Cisco has created a software licensing agreement for use across its product areas, including collaboration, security, and infrastructure products. In addition to streamlining the licensing process, the new Enterprise Agreement also operates as a sales tool that incentivizes customers to buy “bundles” of software products.
The Enterprise Agreement is a document of less than 20 pages that contains all the legal terms and conditions for the product bundles.
Today’s announcement of the Enterprise Agreement marks the culmination of about two years’ work on the project, said Mark Hill, VP of digitization at Cisco. Hill joined the company in November 2016 after a 24-year career at Microsoft where he worked on Microsoft’s annuity license engine. He’s been leading the work on the Enterprise Agreement since he joined Cisco.
“I’ve come to Cisco to spearhead this new part of our business for creating offers and products, putting them in suites that address business outcomes and finding common ways for customers to acquire [software] through a single agreement,” said Hill.
Asked if the Enterprise Agreement replaces myriad other types of licenses at Cisco, Hill said, “Any type of license agreement ever invented, I’d bet we’ve got one of those at Cisco.” A lot of the license diversity comes from all the different acquisitions Cisco has made over the years.
Not only will the new document help Cisco create a more organized licensing program, but the company claims it will help its customers as well because they’re struggling to manage contracts that expire at different times and to deal with compliance challenges.
The Enterprise Agreement is available in three- and five-year contract lengths.
Hill said Cisco created bundles of products that are the most popular. There are entry-level bundles, medium-level bundles, and advanced-level suites. “The agreement is for the various suites, to commit to using enterprise-wide for a period of time,” he said. “In return, the customer gets a much lower price with license portability.”
The agreement also includes a 20 percent growth allowance. For example, if a customer buys a license for software for 100 switches, the agreement automatically permits them to use the software for 120 switches without any kind of penalty. This avoids a punitive charge called a “true-up,” which is common in software licensing but that customers apparently hate.
If a customer does not want to buy its products in the pre-determined bundles, it can still purchase single software licenses, but the terms are less desirable in that case, and the Enterprise Agreement is not used.
Hill said an initial version of the Enterprise Agreement has been used for about 10 months with about 110 customers having purchased software licenses via the contract so far. Cisco is in the process of training all its selling partners, and they will all begin using the contract, starting in August.
Cisco’s Move to Subscription Revenue
It’s already typical for businesses to offer subscription licenses for software-based security and for business collaboration-type software. But offering licenses for networking infrastructure is a bit more bold. Cisco has been doing this through its Cisco ONE Software suite, which it created about two years ago. The Cisco ONE portfolio includes infrastructure products such as switching, wireless, WAN, data center networking, data center cloud, and compute. These products will now all be licensed using the new Enterprise Agreement.
Cisco CEO Chuck Robbins has been beating the drum of Cisco’s transition to more software and subscription-based revenue for several quarters.
In its last earnings call, the company said the portion of product deferred revenue related to recurring software and subscription businesses grew 57 percent to $4.4 billion in the third quarter of 2017. That figure included the acquisition of AppDynamics during the quarter. Excluding AppDynamics, software revenue increased 51 percent.
Cisco told SDxCentral that its Cisco ONE software suite for infrastructure products has grown from 9,500 customers to more than 18,000 customers over the past year.