Are you confused by software licencing? Do you need clarification on subscription vs perpetual models? Here we compare both options and explain the value of each for your business.
Fifteen years ago, the perpetual licence model was the only way you could buy business software licences. Today, subscription models are becoming more prevalent and, according to Gartner, by 2020 will account for over 80 per cent of licence offerings.
Subscription vs Perpetual
What is a perpetual licence?
A perpetual licence is the ‘traditional’ model used to purchase software. You pay for your software licence up-front and have the right to use it indefinitely. On top of the licence fee, you will have the option to pay for one-off implementation services and a support contract, which is renewed annually.
What is subscription based software?
Subscription-based software relates to a monthly or annual licencing model, allowing users to pay a per user fee. Customers typically pay an initial subscription upfront, and are entitled to use the software only during the subscription term, unlike a perpetual licence, allowing them to use software indefinitely. The subscription payment includes software licences, access to support services and new versions of the software as they are released.
The shift from perpetual to subscription software licenses
The shift towards subscription has been fuelled by the adoption of cloud computing and Software as a Service (SaaS) solutions. Subscription replaces the capital outlay of buying software licenses with ongoing subscription payments making software more affordable.
According to Microsoft, “the benefits of the subscription model are huge. Subscribers are always up-to-date. They get the latest and most complete applications and can use subscriptions across the multitude of devices” – all with minimal upfront risk and minimum capital investment.
How to decide which licencing model is right for you?
Although perpetual licences may be used forever, they have a short lifecycle and within few years eventually become obsolete, due to factors such as supported hardware and companion software. As a result you may need to upgrade periodically to ensure compatibility with other line-of-business applications.
If you continue to use a product which has reached end of life updates, patches and hotfixes are no longer provided. This could expose you to risks, including harmful viruses, spyware and other malicious software which can steal or damage your data.
With a subscription model, upgrades and new features are released in real time and rolled into the monthly price, ensuring no compatibility or obsolescence issues.
With perpetual licences, if you add new staff members you need to buy licences outright – but if a staff member leaves you are stuck with those licences.
The subscription model can make licence management simpler. It provides a degree of flexibility because you only pay for what you use, adding and scaling back licences inline with demand.
With perpetual licences you pay for software upfront and support contracts annually. For larger software deployments the upfront cost can be significant which means capital expenditure (CapEx) is often required.
In comparison, a subscription model offers better affordability with a predictable payment schedule, becoming a part of operational expenditure.
Which is right for you?
If you are debating subscription vs perpetual, there is no right or wrong answer – only what is right for your business. Key considerations:
- Ownership – is it important to you that your licences are owned?
- Cash flow – do you have available cash to fund the software upfront?
- New releases – is it important for you to avail of the latest technology?