Cisco has brought its product licensing in line with the company's ongoing transformation into a mostly software...
business, a shift that has yet to reverse the vendor's declining top-line revenue.
The company introduced this week a single Enterprise License Agreement (ELA) that covers the vendor's entire software portfolio, which includes security, network infrastructure, computing and storage, and collaboration and video conferencing.
"What we've done is consolidate them all [under one Cisco ELA]," said Mark Hill, the head of Cisco's monetization office.
The updated ELA recognizes that companies are increasingly buying software separate from Cisco hardware. In the past, a license typically covered equipment and software together. The two couldn't be separated -- a model that's no longer practical, Hill said.
New Cisco ELA terms
Under the new agreement, customers would sign a three- or five-year contract for any of Cisco's software and have the option of purchasing other products and adding them to the same license.
The Cisco ELA covers all deployment models -- on premises or in the cloud -- and customers can move software from one platform to another anytime. Cisco has introduced a license management portal that lets companies monitor the number of users, servers or other consumption metrics covered by the agreement.
Cisco includes what it calls a 20% "growth allowance" in every license. A customer, for example, could exceed the number of users up to the allotment without having to change the agreement. Companies that exceed the allocation can modify the license without having to pay a retroactive charge.
"The 20% allowance is a nice gimmick that might benefit some companies that are truly in growth mode," said Shamus McGillicuddy, an analyst at Enterprise Management Associates Inc., based in Boulder, Colo. "I can see that being a welcome benefit to companies that are used to enterprise software vendors hitting them with cash penalties for exceeding their licenses."
Mall builder Westfield switches to new Cisco ELA
Mall developer Westfield Corp., based in Sydney, used to buy separate Cisco licenses for its 35 shopping centers in the United States, United Kingdom and Europe. As of last month, all malls, data centers and corporate offices are under a single licensing agreement.
The contract covers the security, analytics and infrastructure software the company is currently using and plans to use over the next several years, said Westfield CIO Denise Taylor. As a result, the mall builder has an IT budget that's unlikely to change over the life of the contract.
The shift was not problem-free. Westfield had to overhaul how it accounted for the consumption of Cisco products. Financial systems that tracked the separate IT agreements for each mall now had to monitor each center's use of technology and charge it accordingly.
"There is a heavy amount of collaboration that needs to happen with finance to make sure that everybody is on the same page," Taylor said. Working out those problems led to a new accounting system that was simpler and more efficient than tracking a couple hundred separate contracts that expired at different times.
Cisco is helping customers like Westfield move quickly to a single-license model by providing credit for the time left on old agreements. Speeding up the shift will help Cisco build a larger software business faster.
The recurring revenue that accompanies software sales is key to lessening Cisco's dependence on hardware -- particularly the routers and switches that remain the company's largest business. Sales of the products are declining, as customers move more software to cloud providers.
The reduction in hardware sales has led to a steady decline in revenue. This month, Cisco reported that overall revenue fell for the sixth consecutive quarter.
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