardware piece, if you want see it that way, is a cost of goods sold.