New Avaya pricing sparks cost concerns

Avaya's ongoing move to a user-based pricing model for its IP telephony software and other communications applications is raising concerns among some customers, who say that they face stiff cost increases under the scheme.

Avaya officials said last week that the company began rolling out the new pricing approach last year in order to simplify what had been a complex and inconsistent software licensing model that priced products in different ways.

But an Avaya user who asked not to be identified said he received a price quote in March for an upgrade to Avaya's Communication Manager 3.1 software that would increase his annual license costs almost fivefold, from US$60,000 to about US$290,000. The customer, who uses the Avaya software to support 2,800 phones at two office sites, provided a written copy of the quote to Computerworld.

He said he is hopeful that Avaya will provide some relief on the proposed cost increase. If not, the user added, he will delay the software upgrade and consider switching to a rival vendor, such as Cisco Systems or Alcatel, within the next two years.

The pricing changes were the subject of two boisterous sessions at an independent Avaya user group's annual conference in Orlando two weeks ago, according to attendees and user group officials.

The new pricing scheme "was our most lively topic of discussion," said Renee Seay, CEO of the International Alliance of Avaya Users (InAAU). "Nobody used any four-letter words, but it was a pretty aggressive discussion."

During the sessions, several customers complained about receiving price quotes from Avaya that included steep cost increases, Seay said. She added that the user group asked Avaya to provide within 30 days a more complete explanation of the pricing methodology for the specific quotes that those users received.

"Avaya doesn't see more than a minimal financial impact on our members, and I hope that's true, but InAAU would like to look at the facts," said Seay, who is a vice president at Franklin Resources. If the user group "doesn't get some more good data from Avaya, we will push hard," she said.

Several other Avaya users said they have heard the concerns voiced about the pricing changes and want to get more details from the vendor.

Time Inc. has "some huge upgrades coming, and it's going to be very expensive," predicted Glenn Stephenson, manager of network and telecommunications administration at the publishing unit of Time Warner. For example, Time plans to upgrade to Communication Manager and related hardware, said Stephenson, who is president of the Alabama Avaya Users Group in Birmingham.

Con Griffin, director of solutions development at Avaya, led the sessions at the InAAU conference and said that a total of about 125 users attended, with perhaps a dozen airing complaints in reaction to price quotes. Many of the attendees said they were unaware of the pricing changes, he added.

Griffin said the new pricing model was implemented last year on Avaya's call center products and was then applied to Communication Manager 3.1 -- the company's main IP telephony software -- in February. Avaya's unified messaging software will be brought under the new structure in the next few weeks, he said.

Prices "may" increase at large customer sites, affecting perhaps 10% of Avaya's installed base, Griffin said. But he noted that the company is willing to consider making adjustments for such users.

Shift in focus

The pricing model shifts Avaya's major software products from traditional right-to-use licenses to per-user ones and sets a sliding scale of prices across nine tiers, based on the number of licenses being bought.

One of Avaya's goals is to enable customers to buy products in a consistent way, Griffin said. In the past, some of Avaya's applications were priced based on the number of ports being installed, while the cost of other products was based on the hardware they ran on or the network topology that a customer was using. "It was piecemeal," Griffin said.

Jane Kawamura, chief technology officer for the InAAU and a manager at Hewlett-Packard, said her understanding is that the new strategy also was meant to make Avaya's pricing more software-driven than hardware-driven.

Allan Sulkin, an analyst at TEQConsult Group, said he learned about the pricing changes from Avaya in January and added that the vendor still hasn't sufficiently explained some of the details to him.

The new pricing could significantly lower overall software costs for some customers, according to Sulkin. But overall, he said, the pricing scheme "sounds a lot like a weight-loss plan where the promoters say you'll lose 60 pounds but the average loss is only 8 ounces."

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