In focus Rental Solutions : IT On Lease

Imagine a scenario where you have the option of choosing a rental solution
from leading car maker Ford Motors to meet your traveling requirements. The
company gives you the option of driving a Ford Icon on rent for a given period
of time (say three years) and then exchange it for a Ford Endeavor on grounds
such as technology becoming obsolete and also, disposal issues will be taken
care of by them. Wouldn't that be a good enough offer for you to grab?

The above logic can also be applied to IT hardware/infrastructure/solutions.
Given that technology has a short life cycle and keeps evolving, many customers
love it when such a value proposition is offered to them. If a customer had the
option of availing the benefits of the latest technology at an affordable price
for a time period set aside by him, then he will not mind taking up the offer.
On the other hand, the onset of the slowdown has forced many a cash rich company
to look at their rent model for achieving their business goals. This is exactly
why solution providers (SPs) and system integrators (SIs) can also look at
venturing out into the space of holistic and piecemeal rental solutions. This is
one opportunity that is not limited to certain time period and will continue
generating revenues if only one can convince the customer.

Scope for the business

Rental solutions is one business that has been evolving in India for many
years now. Amit Vira, Director, ITISL said, “The rental model of business has
evolved over a period of 15 years and has taken off in a big way. The model is
viable for those customers who look for the best-in-class solutions for
short-term projects and those who do not wish to buy them permanently.”

While rich enterprises in India, opt for rental solutions to meet their
business needs, there are certain other companies who opt for the rental model
as well. Initially, customers only wanted to avail computers on rent but with
the advancement in technology and the affordability factor, customers' demand
for desktops has been replaced by laptops. Laser printers have also replaced dot
matrix printers.

Bengaluru-based Digital Waves is an SP that has recently forayed into the IT
leasing space. Digital Waves offers two rental options-short term and long term.
While short-term is for those companies that look to fulfill requirements around
projects for upto two to three months; while long-term leasing options include
pay-as-you-use and end-term option where in the end of the contract, the client
can purchase the equipment at a fair market valuation.

Why rental?

Both the customer and the SP stand to enjoy certain advantages once they
explore this business model.

Customers can convert capital costs into operating ones and need not bother
about long-term investment. “Assets are highly tangible and therefore, customers
need not worry about the product becoming obsolete,” pointed out Vira.

Gautam Munish, Country Manager, Cisco Capital said that technology has a
weird life-cycle-it becomes cheaper and better as time goes by. “A Pentium 4
that was available at Rs 60,000 a while ago, is now available at one third of
its cost,” he opined.

Revenue generation is the direct benefit that an SP can count on if he/she
considers adding rental offerings to the portfolio. For example, if you have
rented a laptop which cots Rs 50,000 at 18 percent monthly interest for a period
of two months, then the interest earned by the SP Rs 18,000. The same laptop can
now be extended to a different customer at yet another rate of interest fixed by
the SP.

So while the customer can avail the technology and benefits of a high-end
laptop by paying a price lesser than its original cost, and SP can put the same
asset in use and continue enjoying the monthly interest rates. This results in a
win-win situation for both. Besides, the entire cost of a laptop can be
recovered in an year's time.

In the end, the product ownership lies with the SP and he/she can claim the
depreciation amount by selling it. While typically the life cycle of a laptop is
anywhere between two and a half to three years, servers have longer lifespan.
Similarly, printers have a life of around three years.

Vendor leases

The SPs who do not wish to consider rental solutions as a stand alone model
and look at offering it as a piecemeal solution to their customers, could
consider collabo­rating with vendors to cater to their (customer's)
requirements.

For example, Cisco Capital, the finance arm of Cisco, which was initiated
four years back in India offers an operating lease or a fair market value lease
to its customers and partners.

“The rental solutions that we have on offer are all structured around
operating lease, which help us write aggressive residual solutions, keeping the
best of technologies in mind. Hence, it is a win-win situation for all.
Initially we had to sell the concept and increase awareness among customers.
Now, it the market demands do not seem to cease. The slowdown has further
aggravated it and now companies want to optimally use the cash to get maximum
returns,”added Munish.

While from a product offering pers­pective, Cisco has an operating lease or a
fair market value lease, the company also offers finance lease to its partners
and customers. This is particularly beneficial for the partners who offer
managed services to their set of customers.

At times, the SP's finances are limited. Hence, vendors like Cisco extend
their support to partners by funding the entire project. “We look at the entire
network infrastructure and if there are some non-competing and non-Cisco keys,
that also imparts functionality to the entire project then Cisco funds it,”
stated Munish.

Munish further elaborated that the partner stands to gain ease of credit
deliveries, ensuring benefits, matching inflows to outflows and achieving break
even points. Therefore, partners will start getting revenues while working on
projects.

Pooja Sharma

poojas@cybermedia.co.in