Cisco Gets More Software-Centric With New Enterprise Agreements, A Big Move Toward Simplified Selling With Recurring Revenue

Cisco is hitting a major milestone in its quest to become a software-centric company with the launch of a new enterprise-wide software licensing agreement.

The San Jose, Calif.-based networking giant said the new Enterprise Agreement (EA) is either a three or five-year licensing contract and partners will have the potential to bring in more revenue, with a lower upfront investment on software, hardware, and services with the new EAs.

"Cisco is giving customers more opportunity to take part in traditional enterprise licensing agreements through this offering, where before, customers had to invest several millions of dollars to get access to a catalog or portfolio of software. But now the price point has come down significantly to as low as $250,000," said Ken Farber, President of ePlus Software, a division of the Herndon, Va.-based solution provider ePlus Technology. "That opens up opportunities for our customers and for us to expand the presence of Cisco software and enterprise agreements to a broader range and broader audience."

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This comes shortly after Cisco, with lower-than-expected revenue projections, said it would cut 1,100 jobs as part of an expanded restructuring plan. Cisco CEO Chuck Robbins said during the company's earnings conference call that recurring revenue represented 31 percent of Cisco's total revenue, up from 29 percent one year ago, while software and subscriptions revenues grew 57 percent.

"When we think about the strategy that we're deploying, the 57 percent growth in the software and subscription business – if you go back eight quarters ago we had $2 billion on our balance sheet relative to software and subscription," Robbins said at the time. "Now we've more than doubled that to $4.4 billion, and the growth there is accelerating. We're very pleased with that transition."

Robbins said Cisco wants to drive more recurring revenue, and the new EAs address that strategic priority while attempting to simplify the process for partners.

"You can imagine a world where we have different contract terms across infrastructure, collaboration and security and the complexity that would cause – this model brings everything together in a simplified buying model with standardization within the contract terms," said Allen Boone, director of strategy & planning at Cisco's offer monetization office. "So there's one place where you can buy the enterprise infrastructure, collaboration, security suite that are all available on top of a single agreement that spans the entire portfolio."

Cisco has also lowered its minimum purchase requirement for an enterprise license agreement, enabling partners to potentially sell the new EA in the midmarket space, according to Jason Gallo, global director of partner sales business development for Cisco.

"That opens up some new white space customer opportunity for partners to have discussions with a broader set of customers around a single agreement that can meet their overall goals," said Gallo. "The lower minimum purchase size, it does change the nature of who can get involved -- it's not only enterprises is one way to say it."

"Cisco is getting serious about software," said a senior executive for a Cisco Gold partner, who did not want to be identified. "They are combining the licensing - security, collaboration and now infrastructure – into one EA. It's a move to grow the software subscription business aggressively. It makes them look and act more like a software company. Software companies have ELAs. Microsoft is a prime example. Cisco is more focused than ever on the software play. They are simplifying the EAs. They are making an organizational push around EAs."

The senior executive added: "I just hope Cisco isn't restrictive about who can sell the EA. If Cisco allows partners that are Cisco partners with specializations to sell the EA, it will be a better program than what Microsoft has."

Cisco said the new EA's are open and available to any certified partner who meets the specialization requirements needed. For example, to sell a Cisco ONE infrastructure EA, a partner must own either an Advanced Data Center Architecture Specialization or an Advanced Enterprise Networks Architecture Specialization.

Partners wanting to sell a collaboration EA must own an Advanced Collaboration Architecture Specialization, while partners need a Advanced Security Architecture Specialization to sell a cybersecurity EA.

Cisco told CRN that approximately one-third of all specialized partners are currently qualified to sell a Cisco EA based on the specialization requirements.

There are also some sub-specializations partner might need to obtain in order to sell a specific EA. For example, to offer the Customer Collaboration Suite, partners will need to be a certified Authorized Technology Provider (ATP). A partner is required to be a Cisco Contact Center APT to sell a contact center EA, as an example.

Solution providers can sell a single agreement for one suite or a combination of suites around collaboration, infrastructure and security.

The infrastructure suites include Cisco's flagship infrastructure and data center technologies delivered through Cisco ONE Software suites that include switching, wireless, WAN, data center networking, cloud and compute. New collaboration EA suites available include Cisco Enterprise Agreement Cisco Spark Flex Plan, WebEx on-premises, and other unified communications solutions. The cybersecurity EA suite includes solutions around email security, cloud and the web, policy and visibility, and "essentials" such as Cisco Advanced Malware Protection (AMP), to name a few.

By selling the new EA's, customers can now expand their Cisco investments in different technology segments without having to start a new contract. "That's true simplification from a licensing perspective," Farber said.

Another highlight from the new EA is what Cisco dubs "True Forward" provisioning, which includes 20 percent more licenses that customers can use towards unforeseen growth without purchasing more licenses. If the customer grows beyond the 20 percent allowance, they will not be billed retroactively for any overuse, according to Cisco.

"Our new EA is built to easily manage growth … This allows a customer who has purchased a certain number of units to go above that number of units and allow 20 percent more without any incremental charge," said Boone. "If the customer does go above 20 percent, we're not going back and doing retroactive charges on that deployment, but we'll only charge the customer going forward at their annual anniversary date."

ePlus' Farber said the True Forward capability is "innovative" and will "significantly" help customers with budget predictability.

"It builds in 20 percent growth, so annually you have a true forward versus a payback reconciliation methodology. It gives our customers flexibility in how their consuming and managing their entitlements for that software, and they get that extra cushion and budget predictability," said Farber.

Also included in the new EA's is a License Management Portal, an online license portal that allows customers to view what licenses have been purchased, deployed or are due for renewal. "That is a single-pane of glass for customers to understand their licenses positions," Cisco's Boone said.

Customers can add software suites to their Cisco EA contract as needed, and transfer licenses from their existing hardware to new hardware, according to Cisco.

"With Cisco looking to drive the majority of their revenue going forward with software and with security, they need to continue to have the good drag-through business of the switching and everything else that's going to connect that," said Michael Knight, president and CTO of Encore Technology Group, a Greenville, S.C.-based solution provider and Cisco Gold partner. "To continue to do that, they have to continue to integrate their security IP across their product sets.

"These EAs, with the license management portal and those types of tools, will enable the partner to do a full ecosystem sell to those customers. The long term value is it will be easier for us to manage and continue to keep those devices upgraded with the latest software from Cisco."

Cisco is encouraging all channel partners to contact their partner account manager immediately to get more details about how to sell the new Cisco Enterprise Agreement.

"There are a number of different license model Cisco has: perpetual, subscription, enterprise … but we think this new Enterprise Agreement is going to get broader adoption with our customers given that price point, that simplification and flexibility of its use," said Farber.