Can the enterprise agreement keep pace with innovation?
There was a time when the Enterprise Agreement (EA) was a straightforward go-to-market strategy, although it was mainly the preserve of the few big software companies – Microsoft, Oracle, IBM – who sold big, standardised packages to large enterprises. Mainly measured by volume, the cost benefits were the main attraction.
Almost every aspect of the landscape which originally shaped the volume-based EA, making this form of software licensing possible, has now changed and question remains about how the EA will drive value into the future.
Long-term economic constraints have put pressure on organisations to re-evaluate their IT spend. Under this spotlight, the traditional EA model, although marketed on price, rarely stands up to scrutiny. Estimates vary but the average business utilises only around 35 to 38 per cent of the software they pay for within an EA. The balance of that becomes shelfware. It’s now pretty widely accepted that the EA has to continue its move away from this volume-based, transactional selling.
The model has simultaneously had to respond to the rise of utility computing (which is greatly aided by the mainstream adoption of cloud-based services). Gartner has been talking about the demise of the traditional EA for a while: back in 2015 they were predicting that by 2020, more than 80 percent of software vendors will shift from traditional license and maintenance to subscription.
It’s not just software providers, but even hardware vendors are embracing this subscription-based model of enterprise licensing. Far from being in freefalling decline the reality is that the percentage of enterprise technology budget which is invested through the EA model is on the up. But has the model changed enough to offer strategic value whilst keeping pace with the speed of innovation? The answer depends on how a business views their EA.
The EA model has always had to justify what happens when software and hardware purchases don’t line up. But when the license model was first introduced, technology simply did not change as fast. The risk of making an infrastructure investment which could become outdated – particularly if misaligned software and hardware purchases caused interoperability to be lost – was therefore less pronounced than it is today, and customers were more content to shoulder the burden of this risk. Still, businesses could quickly become stuck in a product-by-product purchasing model, leading to confusion – and unused licences.
It has at the very least always been in a vendor’s interests to ensure that customers are making use of the most up to date versions of their software, ensuring the best user experience and likelihood of renewal. The move towards consumption-based pricing has certainly incentivised vendors to ensure that their technology is widely adopted and remains operable. But areas such as Internet of Things projects and cyber security defences require a level of interoperability, alongside a pace of innovation, simply not required of the enterprise software packaged in original EAs.
In this context, businesses must start to reimagine the strategic role that EAs can play in accelerating innovation within their enterprise. Despite the fundamental shift away from volume or time-based licensing and towards utility, many businesses still view the EA merely as a pricing tool. This misses the fundamental role that the EA can now play in streamlining the relationship between a technology provider and their customers, accelerating the speed of innovation in crucial areas such as security. Sadly, for as long as the purchasing decisions surrounding EAs are motivated merely by cost, the full potential to support innovation within a business may not be realised.
Until the management of EAs shifts from a practice of managing license compliance towards measuring and driving consumption of provisioned services, companies will not be able to take advantage of the speed with which innovative technologies can change their business. Some might mistake the shift towards subscription models as a reason to give up on lab and adoption services. In fact, combining an EA with a customised adoption program is a way to create a more nimble IT function that can more easily meet the demands of end users and business owners.
The utility model is inherent in most of the new technologies being brought to market today: having some sort of cloud-based or Software-as-a-Service model built in is pretty much a prerequisite to even get to market. The EA has accordingly undergone a shift towards subscription, retaining core benefits of simplicity and value, whilst reducing the burden of risk on customers as innovation gathers pace. But businesses must not see the shift towards SaaS as a measure to eliminate need for an ongoing adoption function. But it is with the combined power of an EA’s simplicity and the strategic role of lab adoption services that the true potential of the EA to drive accelerated change is possible.