Now that Cisco has extended the scope of its enterprise licensing agreement to include Cisco security technologies and collaboration software, the company’s partners are naturally excited to wield a new weapon against Cisco competitors. The minimum contract value to be eligible for a Cisco enterprise licensing agreement (ELA) is now $250,000.
Previously, a Cisco One licensing program that allowed IT organizations to transfer licenses between products applied only to Cisco networking and data center infrastructure products. Now that Cisco is applying the same concept across its entire portfolio, the vendor expects the rate at which enterprise customers upgrade legacy products to increase, said Mark Hill, vice president of digitization for Cisco.
Hill says the company is motivated to expand the number of organizations taking advantage of three- or five-year ELAs as part of a concerted effort to increase the amount of recurring revenue the company generates. “We’re now up to $4.4 billion in deferred revenue,” he said. “That’s up from $2.2 billion.”
One of the reasons Cisco is anxious to increase that number is that it wants to be viewed by investors as being more of a software company. When a piece of hardware is acquired, the license for the related software has traditionally been attached to a specific piece of hardware.
By allowing organizations to apply their existing software license to new hardware, the hope is that customers will consider that an incentive to upgrade their hardware more frequently because their overall upgrade costs will be lower. That approach also provides Cisco with the added benefit of making it more challenging for competitors to poach customers from the company’s installed base because the total cost of remaining with Cisco is lower.
One of biggest immediate benefits to customers may be how Cisco is now handling situations in which customers have exceeded the terms of their enterprise licensing agreements. Instead of billing customers retroactively for exceeding those terms via a “True Up” approach, Cisco will apply a “True Forward” model that will reset the terms of the enterprise licensing agreement from a specific point in time based on the amount of usage employed.
That approach, which applies to any organization that exceeds its usage quota by more than 20 percent, makes for a much friendlier engagement with customers when it comes time to verify ELA terms, said Ken Farber, president of ePlus Software, a unit of ePlus Technology, which has been a long-time Cisco partner.
“That makes it easier for customers to predict their budgets,” Farber point out. “And that makes them more willing to engage in readiness assessments.”
Of course, as more customers rely on monthly subscription programs to pay for IT infrastructure, the terms and conditions associated with ELAs are changing. Increasingly, solution providers need to have the means to finance those deals in way that provides them with enough working capital to operate.
As more organizations begin to treat all types of IT as an operating expense, solution providers that offer flexibility will achieve more success over an extended period of time.