Spend Matters welcomes this guest post by Gregg Spivack, director of client services for NPI, a spend management consultancy, focused on eliminating overspending on IT, telecom and shipping.
Vendors are increasingly offering more comprehensive and deeply discounted unlimited license agreements (ULAs) to their customers. Many times, the purpose is to address significant growth of the customer’s business in a contractually and operationally simple way. But, that’s not the only reason. The ULA is a tried-and-true mechanism for expanding the breadth of offerings used by a client by bundling in product laggards (e.g. Cisco's Security ULA has exemplified this) or to get ahead of the competition by including new products where competition is heating up (e.g. VMware's ULA frequently pushes its vCloud Suite).
Given these motivations, evaluating the strength of your ULA pricing and terms can be a challenge. Vendors often include business-as-usual (BAU) comparisons when pitching the value of their ULAs, and enterprises need to take several considerations into account as they conduct cost-benefit analyses:
- Discount levels aren’t always based on reality. More often than not vendors will model out suboptimal scenarios that just don't reflect reality. For example, a customer buying $5 million in product/service outside of a ULA typically wouldn’t receive a standard discount – their discount level would be much higher. But many vendors use standard discount levels in the analysis that they provide – be on the lookout.
- And, neither are support costs. Similar to the standard discount issue above, vendors will often use support costs that are closer to list pricing than the reality of what a BAU outcome would be. Compound this over a few years and that ULA looks pretty enticing! However, the reality is most customers pay less than list price for support.
- ULAs aren’t for everyone and they don’t always equate to savings. Unlimited license usage can be a great thing for some businesses, but it’s difficult to accurately validate whether the discounts are worth the expenditure and commitment. As part of the decision process, Customers should define multiple license usage scenarios ranging from the most conservative to high growth, and use the vendor’s list pricing to model out the costs and discounts under all scenarios. This perspective allows you to draw conclusions about how your ULA will compare from a discount perspective under the various usage situations you defined, and will give you the data you need to drive effective vendor negotiations.
As noted earlier, ULAs can be favorable for many enterprise customers – just not for all. Regardless, customers need to sanity-check the cost models created by the vendor. In many cases, companies are able to use the vendor’s unfavorable assumptions to earn leverage during negotiations as they build a case for improved ULA pricing. Don’t let the “unlimited” nature of a ULA prohibit benchmarking and comparative analysis.