Cisco has been trying to reorient its business around software for years, and may have just taken a step that will prove more important to that goal than any single acquisition or new product innovation.
The networking giant this week introduced a revamped Enterprise Agreement that appears to be quite customer-friendly and perhaps even unique in the software industry.
Cisco's new EA is available for either three or five-year terms, and covers its infrastructure, security and collaboration software products. Others will be added over time, according to a statement.
Under the EA's terms, customers receive a 20 percent growth allowance. This means that customers can use up to 20 percent more supported licenses without the common "true-up" practice, wherein a vendor periodically checks for overuse and bills retroactively.
Moreover, Cisco EA customers who exceed the 20 percent growth allowance will not be charged retroactively for the extra usage. However, their contracts will be updated at the start of the next billing period, Cisco says.
The full list of products available under the new EA is as follows:
Collaboration: Cisco Spark Flex Plan, Cisco Unified Communications Suite, Cisco Meeting Server add-on Suite, Cisco WebEx On-Premises Suite, among others.
Infrastructure: Cisco’s flagship infrastructure and data center technologies delivered through Cisco ONE Software suites: Switching, Wireless, WAN, Data Center Networking, and Data Center Cloud and Compute.
Security: Email Security Suite, Cloud and Web Security Suite, Policy and Visibility Suite, and Security Essentials Suite.
Customers can add additional products to their EA as desired during the contract term. Another key point of flexibility is that the new EA allows customers to deploy software on-premises, in the cloud, or in a hybrid model. Cisco is providing access to a portal that gives customers a view into what they've bought and deployed, as well as when products are up for renewal.
Analysis: A Good Deal for the Committed Customer
If you're already a sizable Cisco customer, the new EA should be well worth a look.
"Customers exploring new business models seek flexibility from their vendors in how they license usage," says Constellation Research founder and CEO R "Ray" Wang. "The 20 percent flex-up without an overage penalty is a great way for customers to expand how they use Cisco. More importantly, most customers want choice in deployment options and do not want to be limited in their usage by deployment. This is initially good news for clients who have standardized or will want to standardize on Cisco."
Cisco says about 100 customers have signed deals under the new EA and that feedback has been good.
It's also important for Cisco to offer this type of agreement, and some might say it's long overdue, given its long history of acquisitions and resulting tangle of different contract types brought into the mix.
Of course, the goal is to get Cisco customers using more software, and to that end the products covered under the new EA are being offered in bundles, as well as on their own. However, bundles will get preferred pricing. Minimum pricing rules apply, however; each suite covered under the EA must have a total contract value of $250,000.
While it remains to be seen, Cisco's move could also have a halo effect by prompting competitors to offer similar arrangements—whether as a matter of public policy, or at the negotiating table.
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