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Weighing the pros and cons of enterprise network subscriptions

A centralized repository of network licenses can help enterprises visualize their IT assets and manage their purchases. But higher costs and amortization issues lurk.

As more vendors move toward a subscription-based business model, the transition will affect the purchasing and management of IT assets. Cisco, for instance, moved from product-specific product activation keys to its new Smart Account system, which features fungible licenses that are more easily pooled and deployed by customers without engaging Cisco.

These changes enable self-service IT, but do they ultimately favor the customer or the vendor?

Network subscription models have many advantages, including:

  • Better visibility of assets. Instead of dealing with licenses that are deployed throughout a company, a single repository enables customers to better visualize what they have, what is deployed and, most importantly, what is not deployed.
  • Less overlap across departments. A Cisco Smart Account, for instance, creates a hierarchy that lets IT see what is used and where. The needs of one department can be put into the model, enabling IT to maximize their assets and prevent overlapping purchases that result in extra capital tied up in overlapping roles.
  • Easier to deploy. By enabling a company to visualize and manage its network subscription models, IT can deploy assets more quickly. The old product activation key process for Cisco was onerous: The product was bought, the PAK was emailed to the contact, the contact had to authorize the PAK with the hardware ID and then the contact received the license code. This added delay to the process, as well as confusion in less centralized companies. Now, IT can pull from a pool of licenses to enable new devices, significantly reducing the time and effort to deploy.

But it's not all clear blue skies for network subscription models. Some disadvantages lurk as well:

The expectation is any change to the licensing model will ultimately result in more revenue for the vendor.
  • A subscription model will always cost more. Don't believe the vendor hype about cost savings. You probably don't hear this often: "Wow, Vendor X changed its licensing model, and I'm really saving now." The expectation is any change to the licensing model will ultimately result in more revenue for the vendor. Perhaps customers can reap a short-term gain. For example, maybe a company will save in operational costs, but those soft operational costs will eventually be offset by hard software costs down the road.
  • Management costs are not necessarily reduced. The idea of centralizing licenses sounds appealing, but that primarily benefits centralized environments where IT already has some control over equipment purchases and deployments. In a decentralized organization, this license setup adds an extra level of management that can complicate procurement and deployment processes. Again, some of this is simply shifting the operational cost, not necessarily reducing costs in many cases.
  • Long-run amortization is affected. Not all customers buy and depreciate network services at the same rate, and the replacement rate may vary by product type. Yearly network subscriptions are optimized the same way car leases are optimized: Provided that buying and amortizing occur at the exact same rate as the subscription, the model is probably fine. Shorter or longer needs may result in a less optimal financial outcome. Some customers like to buy new technology and "waterfall" the last generation downstream because the assets are fully depreciated, due to their one-time activation fee; these essentially became free to use elsewhere. This is no longer a cost-effective option.
  • Legacy equipment support. Most network subscription programs are designed around the latest generations of products. Cisco, for instance, can pull many of its older PAK-based licenses into its new Smart Account management system, but not all products can make the transition. This leaves customers with a halfway solution until the last of the old products is discontinued and all the infrastructure is managed via the Smart Account. Ultimately, this challenge will sort itself out over time, but it is a consideration based on the vintage of a company's IT assets.

Pay attention to cost models

If a vendor decides to make the change [to a subscription model], customers must either embrace that model or find a different vendor.

Is a subscription model right for a business? It depends on how a company purchases and deploys services, how decentralized a company is and how long it holds assets beyond their full depreciation.

But none of this may matter in many cases because a vendor's change from a device-specific license to a subscription model may override any customer needs. If a vendor decides to make the change, customers must either embrace that model or find a different vendor.

For businesses facing this potential change, review the economic models, especially in relation to amortization and end of life of the products. Beware any potential soft cost advantages -- like management costs -- that come from a vendor as these are typically genericized across a variety of best-case scenarios. Make no mistake: Vendors are moving toward a subscription-centric world, so it's best to proactively understand the effect on your business.

Next Steps

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