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VMware automates volume discounting

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I love when IT vendors simplify things and make them more consistent. Because when they do, that is the surest way to know they have made something more complex for reasons they will never explain to customers.

So it is with VMware's new Volume Pricing Program for its desktop and server virtualization products.

With pricing pressure coming from Microsoft's Hyper-V and Systems Center tools for server virtualization, and Citrix Systems and Red Hat not exactly being passive with their XenServer and Enterprise Virtualization alternatives, VMware is doing everything it can to keep the average selling price of its hypervisors and tools as high as possible. And in its latest quarter, when ASPs were dropping thanks to product mix (and a very healthy uptake of low-cost, entry vSphere 4.0 products), VMware's top brass was bragging about how the salespeople and channel exercised discipline with pricing. But as Microsoft, Citrix, Red Hat and others crank up the pressure, it will get harder to maintain that discipline. So VMware has come up with a new volume purchasing program that basically absolves its salespeople from doing deals - except in special cases, I am sure.

Under the new volume purchasing program announced today, which you can read all about here (pdf), customers earn points depending on what and how much VMware products they buy. Exactly what products earn what points had not been made clear to us as we went to press and is not obvious on the VMware Website or its online store, either. But in an email, Ryan Knauss, senior director of pricing and licensing at VMware said: "Points vary by product but generally, one VPP point equals roughly $100 USD."

Both product licenses and software and subscription services ("SnS" in the VMware lingo) generate points; renewals for support do not. VMware was very clear that there are four different discount levels, where customers who accumulate from 250 to 1,750 points are over a rolling eight quarters are eligible for discounts that range from four to 12 per cent. After eight quarters, the points you have earned get nuked. So don't think you can hold them for long. So, if you want four points off on a deal in the future, you need to spend $25,000 now. If you want twelve points off in the future, you need to spend $175,000 now.

VMware says the discount rates are guaranteed for two years - which is great for the company and perhaps not so much for customers, who expect deeper discounts when times are tough or when they buy lots of stuff all at once. The earned discounts from the volume purchasing program cannot be applied to services, either, which is a bit of a bummer, and may only be applied to new software license acquisitions.

As far as I can tell, the new volume purchasing program is just a way of saying VMware is not going to discount much on software licenses because it thinks it has its feature set and pricing correct and that it is not going to deal at all on support contracts. If this sounds more than a bit like the way Microsoft has approached Windows licensing and support, that is not a coincidence. With heavy-hitting Microsofties - VMware COO Tod Nielsen and his boss, president and CEO Paul Maritz - running VMware, would you expect any different? ®

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