Software licensing models have had a drastic change over the last decade; specifically, we’ve seen a massive transition from perpetual licensing models to subscription licensing models. Two years ago, Gartner estimated that roughly 80% of software licenses would be on a subscription model by 2020, which is a stark difference from the early 2000s when perpetual licensing was pervasive for most business software.
The main reason for this shift is the rapid adoption of Software as a Service (SaaS) and cloud technology, which is almost always offered on a subscription basis. Why? Because cloud technologies don’t require additional hardware and negate the capital investment that comes with perpetual licensing and ongoing maintenance. But wait, before we go any further, we need to flush out how these licenses are different.
The Difference Between Perpetual and Subscription Licensing
A lot of what defines these two licensing models is in the title: perpetual licensing is a concrete, long-standing commitment between the user and the software provider, whereas subscription licensing has a set duration that the user can define. With the former, a company purchases the license for an upfront cost and has indefinite usage rights. The software provider will generally offer maintenance options, support plans, and upgrades on top of the initial license.
On the other hand, subscription licensing gives a lot more flexibility. Users purchase their licenses for either monthly or annual periods, and they can decide to continue or end their licensing at the end of the period. Depending on how helpful the software was, how widespread adoption was, etc., you can modify your subscription to match your business’s needs. And, the initial subscription will generally come with maintenance and support plans without any additional costs.
Here are some other significant differences:
- Perpetual licenses can often leave businesses with obsolete functionality if they don’t stay on top of upgrades and system updates. Without ongoing upgrades to your software, you run the risk of losing patches, hotfixes, and damaged data. So, while ownership of your license is indefinite, it’s essential to keep up with updates. This is less of a problem with subscription-based licensing because the software updates automatically.
- There’s only a handful of businesses that never have to scale up or scale down to meet the needs of their employees, and with subscription licenses, the needs of your company can be addressed when it comes time to renew. In some cases — for example, the virtual Data Warehousing solution from Snowflake — users only pay for the amount of time the software is being used. For perpetual licenses, this isn’t the case, and unless the company can consistently match their user environment with their licenses, they may run into idle costs.
- Finally, if you make a price comparison between the two, you’ll find that a five-year subscription license will be the same as the initial cost of a perpetual license with five years of maintenance and support. The difference is that one is paid upfront, and the other has five annual payments. While getting started with a subscription licensed software costs less, there is the bonus of owning the license when you opt for perpetual licensing.
When you’re choosing between either licensing models, it boils down to the preferences your organization has regarding licensing and how the software will be used. If owning the license and securing extended support is vital to your team, perpetual is the way to go. If your teams are more concerned with budgeting, scalability, and automatic updates, then subscription licensing will be the one for you.
If you’ve weighed the options and are still having a hard time deciding, then reach out to the Software Licensing Pros for help! We’re well-versed in all licensing types and models, and we’re more than happy to lead your business in the right direction with its business software and licensing needs. Feel free to reach out to us here, and be sure to leave any questions or comments you have about perpetual and subscription licenses in the comment section below.