Consumer and business use of SaaS offerings versus traditional on-premise software is taking off, but how far along in this transition is the traditional network where software is still often delivered embedded on devices and sold as a perpetual license?
In 5 software licensing challenges in the next generation network , it was noted the important role that licensing models would have in the transition to the software defined network. But there’s a deeper linkage between the growing demand for SaaS applications, cloud technology evolution and new software-defined Wide Area Network solutions. What does that linkage mean for the licensing technologies that will drive monetization for the new software defined network?
Let’s start with the Q3 Forrester Wave report “Recurring Customer And Billing Management,” which speaks broadly to the accelerating trend of consumers and businesses using Software as a Service (SaaS) offerings via the cloud versus traditional on-premises software. The author states that as this takes place, software vendors invariably migrate to subscription, or usage-based monetization models. The report goes on to reference a Forrester 2017 SaaS adoption report that finds “in 2017, we expect software-as-a-service (SaaS) spend in particular to be more than 1.5 times that of license software.”
Network software subscriptions: growing fast, but a long way to go
First, let’s be clear, network software subscription spending is growing fast, but there’s a long way to go. In its Q1FY18 financial results released last week, Cisco reported that deferred software and subscription offers revenue grew 37% year over year, but overall recurring revenue is still only 32% of total quarterly revenues. While this strong software growth indicates a transition taking hold, it’s unlikely that spending on network services as subscription or SaaS will exceed on-premise perpetual software embedded on network devices anytime soon.
But the handwriting is on the wall is clear – the network is evolving toward cloud, SaaS and the subscription business model. Networking software is being delayered from the hardware it runs on and sold as a subscription. All but one of Cisco’s last 17 acquisitions have been software-centric and cloud-ready. And software-defined WAN (SD-WAN), one of the hottest technology solution trends in networking today, is cloud-centric and driven in large part by business demand for fast, secure and reliable SaaS application access over lower cost Internet connections. SD-WAN solutions are typically delivered as a service with a term subscription contract and software license agreements.
SaaS application access, SD-WAN and the licensing implications
OK, we know that Cloud and SaaS is growing fast, and is the clear direction for the next generation network. What role will software licensing play in the network transformation?
Remember, licensing is a key monetization driver for software and within the context of a term-based subscription contract will determine how much a vendor can charge and how much a customer will pay for on-premise software or SaaS delivered via the cloud.
Got your attention now? Good – to illustrate licensing’s role, let’s take a closer look at a generic SD WAN architecture providing access to SaaS applications in the Cloud.
Enterprise SaaS application access via cloud and SD-WAN
Let’s assume a large enterprise use case with hundreds of branches or stores and employees or clients in those remote locations who have a need to access cloud-based SaaS applications regularly. The enterprise does not want to pay the transport and response time cost to backhaul this SaaS application access across its private circuits, preferring to use lower cost Internet connections. A service provider proposes to meet this need with a cloud-based solution providing containerized virtual network services in conjunction with SD WAN that can be flexibly deployed, self-provisioned and managed centrally in the cloud. With this solution the enterprise gets fast, reliable and lower cost access to SaaS applications via the Internet, and the service provider is able to deliver new high value-add services that drive incremental recurring revenue. It’s a win-win outcome which is why Cloud, IaaS (Infrastructure as a Service), SaaS and SD WAN are all experiencing rapid growth.
Licensing technology evolution
While this solution delivers compelling benefits, there are some operational challenges. Licensing often doesn’t come up in solution discussions, but there are some important considerations. The dynamic, self-provisioned and automated stand-up and tear-down of virtual multi-tenant network services in the Service Provider Cloud will require the flexibility and speed of newer pooled and call-home licensing technologies. With new license technologies like Cisco Smart Licensing, licensed products can be activated and entitlements redeployed without handling special software keys or upgrade license files. Telemetry for consumption and usage metering is provided for use-based, or Utility billing models. Classic node-locked, perpetual licensing will not meet the requirements of this new virtualized cloud environment. These considerations apply to cloud-based SD WAN as well. Service providers, network vendors and their customers will need the capabilities enabled by new licensing technologies to deliver on the promise of the intelligent, cloud-based and software-defined network and fully realize the benefits outlined in the example above. Customers will need to manage new pooled license entitlements in the cloud while they continue to manage legacy node-locked perpetual licenses still prevalent in their on-premise networks.