Is The Cloud Going To Make ELAs Obsolete?

Every time an organization runs into unexpected costs from an enterprise licensing agreement, a new potential cloud computing customer is born.

But is the cloud subscription, pay-as-you-go model really better at saving customers money? According to three licensing experts CRN spoke with, the cloud model isn't the cost-control panacea some ELA-weary customers might think it is.

With on-premise software, vendors make money from upfront licensing fees and from ongoing software maintenance fees. In the cloud, these fees are often bundled and factored into the price of subscriptions. So while cloud services don't come with ongoing maintenance fees, they do have their own set of costs.

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"The treadmill isn't really going away—the industry is trading a maintenance treadmill for a subscription treadmill," Kim Addington, COO of NPI, an Atlanta-based firm that helps companies manage software licensing, told CRN. Enterprise vendors are redefining their approach to volume licensing in the cloud, and they're going about it in different ways. Microsoft and Adobe Systems are two examples.

Microsoft for years has included Office 365 in its ELAs along with perpetual on-premise licenses, giving customers a familiar way to buy cloud software, said Tim Hegedus, senior analyst at Miro Consulting, a Woodbridge, N.J.-based licensing consultancy.

Last year, the software giant debuted its Microsoft Product and Services Agreement (MPSA), which covers both cloud-based and on-premise products. "While new terms and conditions, new language, and other aspects of hosted services have to be introduced, the licensing is via a familiar vehicle," Hegedus told CRN.

Paul DeGroot, principal analyst at Pica Communications, a Camano Island, Wash.-based Microsoft licensing consultancy, told CRN he thinks Microsoft's cloud services have stronger customer lock-in potential than its on-premise software.

Customers can stop paying Microsoft for Software Assurance, a licensing plan that includes maintenance as well as the ability to upgrade to newer offerings, and continue using on-premise products, said DeGroot, adding that this isn't the case with Microsoft cloud services.

"This is the reason Microsoft pushes the cloud as frantically as it does. You can't walk away from a subscription and keep using the product," DeGroot said.

Adobe moved aggressively into the cloud in 2012 with the launch of its Creative Cloud offering, which effectively marked the end of its boxed software business.

Addington said Adobe still offers its large customers an "Enterprise Term License Agreement" that includes discounted pricing in exchange for minimum spending commitments, as well as "trueups," which is when a vendor reviews a customer's software usage to ensure it hasn't exceeded agreed-upon levels.

In the cloud market, "Legacy vendors are adapting, rather than abandoning, their enterprise agreement strategies," said Addington. "The goals remain the same: The vendor wants committed spend for a specific period of time, and the customer wants easy deployment, better discounting, price protection and budget visibility for a specific period of time.'