Cisco Enterprise Agreements (“EAs”) are becoming an increasingly popular vehicle for purchasing and consuming software products and services from Cisco.
The general concept is that – rather than purchasing individual software products and associated software maintenance on a unit by unit basis – the enterprise pays Cisco an upfront fee to cover all of its purchases of a certain suite or suites of Cisco software products, plus the associated software maintenance, over an agreed period. EA unit pricing is typically a function of the number of authorized users, or covered devices.
But other metering units may apply to certain suites.
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The benefits to the customer are that the upfront fee for the suite or suites under the EA should be less than it would have paid to purchase the software licenses and support on a unit by unit basis, and the customer can acquire more software or service units to meet its business needs without incurring additional charges, provided that the total consumption remains within certain growth limits. The benefit to Cisco is that it gets a lump-sum payment upfront for closing a sale for a substantial volume of business in a single transaction.
Cisco targets its EA propositions, which they call suites, at Cisco ONE software, collaboration software and security software products. Significantly, these EAs do not cover the sale or support of Cisco’s hardware products
As with any new deal construct, there are various important criteria enterprise buyers must consider to realize the benefits they expect. Sizing the EA correctly is one of the most financially significant considerations. Some earlier iterations of Cisco EAs offered, to all intents and purposes, an all-you-can-eat proposition, with no limits to organic growth, which is broadly defined as growth that is not due to mergers and acquisitions. Cisco now rarely offers all-you-can eat EAs. The current iterations of EAs cover a specific projected quantity of software consumption, with an allowance of 20% growth before additional charges apply.
When determining the covered users, devices or other metered usage baselines for the EA, you must strike a balance between making sure that the EA is not oversized, which would cause you to pay for units that will never be consumed. You must also make sure it is not undersized, which would introduce a risk of exceeding the growth allowance and give rise to additional payments, unless you intentionally design it that way.
Cisco uses an “End User Information Form” (EUIF) to document the exact inventory by type and count of product and services the EA will cover. The EUIF also establishes the growth allowance. You should obtain, review and validate the EUIF early in your negotiations with Cisco to set the optimal baseline and growth allowance. If, for example, your forecast of what you will consume under the EA is very accurate, you may want to under-size the EA slightly so that the in-built 20% growth allowance covers the expected overage from such under-sizing, thereby maximizing the realized value of the 20% allowance.
In evaluating the value proposition of an EA, you must understand the rate at which you would expect to use the covered products. In particular, Cisco will present the value assuming you will consume all covered products from day one of the EA. In reality, you are likely to ramp up your usage over time as you deploy the applicable software throughout the enterprise. This makes little difference when purchasing perpetual software licenses since you incur the same cost regardless of when it’s purchased. But for software maintenance and software purchased on a subscription basis, the start date is relevant because there is “lost” value from the EA for unused software maintenance and subscriptions as you ramp up consumption.