What is a VMware Enterprise License Agreement?
VMware Enterprise License Agreement ("ELA") enables customers to license VMware components as a single agreement, which includes servers, desktops, and cloud-based services (e.g., vCloud service and vSphere hosted services). An ELA allows VMware customers to purchase virtual infrastructure software, maintenance, and service by committing to a larger footprint over a longer term and, in return, receive significantly discounted pricing compared to purchasing licenses separately at a lower commitment level over a shorter period of time .
Most ELAs allow the customer to freely expand the footprint of the overall agreement up to the number of licenses authorized, and the customer can add or delete specific products as usages change, as long as the total storage capacity is not exceeded. VMware has two ELAs available: the ELA Enterprise (multiple platforms) and the ELA Desktop & Mobility.
In order to register for an ELA, the customer must currently use certain VMware component software, hire a VMware license advisor to help verify license compliance, and accept the price quote, order confirmation, and licensing end-user terms provided by VMware.
Key Benefits of VMware ELA
One of the main reasons or advantages for entering into a VMware ELA is cost savings. Companies can benefit substantially when the cost of licensing VMware products grows to a point where it may become more economical to purchase a VMware ELA instead of purchasing the licenses individually. The exact point and the advantage for an organization in transitioning to a VMware ELA will depend on its licensing needs. However, if an organization spends about $100,000 per year (or more), then a VMware ELA may be a smart move. There are many different options for a VMware ELA, so an organization is likely to find one or more types of VMware ELAs that would be favorable over individual purchases.
Another reason for transitioning to a VMware ELA is the flexibility that it provides. With a VMware ELA, an organization does not need to try to guess or predict what products it will need in the next three years (the duration of the ELA). In particular, a VMware Enterprise License Agreement or ELA, allows for maximum flexibility when it comes to purchasing licenses for different VMware products. The ELA includes many of the VMware products and VMware gives an organization the unique ability to purchase licenses for all the different products that are included in the VMware ELA. So, if your organization needs a new VMware product now, it can purchase it. However, if the need for additional products arises in the future it can purchase the licenses then as well. The other license-based deals that are offered by VMware tend to have expiration periods or per product use.
Another reason or possible benefit for entering into a VMware ELA is to potentially save your organization money when it purchases and acquires VMware virtualization infrastructure products over the next three years. However, this will largely depend on how many licenses and specific products your organization will need. In general, when compared to the traditional licensing model, there may be savings for an organization that spends a significant amount of money on VMware licenses if it enters into a VMware ELA. In addition, an ELA often reduces the total cost of ownership and may have lower maintenance fees than traditional individual licensing.
Understanding the Components of a VMware ELA
A VMware Enterprise License Agreement consists of several key components that determine the scope and extent of VMware’s licenses granted to its end-user licensee. First and foremost, VMware’s Enterprise License Agreement is like a volume license agreement that its licenses are quid pro quo: license keys for use of products are granted only if proper "core counts" are met and fees paid to VMware.
But those traditional terms are not the only things to consider. Today, VMware’s ELAs are generally six to 24 month subscription licenses for an unlimited number of serially numbered ESXi servers (such as a 3, 6, 12 or 24 month subscription license). VMware’s license keys cover unlimited use of certain products (VMware hypervisors, vSAN and other products that VMware may own) and license keys for limited use of certain other products (such as NSX and/or vCloud Management, which each require vCenter Server). The reason VMware has unlimited cores license keys for vCenter Server is that vCenter Server must be installed on each ESXi server to get around the 32 core limitation on ESXi. VMware gets around the 32 core limitation by granting its licensee unlimited use of vCenter Server for "one to one" mapping of vCenter Server to ESXi servers. In practice, VMware’s license is somewhat ambiguous and may also allow for "one to many" mapping of vCenter Server to ESXi Servers.
VMware’s ELA usually has a limited number of support entitlements. There also are important exclusions in the ELA that apply to all products, such as VMware’s limitations on liability, support policy and restricted numbers scheme.
Another area that requires careful consideration are the annual "true-up" and reconciliation provisions. For example, the ELA requires annual reconciliations to confirm whether your organization has exceeded its license aggregates. If it has, VMware will charge its licensee a "true-up" fee for the excess and to put a "core count" in place.
One of the common questions is whether the effective price of VMware’s software has increased with the Enterprise License Amendments. The answer to that question is that it depends. If the cost of VMware’s software is over the cost of the ELA’s enterprise subscription, the cost of VMware’s Software has decreased (but this probably is a sign that you need to true-up your VMware license counts). But if your system integrator is leveraging your ELA to drive the "effective price" down an amount more than the annual license subscription for VMware’s software, it is driving the effective sticker price for VMware software "up". Whatever the case, be cautious. Most ELAs are silent regarding how the "effective price" review is to be done.
Steps to Negotiating a VMware ELA
Negotiating an Enterprise License Agreement with VMware is generally similar to the negotiation process with any other software publisher. However, an evaluation for volume licensing requires different considerations to fully understand whether you are maximizing your savings.
VMware’s ELA is a standard multi-year agreement. Most terms and conditions are non-negotiable. The primary focus for most negotiations is the commercial terms that include pricing, payment terms, training credits, and support options.
Understanding VMware’s Licensing Models
In order to understand the value of an ELA, it is crucial to know the various VMware licensing models and how each license is intended to function within your environment.
The key VMware licensing models fall into three categories:
Perpetual Licensing Model
Subscription Licensing Model
VMware Cloud Provider Licensing Model
VMware maintains a license entitlements page that automatically updates as you progress through the contract process. Once you have completed all steps and the purchase order has been processed, the licenses become active and can be downloaded. Even though VMware does not enforce compliance, it is important to obtain the appropriate licenses based on your usage. Only the VMware Cloud Providers are obligated to provide monthly reports to VMware, as this is a part of their licensing agreement.
VMware Entitlement and Usage Reporting
For each purchase, VMware creates a corresponding account for entitlement and software downloads.
Your current licensing and entitlements can be viewed on this VMware page. Depending on the type of licensing agreement you have, each of these licenses will breakdown both the quantity of licenses for a component, which include the associated licensing model. Entitlements will detail the amount of licenses remaining.
For a high-level view of license usage, the VMware vRealize Operations Manager will show you exactly which entitlements are being consumed across all your datacenters.
Within vRealize, a license consumption alert can be set for notification if a license is getting close to its maximum use.
VMware Procurement Tips
Contract Skillful Negotiators – As a cloud-native software company, VMware does not have direct sales staff. Contracts/final agreements will be created by one of their VMware Partners. If the VMware Partner does not have significant experience in working with VMware contracts, you may not be receiving the ideal terms for your organization. For complex negotiations, it is always best to create two separate hardcore negotiations:
Accurate Licensing Information Ensures Compliance – Most cloud-native companies do not understand the full breadth of what they are entitled to use within a VMware license. When negotiating a VMware ELA, it is important to be aware of all entitlements, including subscriptions, vouchers, and upgrade licenses. All VMware licensing follows a voucher-based system. by requesting the following information you will have clear understanding of what is included in the agreement.
SOW – The Scope of Work (SOW) describes the deliverables and the exact terms surrounding them. It contains a detailed description of the consistency of deliverables, starting and stopping dates, testing and acceptance procedures, and conditions that must occur or be met before payment is due. An accurate description of the SOW is the best way to avoid any disputes with the integrator once the project has begun and money has been spent.
Training Vouchers – Most agreements have built-in training vouchers to help offset the total cost associated with deploying a new VMware solution. Organizations should take full advantage of these vouchers or ask to have additional vouchers for free training during negotiations to help offset the costs of implementation and training for your implementation team.
Microsoft Licensing Value Pillars
Leveraging these three value pillars will keep you up to speed with continuous Microsoft product innovation. Your enterprise license agreement with VMware is no different than your agreement with Microsoft. VMware licensing is just as complex as Microsoft licensing, and having an expert at your side will help your organization avoid penalties associated with compliance.
VMware proposes the software categories offered through VMware ELAs, and the remaining three tiers are implemented through Software Partner (SP) or IT Resellers/VSPP.
Knowing the differences between the various types of VMware Cloud Providers will help you maximize your savings when negotiating your next VMware ELA.
Common Challenges with VMware ELA
As with any complex licensing contract, there can be a fair number of issues that can come about either during the term of the VMware ELA or at the time of renewal. A few of the common challenges are:
Software Compliance
Although VMware ELAs typically consolidate many of the VMware licenses into a convenient cloud-based application, there can still be compliance issues when additional products are added and it is not clear whether those licenses are a part of the ELA or not. The optional a la carte licenses for VMware products are typically scoped out in the agreement although there could be some ambiguity as to whether these optional licenses are on an a la carte basis or if they could be added through the ELA order process.
The best way to avoid any software compliance issues is to do a detailed review of the transaction documents based on the VMware ELA prior to adding any additional licenses. In addition, a company should always perform a true-up within 90 days prior to the anniversary date to adjust the software licenses purchased under the ELA.
Contract Flexibility
In today’s business technology world, flexibility is key. A company may want to incorporate new technologies or consolidate different platforms into the VMware ELA , but oftentimes these technologies are not available at the time of the renewal or the ELA contract term. This can make it difficult to bundled these technologies into the ELA since VMware may not offer new versions of these technologies for a one-year term.
The VMware ELA does have a flexible language that allows a company to add-on new technologies to the VMware ELA, but the flexibility should be reviewed with VMware or a VMware licensing professional to ensure that the new technology fits within the scope of the existing agreement, and what the pro-rata charges will be using the annualized perpetual license costs.
Renewal Negotiations
The VMware ELA is not the easiest agreement to negotiate. The software license and cloud service offering can change fairly regularly. For those companies that are handling the ELA on their own, this can prove challenging to handle the negotiations in parallel.
To make the renewal process easier, a company should plan on beginning its renewal process at least 90 days in advance of the anniversary date, and no less than 180 days in advance of the anniversary date. In addition, if possible to prevent any last-minute negotiations, a company should work with its VMware specialist to re-evaluate the contract four to six months prior to the anniversary date to understand if there are any changes to the licensing program that might affect VMware ELA.
Case Studies: Success Stories with VMware ELA
Understanding VMware Enterprise License Agreement (ELA): A Comprehensive Guide
In the years since its introduction, VMware ELA has helped numerous organizations address their virtualization needs, streamline their operations, and align their long-term strategies. Some successful case studies illustrate how VMware ELA can drive value.
An Emerging Cloud Provider
A startup cloud provider was in need of scaling. The provider had a few customers running most of their workloads in a mix of virtual machines (VM) on VMware ESXi hosts, a large part of the services based in AWS, and some services based on Hyper-V. As the provider was adding new customers, they needed to figure out how to scale while keeping overhead and licensing costs in check. This would help them compete with other providers in a consolidating market.
The solution the provider implemented was taking a hybrid approach by leveraging the VMware Cloud Provider Program. The offer includes features such as VMWare Cloud Foundation, VMware vCloud, VM Instance licensing and storage, and services.
The provider was able to reduce overhead costs in the first year while adding eight new customers to their portfolio. Their growth plan for the next two years utilizes the same basis of an annual 30% increase in licensing revenues. New revenue sources include private cloud services, safeguards for untrusted workloads, and workloads that violate compliance. This enables centurylink to effectively manage VMware licensing while adding value to the cloud offering. Because the provider uses the single-medium license, they have considered adding public cloud partners such as AWS and Azure, which could aid in expanding their service offerings.
A Global CPG Business
A global consumer packaged goods (CPG) business was. Today, the business operates in major markets. The centralization of IT infrastructure and services was meant to support their global growth strategy. They needed a way to consolidate and standardize the licensing and maintenance of their VMware products. This standardization in turn reduced hardware and VM sprawl, ultimately driving down their costs.
The solution the CPG implemented was the VMware ELA. The CPG set up standards around the number of users, sites, data center and infrastructure required for support. This accounted for all services from their many vendors.
The CPG reviewed its license status and discovered that it was out of compliance largely due to unmanaged sites. Once that was addressed, the IT team had to establish common service standards to ensure that it only offered systems and software that met the new norms. Over the life of the agreement, the CPG plans to reduce its licensing costs by 30%. Standardizing and consolidating pricing lists is expected to reduce savings even further and reduce overhead.
Future Trends in VMware ELAs
As technology continues to advance at an exponential rate, software licensing models and agreements must also follow suit. The evolution of VMware’s ELA agreements closely mirrors this notion. Looking toward the future, companies should prepare for the next phase of virtualization software licensing.
One trend we have noticed is the increasing need for a robust virtualization ecosystem. VMware has recognized that its core virtualization products are being increasingly outstripped by other virtualization-related products. VMware’s revenue now comes from solutions that are not virtualization-centric. In fact, VMware announced earlier this year that it derives half of its total annual revenue ($6.87 billion) from its cloud management and virtualization infrastructure products. Product sales comprise only one-third of VMware’s total revenue. Licensing of products such as NSX, vRealize Operations, vRealize Network Insight, vRealize Business, and vCloud Suite are all increasing. These products are part of an ecosystem of future virtualization software.
Another trend we anticipate is the continued development and prominence of subscription-based licensing. For so long, VMware relied on perpetual licensing. Perpetual licensing creates a greater burden on those acquiring the license. Purchasers must find the funding for the software license upfront and acquire a perpetual license, even if the purchaser is uncertain whether and how it will use the software in the future. Unlike perpetual licenses , subscription licenses provide flexibility.
Another potential trend is VMware focusing on differently sized businesses. VMware has a robust portfolio of products to accommodate larger enterprises. But smaller or mid-sized companies may not be able to afford an enterprise-level investment in a VMware ELA. VMware may find this segmentation suboptimal, so it might offer different versions of future ELAs that are focused on different tiered levels of enterprise. VMware could explore a (or perhaps several) "small" and "mid-sized" versions of the ELA that are priced for those business segments.
VMware has also recently begun emphasizing its services and professional services as a revenue center. VMware recently integrated its consulting and professional services business unit into the Global Support Services organization to combine customer experience and service delivery and strengthen customer support. VMware may decide over time to continue to merge and streamline these two lines of business, and doing so may have consequences on how ELAs are structured over time.
Another potential trend is VMware realizing that its revenue objectives are being compromised by the shift to subscription licensing. VMware may need to increase VMware product and service costs in order to continue to achieve growth goals. VMware may therefore proactively raise prices on VMware products and services.