When the U.S. Army inked what was -- and still is -- VMware's largest enterprise licensing agreement ever in September 2013, it thought it was getting a sweet deal that would result in significant savings and operational efficiencies.
Yet the $44.8 million VMware ELA, and a subsequent $33.3 million six-month extension, have led to higher costs for some Army commands due to certain aspects of the contract that appear to be tilted in VMware's favor, sources with knowledge of the deal told CRN in interviews over the past two months.
At least one subordinate Army command -- the Army National Guard -- declared a moratorium on VMware purchases earlier this year because it received larger-than-expected bills from the VMware ELA and needed to stay within its IT budget. That moratorium remains in effect today.
In a broader sense, VMware's Army ELA has called into question the viability of ELAs -- contracts often structured as "all-you-can-eat" IT buffets that have been big revenue generators for VMware and other enterprise vendors.
Some industry watchers say ELAs are more about locking in customers than saving them money, and could eventually become obsolete as the pay-as-you-go cloud computing model catches on.
The issues the VMware ELA is causing for the Army also have raised the question of who is responsible for determining the ultimate cost of complex contract vehicles -- whether it's the customer, the vendor or the solution provider that works with the customer.
As IT departments seek to transform themselves into internal service providers, these sorts of ELA questions are coming to the fore. Yet in the case of VMware's Army ELA, no one seems to have any answers.
In reporting this story, CRN spoke with enterprise vendor executives, government solution providers and industry analysts, and most believe there's plenty of blame to go around for the problems the VMware ELA is causing.
Some sources said VMware's federal sales team pushed an ELA that included overly advantageous terms for the vendor. Other sources question whether high-ranking executives in the Defense Information Systems Agency (DISA) -- the Department of Defense branch in charge of IT purchasing -- did enough due diligence on the VMware ELA to ensure the vendor wasn't overstepping its bounds.
Some of CRN's sources think the Army's CIO office -- known as the CIO/G-6 -- didn't adequately prepare Army commands for the ELA's implications. The Army's current CIO, Lt. Gen. Robert S. Ferrell, took office in December 2013, two months after VMware's Army ELA went into effect. However, Ferrell was in his role when the VMware ELA extension was executed.
Finally, there are questions about what role Carahsoft, the VMware government reseller that was awarded the ELA, played in setting expectations on the ultimate cost of the contract for the Army.
VMware, despite being a leading provider of software that powers private and public clouds, has been slow to make the transition to being a cloud service provider. Many VMware partners view this as the biggest challenge it has faced in its 17-year history.
Like many enterprise software vendors, VMware, Palo Alto, Calif., still relies heavily on software maintenance fees. In fiscal 2007, maintenance accounted for about 25 percent of VMware's total annual revenue. In fiscal 2014, maintenance accounted for about 50 percent of VMware's $6 billion-plus annual revenue, according to the vendor's 10-K filings.