Previously, according to a document on VMware's older Purchasing Programme,
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volume discounts were given to end users at the discretion of the VMware distributor and reseller. "The old programme was channel-based, and we didn't disclose publicly what the [discount] levels were," said Ryan Knauss, VMware's senior director of pricing and licensing.
Now volume pricing tier information is publicly available: a $25,000 to $59,000 purchase receives a 4% discount; a $60,000 to $99,999 purchase, 6%; a $100,000 to $175,000 purchase, 9%; and purchases of more than $175,000, a 12% discount.
Previously, volume discounts were created on a one-year basis according to the value of the initial purchase. For a $25,000 initial purchase under the previous programme, users were entitled to a 4% volume discount on any subsequent purchases that same year. Under the new programme, a subsequent $25,000 purchase would shift the user to the $50,000 volume discount tier of 6%.
The new system's points don't accrue forever -- after two years, points "roll off" an end-user's total. This approach will also put the user, rather than a channel partner, in control of monitoring the accumulation of points through a new Web-based portal. "It's still a programme we execute through the channel, but we're exposing information at a more programmatic level … with new programme materials and customer-facing portals," Knauss said.
Volume discounts for the masses -- making VMware stickier in small environments?
Small and medium-sized businesses are most likely to benefit from the new programme, Knauss acknowledged. In fact, a comparison with the older purchasing programme document shows the new programme makes volume discounts available at a lower level ($25,000) than the previous programme (whose lowest tier was $50,000).
Large enterprises said the new VPP discount levels left them cold. "The levels of discount that they are talking about are pretty unimpressive," said David Grant, a data centre manager for a large telecom.
"Larger enterprises would already have negotiated larger discounts on list prices." Further, the best of the discounts kicks in only at a relatively high level. "It's nice, but with the end-all discount being 12% for $175,000 in new purchases, it's a pretty narrow audience that benefits the most," said Rick Vanover, an IT infrastructure manager at a large Midwestern financial services firm.
Nor will existing VMware deployments benefit much from the new programme at first. "It's unlikely to impact us very much, since I made a long-term purchase decision in 2009. We'd need to see significant growth in our business for me to start worrying about additional license purchases," Grant said. "[This programme is] probably pitched more at those still hesitating in the shallows of virtualisation."
Clearly, this programme has the greatest appeal to small shops that are new to VMware, said Gary Chen, an analyst at IDC. "Any discount is good for a customer that isn't on an enterprise license agreement … and ELAs are only a very small percentage of VMware's customer base," Chen said. "This has a lot more impact for most customers."
VMware's Knauss said the main impetus for the programme was "opportunities for improvement" in VMware's purchasing process, and he emphasised the new programme's goal of simplification. "We want to provide a bit more structure … to help customers around predictability," he said.
The new programme leaves less discounting discretion in the hands of VMware partners, but at least one reseller said he doesn't mind. According to Ron Dupler, the president and CEO of GreenPages Inc., "One of VMware's goals has been to simplify operations for partners and customers. … This is simpler and clearer than the old programme."
Meanwhile, VMware faces pressure from Microsoft at the low end of the market. This new programme also allows for a more gradual (and potentially more pervasive) "start small and grow large" deployment of VMware's products in smaller environments, rather than presenting customers with an immediate choice between a lower initial price and a higher, ongoing volume discount.
"People virtualise in waves: a little here, a little there," Chen said. "The problem is, they've hardly gotten any disount [in the past]. Now [the purchase programme] will remember your purchase history, so you don't have to do it all at one time."
Beth Pariseau is a Senior News Writer for SearchServerVirtualization.com. Write to her at bpariseau@techtarget.com.