What You Need to Know Before Signing a TLA With Dell EMC
Updated: May 21, 2020
Storage is the closest thing to a commodity in the technology marketplace, yet more than 70% of deals we observe lack viable alternatives. Theoretically, it should be harder for suppliers to lock in customers and grow revenue in a commodity market, so why don’t deal makers shop around to get the best price possible?
Over the past few years, vendors have adapted to maintain profit margins and transform customer environments to capture more revenue. Differentiation is the best way to break free of the commodity label, and storage providers have focused on software as a main differentiator. With the coupling of software and storage, we’ve witnessed the rise of the enterprise-style agreement, which essentially prevents the customer from seeking alternatives. We examined the pros and cons of Dell EMC’s Transformational License Agreement (TLA) below.
What is the difference between the TLA and a standard purchasing agreement?
TLAs cover Dell EMC software purchases for a given environment (tier 1, tier 2, backup, data protection, etc.) Hardware must be purchased separately in what EMC calls “HW Only” quotes
TLAs typically span 3-5 years, and often build in growth for software licenses
The “Transformational” part of the agreement refers to your ability to swap purchased software licenses for different software titles
TLAs Include pricing for software maintenance
TLAs allow Dell EMC to recognize 2+ years of software sales at the time of sale, which helps the vendor achieve Wall Street projections
What makes the TLA an attractive option?
People opt for the TLA because they want the consolidation, and believe the agreement requires less oversight. You may have your own business reasons for having a TLA in place, such as:
Investment protection: the ability to transfer software licenses when it comes time to refresh hardware (contingent on having an accurate demand model/understanding of future needs)
Accounting purposes: the ability to shift capital spending to operational spending (most common among clients in the utility industry)
Predictable software costs for 3-5 years
Before signing a TLA, we caution clients to take the following steps to mitigate risk:
Thoroughly understand your current and future demand for specific software titles, otherwise, the vendor will supply a (bundled and inflated) demand model for you
Ask for transparency in the agreement including software unit costs so you can determine if the deal is competitive with other options
Know that the standard terms of a TLA agreement prevent you from using third party maintenance, which can be 50% cheaper than OEM maintenance
Request unit overage costs per software title or you will run the risk of noncompliance findings at audit time
Be aware that Dell EMC may be authorized to audit you up to 2 years after the agreement has ended
Know that a term agreement (vs. perpetual) can force you to re-buy licenses at the end of the term (you will likely need certain licenses for a longer period than the length of the agreement, for components such as backup software)
Because hardware and software deals are on different sequences, the TLA can create artificial deadlines and renewal discontinuity (you will have to negotiate with EMC earlier and more frequently than you may be prepared to)
We urge clients to remember that the TLA hinders the ability to effectively compete out software, maintenance, and hardware renewals. In other words, it will limit your options, which are essential to creating leverage, and leverage is the cornerstone of every good deal.
To learn more about building leverage, contact your ClearEdge representative.
Scott Braverman is an Analyst at ClearEdge Partners.