Now that web and video conferencing have gone mainstream to the point that my kids can access tools that put enterprise solutions to shame (and drive up my wireless bill), talk of innovation in the enterprise space has centered around collaboration to allow users to integrate these various individual tools. This trend makes it harder and harder for service providers to differentiate themselves based solely on claims of superior functionality.
One of the “innovations” from Cisco of late appears to be a greater focus on pushing what it calls the Active User “consumption model” (really, just another pricing scheme to go along with its myriad license types) that can allow enterprise users to dramatically reduce costs during the first year – but at the risk of often unnecessary cost increases during subsequent years.
Under the Cisco plan, all knowledge workers in the organization receive a WebEx Meeting Center or Enterprise Edition license, but during the first year of the term the customer only pays for 15% of the user population. For subsequent years, the commitment would increase to cover the average of all users that hosted a web conference during the final three months of the prior contract year. (The commitment can never decrease as a result of the annual true-up.) Therefore, an enterprise with 10,000 knowledge workers would only pay for 1500 licenses during the first year, with the commitment reset to accommodate all user requirements going forward.
Sounds like a great deal, particularly if a large portion of the organization requires such a service. But as with everything this time of year, a devil lurks (in the details).
The first issue is that Active User pricing is typically 2X – 3X higher than standard Named Host pricing, which both negates some of the first-year savings and dramatically increases costs in subsequent years. Total cost over a three-year term typically exceeds that which could have been obtained by originally negotiating a market-based rate for the Named Host model.
Additionally, deploying web conferencing throughout an entire organization tends to increase the adoption rate (which is surely the goal of Cisco) even when much of that adoption comes from casual users who may have better (or at least more cost-effective) options. Microsoft’s launch of Skype for Business (which replaced Lync) earlier this year is making IT and Procurement organizations more closely examine the value proposition from traditional conferencing providers. We’ve already seen a precipitous drop in market rates for web conferencing services year-over-year driven, in no small part, by the competitive threat posed by Skype for Business.
While the allure of first-year savings may cause enterprise IT teams to begin planning to spend, understanding and justifying the dramatic long-term cost increases that will come is imperative. An even better practice would be to undertake a critical up-front evaluation of the various “consumption models” to determine if Active User is the right fit. In some instances, it may be. But in most cases Cisco may make off with the candy while customers are left holding the bag.
About the author
Brad is an expert in global network transformation engagements, contract negotiations and RFPs for both wireline and wireless services for key client organizations. His background includes experience in the carrier space and international business.