It used to be that buying models in the networking space were simple. You bought a piece of hardware, and that hardware came with a license to run the software for the life of the product. As we discussed in the Introduction to Software License Management, previously hardware value accounted for 90-95% of the product cost. The remaining 5-10% of cost applied to the software, so vendors were not concerned with tracking software usage.

But in today’s networking space, with the shift of value from hardware to software, most networking vendors provide you with a variety of software buying models to choose from. In this article we will explain the different buying models, their advantages and disadvantages, and most importantly, what common mistakes people make with each type. What you don’t know CAN hurt you.

Typical Buying Models

The software buying model you choose determines the terms and conditions of your entitlement rights with your vendor. While the following list may not cover every possible situation, it does cover the common options that you will find yourself presented with from a sales team.

Perpetual Purchasing

Perpetual Purchasing is the traditional approach that you are probably familiar with. You buy a physical piece of hardware (a router, switch, firewall, wireless device, etc.) and you also purchase a license with a perpetual term that is good for as long as you own that product. You replace the license whenever you replace the product, whether that is in 1 year or 10 years or more.

One pitfall that most people don’t realize is that if you ever resell the product this license does NOT transfer with the hardware, at least in most cases. Most vendors have very strict language that their software licenses are not transferrable between customers. [Examples: Juniper, Cisco, Dell] One of the biggest risks is faced by those who purchase second hand or resold networking gear which used this model. Even if the product appears to work correctly, you likely don’t have software entitlement usage rights and thus are at risk for an audit and fines.

The benefit of the Perpetual Purchasing buying model is that counting the number of licenses you have or need is usually as simple as counting your hardware assets, assuming standardized configurations.  However, if you don’t have fully standardized templates or make any changes after initial purchase, it is extremely easy to lose or waste licenses that could have further life elsewhere in your IT estate.  Your licenses which still have value get lost!

This buying model is becoming more and more rare these days and vendors are trending towards subscription-based models, described below.

Typical Mistake #1

In the Perpetual Purchasing buying model, if you buy secondhand gear it most likely is not licensed, exposing you to an audit risk.

Typical Mistake #2

In the Perpetual Purchasing buying model the software is usually directly tied to hardware and it is very easy to waste licenses in unneeded situations, such as in self-sparing, high availability, or by leaving unused licenses on hardware when the hardware is decommissioned.

Subscription Purchasing

Software-only products have been using time-based subscription buying models for years, but it has become more popular with hardware vendors over the past five years or so. For example, Cisco One was an attempt by Cisco to begin moving their Perpetual Purchasing models over to Subscription-based models. Subscriptions are typically time based on a 1 to 5 year range.  At first glance, this is simple: you buy a software product and you have the right to use that product for the defined period of time.

The timer on a subscription will usually start either upon purchase, a time offset from purchase (i.e. net 30 days), or upon first usage. You should pay special attention to which trigger begins the timer as you do not want to be purchasing 1-year licenses a year before you can actually deploy them.

Another consideration is that assuming you do not purchase or install everything at one time, you will end up with licenses expiring across a wide range of dates. Some vendors, like Meraki, have some innovative approaches for ending all subscriptions at the same time, called co-terming, but you must make sure you understand how the co-terming rules work.  Do your new purchases match your existing subscriptions?  Do your existing subscription renewal times get pushed out to meet your new purchases?

Generally this is a topic you have to pay a lot of attention to in order to fully understand what your subscription renewal timelines will be over time and align them to the renewal windows that make sense for you.

Typical Mistake #3

In the Subscription-based buying model, pay attention to the start date of the subscription to make sure you don’t waste the term before you can use the license.

Typical Mistake #4

In the Subscription-based buying model, keep good records of when your software subscriptions are due for renewal as there can be a constant stream of renewals throughout a year.

Enterprise License Agreements (ELA or EA)

In order to simplify license subscriptions, as well as lock you in, many vendors will allow you to bundle all your license subscriptions into an all-you-can-eat or large volume bundle. There is almost always a minimum buy-in to be able to purchase in this way. Typically, these models offer superior bundling discounts and simplify keeping track of subscription start and end dates, making them an attractive option to larger customers. What you have to watch out for, however, is that these deals tend to lead to behavior where license installers will consume far more licenses than they actually need because licenses appear free. Installers frequently forget that the total number of consumed licenses will increase the cost of the ELA renewal in a few years.

Typical Mistake #5

In the Enterprise License Agreement buying model, keep tight control of how your ELA licenses are consumed. It is very easy for consumption to get out of control, leaving you with a high price at renewal time.

Utility Purchasing

Utility, or post-paid, buying models work just like a typical utility service. Instead of paying for the software up front, the vendor uses a meter to keep track of software usage and you pay for how much of the service you used. This can be an incredibly flexible approach as it doesn’t require you to know or estimate what your software usage will be. You don’t end up with unused licenses sitting around doing nothing! This model can be particularly powerful in situations where you are building a service that is ramping up because it ties your software spend directly to the revenue you achieve from your service. This model is also more common in software-only solutions that operate on Virtual Machines and in new SD-WAN/SDN deployments.

What you must be careful of with the Utility buying model is keeping good data on your usage to minimize the chances of being hit by a nasty surprise at the end of the month. This model restricts predictability and turns what has typically been a captial (CAPEX) cost into an operational (OPEX) cost.

Typical Mistake #6

In the Utility buying model, you must keep close tabs on your software usage to prevent a surprisingly pricey bill.

Next Up

As this series continues, we will dig deeper into how licensing models and technologies can lead to situations where you get yourself into trouble by either buying too much or accidentally overusing.

Ben Strickland

Ben Strickland

Director of Strategy and Product Innovation at RAY • ALLEN INC
Ben Strickland is Director of Strategy and Product Innovation at RAY • ALLEN INC. Ben has driven Digital Transformation within the Software License Management space for major Telecommunications Vendors for the past seven years and is using that experience to educate others on best practices for the rapidly evolving world of Software Licensing.
Ben Strickland