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."
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."