One-year enterprise license agreements can offer a valuable alternative to longer-term, less flexible options.
Enterprise License Agreements (ELAs) bundle OEM services for a fixed period of time at a set cost. They replace individual licensing agreements that are purchased, activated, and maintained separately. With ELAs, organizations can rapidly deploy solutions and have immediate access to all of the vendor’s products and services.
Sounds good, right?
Like any business, OEMs are constantly looking for new revenue streams. Unfortunately, that usually can come from selling more licenses at higher prices, including splitting up ELAs and turning one solution into multiple services and then charging individual fees for each one.
And that’s just one of the potential issues with being locked into a long-term enterprise license agreement.
The usual ELA term varies in length and usually averages somewhere between three and five years. However, depending on your organization’s individual circumstances and business needs, there also can be a case made for shorter term, one-year ELAs.
But first, here are some considerations you need to be aware of when committing to a long-term ELA.
With a three-year ELA, you might miss out on access to the latest innovations and improvements if they are not included in the original agreement.
The Disadvantages of Long-Term ELAs
Three-year enterprise license agreements inherently come with some potential drawbacks that could hinder the expansion of your IT estate. These issues include:
- Limited flexibility. ELAs typically lock customers into a fixed set of terms, conditions, and pricing for the duration of the agreement. This lack of flexibility can become problematic if your needs change over time, or if your organization wants to explore new technologies or software solutions outside of the ELA’s scope.
- Cost and budgeting. While ELAs can provide cost predictability over the contract term, they often require significant upfront payments or involve higher overall expenditures compared to shorter-term agreements. Before committing, make sure to assess your budget and financial resources to ensure you can meet the financial obligations of a multiyear ELA.
- Evolving technology landscape. Technology is constantly changing, and software products are regularly updated with new features and functionalities. With a three-year ELA, you might miss out on access to the latest innovations and improvements if they are not included in the original agreement.
- Vendor Lock-In. Long-term ELAs can lead to vendor lock-in, making it challenging to switch to alternative solutions or different vendors during the contract term. This lack of flexibility can limit your ability to respond to changing market conditions or business requirements.
- Changing business needs. Organizations are dynamic and experience shifts in their priorities, expansions, contractions, or mergers. A three-year ELA might not align well with rapidly changing business needs, potentially leading to unused or underutilized software licenses.
- Customer support. While ELAs often include software support services, the quality and responsiveness of this support might vary over the course of the agreement. Consider the level of support you will receive and ensure it aligns with your expectations and critical business needs.
- Renewal challenges. As an ELA’s expiration date approaches, you might face challenges negotiating new terms or transitioning to a different licensing model. This process can be time-consuming and complex.
Looking for more adaptability
Instead of committing for three or even five years, another option is a one-year ELA, which provides more flexibility. This shorter-term ELA also deleverages the OEM and offers more latitude if you want to do reductions in the future.
Honestly, it’s rare that anyone ever realizes the ROI value of a three-year ELA. Most organizations simply don’t use all of the software solutions that come bundled together.
When making the decision between a long-term ELA and a one-year ELA, it’s crucial to evaluate your entire estate and ensure you have the most up-to-date information available to you. Here are some sample questions to ask yourself.
- Why do I need this technology?
- What does it do?
- Have we used it in the past two years?
- Will we really need these products for all three years?
Before entering into a three-year ELA or any long-term agreement, it’s important to thoroughly assess your business requirements and evaluate various support options. Having a clear understanding of your software usage patterns, maintenance needs, and future business strategies will help make an informed decision regarding which enterprise license agreement term will best benefit your organization and align more fully with your long-term IT roadmap goals.