If you are one of Adobe’s highly valuable enterprise customers, it is my expectation that your Adobe Account Executive has started to push a migration to Adobe’s Enterprise Term License Agreement (ETLA). Mark Garrett, EVP and CFO of Adobe, made it very clear during Adobe’s recent Q1 earnings call that this will be a focus for Adobe’s sales team in Q2 and throughout 2013.
Quite simply, an ETLA represents Adobe’s contractual means to move all of their enterprise customers to a subscription-based licensing model. The writing should have been on the wall (and it was at UpperEdge) that Adobe was going to push their enterprise customers in this direction after Adobe introduced the subscription-only offering Creative Cloud to the consumer market last year.
This move to a subscription-based licensing model is very similar to the approach taken by many large IT vendors (SAP, Microsoft, CA Technologies…to name a few). It should not come as any surprise given the strong likelihood that such contractual arrangements will create vendor lock-in and allow for such IT vendors to capture from you and your organization lucrative recurring revenue streams (i.e. high attach rates).
Adobe’s move to the ETLA has effectively removed the traditional ELA that Adobe had in place with the majority of their enterprise customers. Under the traditional ELA model, an organization had the choice to terminate their relationship with Adobe or chose not to renew and walk away with perpetual rights in the products being utilized and those that have been paid for up until termination of the relationship. Under an ETLA, you still have a choice to terminate (or not renew) but you walk away with nothing. There are no license rights in perpetuity. If you want to keep using Adobe and the products that your enterprise has become “tied” to, then you really have no choice but to renew another three-year commitment with annual payment obligations. Even if you don’t need and/or want any of the latest updates that come with such subscription. An ETLA and the price associated with it include Maintenance and Support (“M&S”).
Given this push, you may be left asking yourself, what can we do?
As we have covered in numerous prior blogs regarding subscription based and/or cloud agreements, it is important to ensure you negotiate key elements into your contractual documentation with Adobe. In addition, it is critical that you take time to carefully evaluate and understand whether or not you actually need all of the products that you are signing up for as part of your subscription. For instance, if Creative Cloud Enterprise is being considered and could potentially become part of your ETLA (Adobe may present this as a Creative Suite ETLA or Creative Cloud ETLA) then it will be important to ascertain how much value (i.e., likelihood of utilization) your organization may receive from some of the products included as part of Creative Cloud Enterprise (that you are paying for starting day one), products like Fireworks and Audition. If you determine that there are products that you will not need (perhaps ever), then it will be important (as part of your negotiation) to raise this to Adobe with the expectation that they offset your concerns with either a deeper upfront discount or scaled pricing (or a combination of both) where your annual payments align with your increased utilization.
In other words, with scaled pricing you would receive additional deeper discounting in year one than in year three because you are not utilizing particular products until year three. If you can present to Adobe a ramped utilization of the products you are forced to purchase under their offering (i.e. part of a large product suite like Creative Cloud Enterprise) or even a likelihood that there will be no utilization during the forthcoming subscription term, it will be hard for Adobe to justify the associated cost with the offering they are selling you. If Adobe is truly looking to form and/or maintain a partnership with your organization (which I am willing to bet will be mentioned throughout their proposal presentations and discussions) then they should only be interested in selling you a solution. If you are not utilizing all of the products purchased Adobe will be hard pressed to justify their offer as a true solution.
The bottom line is unless you are in the business of negotiating with Adobe, it is impossible to ensure you have asked all the right questions, achieved a competitive discount, negotiated all the proper protections and executed a best-in-class ETLA. Unfortunately, it will be impossible to avoid this significant and potentially painful change by Adobe.
Please do not hesitate to contact me at [email protected] with any feedback or inquiries.