The shift to subscription – part 1
As we all already know, perpetual licensing is a type of software licensing that allows you to use the software indefinitely. With perpetual licensing, you pay one fee and then never have to pay again if you want to keep using the software.
Perpetual licenses are typically sold with an annual maintenance fee that includes all support services for the software. The maintenance contract can be renewed each year at an additional cost if you wish to continue receiving support services from your vendor or reseller (e.g., Microsoft).
Subscription-based licensing involves paying a monthly or annual fee in exchange for access to updates and new versions of the product being licensed as they become available over time (e.g., Office 365).
The Benefits of Subscription-Based Licensing
Subscription-based licensing is a great solution for organizations that want to reduce costs and increase flexibility.
Some of the benefits include:
- Cost savings – Subscription-based licensing can significantly reduce your overall cost of ownership because you don’t have to pay for software upgrades or maintenance fees. You simply pay a monthly fee for access to all new software versions you need, making it easier to budget for your IT budget each month.
- Flexibility – With perpetual licenses, once you buy them there’s no going back! If something happens with your business–like an acquisition or merger–you may find yourself stuck with expensive software licenses that aren’t relevant anymore. But with subscription-based models like Software as a Service (SaaS), customers have more flexibility because they can cancel their subscriptions at any time without penalty if their needs change or evolve over time.
The Challenges of Subscription-Based Licensing
While it may seem like a no-brainer, there are some challenges to subscription-based licensing that you should be aware of.
First, there’s the risk of subscription fatigue. If your organization is used to perpetual licensing and then switches over to subscription-based models, it can be difficult for customers to adjust their expectations and understand how much they’ll be paying each month or quarter. This can lead them to question whether they really need this new software as opposed to simply having access to it when needed–and if so, why hasn’t the vendor just given them a perpetual license?
The same issue can arise when it’s time to renew your subscription. As long as customers are paying a fixed price, they’ll likely feel comfortable with what they’re getting. But once that price goes up and they’re no longer used to seeing an increase in their monthly bill or quarterly invoice, they may be surprised at the new cost and seek alternatives. This is especially true if your organization has been using perpetual licenses for years–and has never had to pay anything more than an upfront fee for software.
The Impact of Subscription-Based Licensing on Businesses
Subscription-based licensing is a way to increase agility and speed up your time to market.
The shift from traditional perpetual licensing to subscription-based licensing has many benefits, including:
- Increased agility. Subscription-based licensing allows you to respond quickly with new features, updates and enhancements without having to wait for approval from your IT department or CFO–which can take months! With subscription-based licensing, you simply pay for what you use each month without any upfront costs or long-term commitments. This makes it much easier for businesses of all sizes (from small startups all the way up through Fortune 500 companies) because they don’t have large upfront costs associated with purchasing software licenses before they even know if their business will succeed or not; instead they just pay based on usage each month so there’s no need for large capital expenditures upfront either!
The Impact of Subscription-Based Licensing on the Software Industry
Subscription-based licensing has had a significant impact on the software industry. It has led to increased competition and better product development, which in turn has improved customer relationships.
The shift from traditional perpetual licensing to subscription-based licensing is also having an impact on how companies compete against each other. With this new model, it’s no longer enough for applications simply to be good; they must also be flexible enough that they can adapt quickly when new technologies emerge or customers’ needs change over time. This requires more innovation than ever before–and makes it easier for smaller companies with innovative ideas (or those who are willing to take risks) to enter into the market and compete with larger ones like Microsoft or Oracle without having huge budgets at their disposal.
The Future of Subscription-Based Licensing
The future of subscription-based licensing is bright. It has already become the dominant model for software sales in many industries, including healthcare, manufacturing and finance. As the market continues to grow and more users adopt this new approach to buying software licenses, we expect to see more advanced models emerge that increase customer loyalty while reducing costs for both vendors and customers alike.
Common Subscription-Based Licensing Models
The subscription-based licensing models are the most common models, and they’re all based on a simple premise: you pay for what you use.
Pay-as-you-go (or “pay as you go”) is exactly what it sounds like–you pay for each user or device that accesses your software. Alternatively the subscription based fee can also be based on the number of resources (memory used, number of cores or sockets,…) used.
All-you-can eat (“all you can eat”) plans allow unlimited use within a specified period of time; this allows businesses with fluctuating needs to save money when their usage is low and scale up when there’s more demand on their systems. Subscription pools allow companies with multiple departments that need different licenses (for example, HR needs one type while marketing requires another) to share resources across multiple subscriptions without having to purchase separate licenses for each department or team member individually.
Best Practices for Implementing Subscription-Based Licensing
To ensure a successful adoption of subscription-based licensing, you should:
- Understand customer needs. Customers will have different reasons for adopting subscription-based licensing, so it’s important to understand what motivates them. For example, some customers may want to pay as they go and avoid paying for unused licenses while others want the flexibility of being able to scale up or down their license count based on their changing needs.
- Ensure transparency in pricing models. Customers will be less likely to adopt your solution if they don’t know how much it costs or how much they’ll pay over time–especially if there are hidden fees involved with using your product! Make sure that your pricing model is clear from day one so that customers don’t feel like they’re getting ripped off later on down the road when they realize how much money has been taken out of their pockets (or not).
The shift from traditional perpetual licensing to subscription-based licensing is inevitable, and businesses and consumers alike must prepare for this new reality.
The benefits of subscription-based licensing are clear: it allows users to access the latest software versions without having to purchase an entirely new license every time there’s a new version available. It also provides businesses with greater flexibility in terms of billing, since they can pay as they go rather than committing to large up-front payments every year or two.
Published by Marnix Vrambout
Business Development Manager VMware and Veeam at TD SYNNEX